item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 21 2 exhibits indicates management contract compensatory plan arrangement b reports form 8k company filed report form 8k dated february 20 1997 relating sale 200 million first refunding mortgage bonds signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company date march 24 1997 john b adams jr john b adams jr chairman board directors pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 24 1997 signature title john b adams jr chairman board directors john b adams jr director james f betts james f betts director jean e clary jean e clary director benjamin j lambert iii benjamin j lambert iii director richard l leatherwood richard l leatherwood director harvey l lindsay jr harvey l lindsay jr director j rhodes president chief executive officer j rhodes director william roos william roos director robert h spilman director william g thomas william g thomas director r e rigsby r e rigsby executive vice president e roach jr senior vice presidentfinance e roach jr regulation general counsel chief financial officer bolton jr bolton jr controller principal accounting officer item 14 principal accountant fees services following table presents fees paid deloitte touche llp fiscal years ended december 31 2007 2006 audit fees amounts represent fees deloitte touche audit annual consolidated financial statements review financial statements included quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees auditrelated fees consist assurance related services reasonably related performance audit review consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations audits employee benefit plans due diligence related mergers acquisitions investments accounting consultations application generally accepted accounting principles proposed transactions board adopted preapproval policy independent auditor’s services fees delegated dominion’s audit committee authority preapprove independent auditor services accordance policy december 2007 dominion’s audit committee approved independent auditor’s services fees 2008 part iv item 15 item 14 principal accountant fees services dominion information concerning principal accountant fees services contained heading auditorsfees preapproval policy 2015 proxy statement incorporated reference virginia power dominion gas following table presents fees paid deloitte touche llp services related virginia power dominion gas fiscal years ended december 31 2014 2013 audit fees represent fees deloitte touche llp audit virginia power’s dominion gas’ annual consolidated financial statements review financial statements included virginia power’s dominion gas’ quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s dominion gas’ consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power’s dominion gas’ boards directors adopted dominion audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion audit committee accordance delegation year dominion audit committee preapproves schedule details services provided following year estimated charge services january 2015 meeting dominion audit committee approved virginia power’s dominion gas’ schedules services fees 2015 accordance preapproval policy changes preapproved schedule may preapproved dominion audit committee member dominion audit committee audit fees dominion gas presented year ended december 31 2014 professional services rendered period subsequent dominion gas becoming sec registrant total audit fees auditrelated fees incurred prior dominion gas becoming sec registrant 680 thousand 70 thousand respectively paid dominion part iv item 15 item 14 principal accountant fees services dominion energy information concerning principal accountant fees services contained heading auditor fees preapproval policy 2020 proxy statement incorporated reference virginia power dominion energy gas following table presents fees paid deloitte touche llp services related virginia power dominion energy gas fiscal years ended december 31 2019 2018 audit fees represent fees deloitte touche llp audit virginia power dominion energy gas’ annual consolidated financial statements review financial statements included virginia power dominion energy gas’ quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power dominion energy gas’ consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power dominion energy gas’ boards directors adopted dominion energy audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion energy audit committee accordance delegation year dominion energy audit committee preapproves schedule details services provided following year estimated charge services december 2019 meeting dominion energy audit committee approved schedules services fees 2020 inclusive virginia power dominion energy gas accordance preapproval policy changes preapproved schedule may preapproved dominion energy audit committee delegated member dominion energy audit committee part iv item 15 item 14 principal accountant fees services following table presents fees paid deloitte touche llp fiscal years ended december 31 2008 2007 audit fees amounts represent fees deloitte touche audit annual consolidated financial statements review financial statements included quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees auditrelated fees consist assurance related services reasonably related performance audit review consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations audits employee benefit plans due diligence related mergers acquisitions investments accounting consultations application generally accepted accounting principles proposed transactions board adopted preapproval policy independent auditor’s services fees delegated dominion’s audit committee authority preapprove independent auditor services accordance policy december 2008 dominion’s audit committee approved independent auditor’s schedule services estimated fees 2009 part iv item 15 item 14 principal accountant fees services following table presents fees paid deloitte touche llp fiscal year ended december 31 2003 2002 audit fees audit review company’s financial statements accordance generally accepted auditing standards including comfort letters statutory regulatory audits consents services related sec matters auditrelated fees assurance related services related audit review company’s financial statements including employee benefit plan audits due diligence services financial accounting reporting consultation 2003 board adopted preapproval policy deloitte touche services fees attached policy schedule details services provided estimated range fees charged services december 2003 dominion’s audit committee approved services fees 2004 part iv item 15 item 14 principal accountant fees services dominion energy information concerning principal accountant fees services contained heading auditrelated mattersauditor fees preapproval policy 2021 proxy statement incorporated reference virginia power following table presents fees paid deloitte touche llp services related virginia power fiscal years ended december 31 2020 2019 audit fees represent fees deloitte touche llp audit virginia power’s annual consolidated financial statements review financial statements included virginia power’s quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power’s board directors adopted dominion energy audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion energy audit committee accordance delegation year dominion energy audit committee preapproves schedule details services provided following year estimated charge services december 2020 meeting dominion energy audit committee approved schedules services fees 2021 inclusive virginia power accordance preapproval policy changes preapproved schedule may preapproved dominion energy audit committee delegated member dominion energy audit committee part iv item 15 item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 35 2 financial statement schedules omitted applicable required information shown financial statements notes thereto 3 exhibits 31 restated articles incorporation amended effect may 6 1999 exhibit 31 form 10q period ended march 31 1999 file 12255 incorporated reference 32 bylaws amended effect april 28 2000 exhibit 3 form 10 q period ended march 31 2000 file 12255 incorporated reference 41 see exhibit 3 42 indenture mortgage company dated november 1 1935 supplemented modified fiftyeight supplemental indentures exhibit 4ii form 10k fiscal year ended december 31 1985 file 12255 incorporated reference sixtyseventh supplemental indenture exhibit 4i form 8k dated april 2 1991 file 1 2255 incorporated reference seventieth supplemental indenture exhibit 4iii form 8k dated february 25 1992 file 12255 incorporated reference seventyfirst supplemental indenture exhibit 4i seventysecond supplemental indenture exhibit 4ii form 8k dated july 7 1992 file 12255 incorporated reference seventythird supplemental indenture exhibit 4i form 8 k dated august 6 1992 file 12255 incorporated reference seventyfourth supplemental indenture exhibit 4i form 8k dated february 10 1993 file 12255 incorporated reference seventyfifth supplemental indenture exhibit 4i form 8k dated april 6 1993 file 12255 incorporated reference seventy sixth supplemental indenture exhibit 4i form 8k dated april 21 1993 file 12255 incorporated reference seventyseventh supplemental indenture exhibit 4i form 8k dated june 8 1993 file 12255 incorporated reference seventyeighth supplemental indenture exhibit 4i form 8k dated august 10 1993 file 12255 incorporated reference seventyninth supplemental indenture exhibit 4i form 8k dated august 10 1993 file 1 2255 incorporated reference eightieth supplemental indenture exhibit 4i form 8k dated october 12 1993 file 1 2255 incorporated reference eightyfirst supplemental indenture exhibit 4iii form 10k fiscal year ended december 31 1993 file 12255 incorporated reference eightysecond supplemental indenture exhibit 4i form 8k dated january 18 1994 file 1 2255 incorporated reference eightythird supplemental indenture exhibit 4i form 8k dated october 19 1994 file 12255 incorporated reference eightyfourth supplemental indenture exhibit 4i form 8k dated march 22 1995 file 12255 incorporated reference eightyfifth supplemental indenture exhibit 4i form 8k dated february 20 1997 file 12255 incorporated reference 43 indenture dated june 1 1986 virginia electric power company chase manhattan bank formerly chemical bank exhibit 4v form 10k fiscal year ended december 31 1993 file 12255 incorporated reference 44 indenture dated april 1 1988 virginia electric power company chase manhattan bank formerly chemical bank supplemented modified first supplemental indenture dated august 1 1989 exhibit 4vi form 10k fiscal year ended december 31 1993 file 12255 incorporated reference second supplemental indenture exhibit 42 form s3 dated april 13 1999 file 33376155 incorporated reference 45 subordinated note indenture dated august 1 1995 virginia electric power company chase manhattan bank formerly chemical bank trustee supplemented exhibit 4a form s3 registration statement file 33320561 filed january 28 1997 incorporated reference 46 form senior indenture dated june 1 1998 supplemented first supplemental indenture exhibit 42 form 8k dated june 12 1998 file 12255 incorporated reference second supplemental indenture exhibit 42 form 8k dated june 3 1999 file 12255 incorporated reference third supplemental indenture exhibit 42 form 8k dated october 27 1999 file 1 2255 incorporated reference 47 virginia electric power company agrees furnish commission upon request instrument respect long term debt total amount securities authorized thereunder exceed 10 percent virginia electric power companys total assets 101 amended restated interconnection operating agreement dated july 29 1997 virginia electric power company old dominion electric cooperative exhibit 103 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 102 credit agreement dated june 7 1996 chase manhattan bank formerly chemical bank virginia electric power company exhibit 10i form 10q period ended june 30 1996 file 12255 incorporated reference credit agreement dated june 7 1996 chase manhattan bank virginia electric power company amended restated june 4 1999 exhibit 102 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 103 description arrangements certain officers regarding additional credited years service retirement purposes exhibit 10 xii form 10k fiscal year ended december 31 1992 file 1 2255 incorporated reference 104 dominion resources inc executive supplemental retirement plan effective january 1 1981 amended restated september 1 1996 first amendment dated june 20 1997 second amendment dated march 3 1998 exhibit 1014 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 105 dominion resources incs cash incentive plan adopted december 20 1991 exhibit 10 xxv form 10k fiscal year ended december 31 1994 file 12255 incorporated reference 106 dominion resources inc retirement benefit funding plan effective june 29 1990 amended restated september 1 1996 exhibit 1016 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 107 dominion resources inc retirement benefit restoration plan adopted effective january 1 1991 amended restated september 1 1996 exhibit 1017 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 108 dominion resources inc executives deferred compensation plan effective january 1 1994 amended restated january 1 1997 exhibit 10 xix form 10k fiscal year ended december 31 1996 file 12255 incorporated reference 109 employment agreement dated september 15 1995 virginia power robert e rigsby exhibit 10 xxii form 10k fiscal year ended december 31 1996 file 12255 incorporated reference 1010 dominion resources inc incentive compensation plan effective april 22 1997 exhibit 1023 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference amended restated effective april 16 1999 exhibit 101 form 10q period ended june 30 1999 file 12255 incorporated reference 1011 form employment agreement dated march 16 1998 virginia power certain executive officers exhibit 101 form 10q period ended march 31 1998 file 12255 incorporated reference material respect particular employment agreements differ base salary set forth therein 1012 employment agreement dated september 12 1997 dominion thomas f farrell ii exhibit 1024 form 10k fiscal year ended december 31 1998 file 12255 incorporated reference 1013 form employment continuity agreement certain officers company including thomas f farrell ii edgar roach jr james p ohanlon exhibit 102 form 10q period ended june 30 1999 file 12255 incorporated reference 1014 form amendment employment agreement certain officers including robert e rigsby james p ohanlon exhibit 103 form 10q period ended june 30 1999 file 12255 incorporated reference 1015 employment agreement dated september 12 1997 dominion edgar roach jr exhibit 10xxxiv form 10k fiscal year ended december 31 1997 file 18489 incorporated reference 1016 services agreement dominion resources services inc virginia electric power company dated january 1 2000 exhibit 1019 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 1017 support agreement dominion resources services inc virginia electric power company effective january 1 2000 exhibit 1020 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 1018 alliance agreement establishing alliance independent transmission system operator inc alliance transmission company inc alliance transmission company llc dated may 27 1999 exhibit 1021 form 10k fiscal year ended december 31 1999 file 1 2255 incorporated reference 1019 dominion resources inc leadership stock option plan effective july 1 2000 exhibit 10ii form 10q quarter ended june 30 2000 file 18489 incorporated reference 1020 employment agreement dated august 1 1999 virginia electric power company filed herewith 18 letter change accounting principles exhibit 18 form 10q period ended september 30 2000 file 12255 incorporated reference 231 consent mcguire woods battle boothe llp filed herewith 232 consent jackson kelly filed herewith 233 consent deloitte touche llp filed herewith indicates management contract compensatory plan arrangement b reports form 8k company filed report form 8k dated november 16 2000 relating agreement principle environmental protection agency environmental improvements companys coalfired generating stations virginia west virginia independent auditors report board directors virginia electric power company richmond virginia audited consolidated financial statements virginia electric power company wholly owned subsidiary dominion resources inc subsidiaries company december 31 2000 1999 three years period ended december 31 2000 issued report thereon dated january 25 200l report included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 14 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp richmond virginia january 25 200l virginia electric power company schedule iivaluation qualifying accounts represents net amounts charged uncollectible b amounts net adjustments allowances reflecting changes estimates c represents payments workforce reductions restructuring activities signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thos e capps thos e capps chairman board directors pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated day march 16 2001 item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 21 2 exhibits indicates management contract compensatory plan arrangement b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company date march 12 1996 john b adams jr john b adams jr chairman board directors pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 12 1996 item 14 principal accountant fees services dominion information concerning principal accountant fees services contained heading auditorsfees preapproval policy 2014 proxy statement incorporated reference virginia power following table presents fees paid deloitte touche llp fiscal years ended december 31 2013 2012 audit fees represent fees deloitte touche llp audit virginia power’s annual consolidated financial statements review financial statements included virginia power’s quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statutes regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power’s board directors adopted dominion audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion audit committee accordance delegation year dominion audit committee preapproves schedule details services provided following year estimated charge services december 2013 meeting dominion audit committee approved virginia power’s schedule services fees 2014 accordance preapproval policy changes preapproved schedule may preapproved dominion audit committee member dominion audit committee part iv item 15 item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 21 2 exhibits indicates management contract compensatory plan arrangement b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company date march 20 1998 thos e capps thos e capps chairman board directors pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 20 1998 item 14 principal accountant fees services following table presents fees paid deloitte touche llp fiscal years ended december 31 2004 2003 audit fees audit review company’s financial statements accordance generally accepted auditing standards including comfort letters statutory regulatory audits consents services related sec matters auditrelated fees assurance related services related audit review company’s financial statements including employee benefit plan audits due diligence services financial accounting reporting consultation tax fees reflect settlement outstanding arrangements related tax planning assistance 2003 board adopted preapproval policy deloitte touche services fees attached policy schedule details services provided estimated range fees charged services december 2004 january 2005 dominion’s audit committee approved services fees 2005 2004 page 62 part iv item 15 item 14 principal accountant fees services dominion information concerning principal accounting fees services contained heading fees preapproval policy 2010 proxy statement incorporated reference virginia power following table presents fees paid deloitte touche llp fiscal years ended december 31 2009 2008 audit fees represent fees deloitte touche audit virginia power’s annual consolidated financial statements review financial statements included virginia power’s quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations audits virginia power’s employee benefit plans due diligence related mergers acquisitions investments accounting consultations application generally accepted accounting principles proposed transactions virginia power’s board adopted dominion’s audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion’s audit committee dri audit committee accordance delegation year dri audit committee preapproves schedule details services provided following year estimated charge services december 2009 meeting dri audit committee approved virginia power’s schedule services fees 2010 accordance preapproval policy changes preapproved schedule may preapproved dri audit committee member committee part iv item 15 item 14 controls procedures senior management including chief executive officers chief financial officer evaluated effectiveness company’s disclosure controls procedures within 90 days date report based evaluation process chief executive officer chief financial officer concluded company’s disclosure controls procedures effective since evaluation process completed significant changes internal controls factors could significantly affect controls part iv item 15 item 14 principal accountant fees services dominion information concerning principal accountant fees services contained heading auditor fees preapproval policy 2017 proxy statement incorporated reference virginia power dominion gas following table presents fees paid deloitte touche llp services related virginia power dominion gas fiscal years ended december 31 2016 2015 audit fees represent fees deloitte touche llp audit virginia power’s dominion gas’ annual consolidated financial statements review financial statements included virginia power’s dominion gas’ quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s dominion gas’ consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power’s dominion gas’ boards directors adopted dominion audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion audit committee accordance delegation year dominion audit committee preapproves schedule details services provided following year estimated charge services january 2017 meeting dominion audit committee approved virginia power’s dominion gas’ schedules services fees 2017 accordance preapproval policy changes preapproved schedule may preapproved dominion audit committee delegated member dominion audit committee part iv item 15 item 14 principal accountant fees services dominion energy information concerning principal accountant fees services contained heading auditor fees preapproval policy 2019 proxy statement incorporated reference virginia power dominion energy gas following table presents fees paid deloitte touche llp services related virginia power dominion energy gas fiscal years ended december 31 2018 2017 audit fees represent fees deloitte touche llp audit virginia power dominion energy gas’ annual consolidated financial statements review financial statements included virginia power dominion energy gas’ quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power dominion energy gas’ consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power dominion energy gas’ boards directors adopted dominion energy audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion energy audit committee accordance delegation year dominion energy audit committee preapproves schedule details services provided following year estimated charge services february 2019 meeting dominion energy audit committee approved schedules services fees 2019 inclusive virginia power dominion energy gas accordance preapproval policy changes preapproved schedule may preapproved dominion energy audit committee delegated member dominion energy audit committee part iv item 15 item 14 principal accountant fees services following table presents fees paid deloitte touche llp fiscal years ended december 31 2005 2004 audit fees audit review financial statements accordance generally accepted auditing standards including comfort letters statutory regulatory audits consents services related sec matters auditrelated fees assurance related services related audit review financial statements including employee benefit plan audits due diligence services financial accounting reporting consultation tax fees reflect settlement outstanding arrangements related tax planning assistance 2003 board adopted preapproval policy deloitte touche llp services fees attached policy schedule details services provided estimated range fees charged services december 2005 dominion’s audit committee approved services fees 2006 part iv item 15 item 14 principal accountant fees services dominion information concerning principal accountant fees services contained heading auditorsfees preapproval policy 2012 proxy statement incorporated reference virginia power following table presents fees paid deloitte touche llp fiscal years ended december 31 2011 2010 audit fees represent fees deloitte touche llp audit virginia power’s annual consolidated financial statements review financial statements included virginia power’s quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power’s board directors adopted dominion audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion audit committee accordance delegation year dominion audit committee preapproves schedule details services provided following year estimated charge services december 2011 january 2012 meetings dominion audit committee approved virginia power’s schedule services fees 2012 accordance preapproval policy changes preapproved schedule may preapproved dominion audit committee member dominion audit committee part iv item 15 item 14 principal accountant fees services dominion information concerning principal accountant fees services contained heading auditorsfees preapproval policy 2013 proxy statement incorporated reference virginia power following table presents fees paid deloitte touche llp fiscal years ended december 31 2012 2011 audit fees represent fees deloitte touche llp audit virginia power’s annual consolidated financial statements review financial statements included virginia power’s quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec virginia power’s board directors adopted dominion audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion audit committee accordance delegation year dominion audit committee preapproves schedule details services provided following year estimated charge services december 2012 meeting dominion audit committee approved virginia power’s schedule services fees 2013 accordance preapproval policy changes preapproved schedule may preapproved dominion audit committee member dominion audit committee part iv item 15 item 14 principal accountant fees services following table presents fees paid deloitte touche llp fiscal years ended december 31 2006 2005 audit fees audit review financial statements accordance generally accepted auditing standards including comfort letters statutory regulatory audits consents services related sec matters auditrelated fees assurance related services related audit review financial statements including employee benefit plan audits due diligence services financial accounting reporting consultation tax fees reflect settlement outstanding arrangements related tax planning assistance board adopted preapproval policy deloitte touche llp services fees attached policy schedule details services provided estimated range fees charged services december 2006 dominion’s audit committee approved services fees 2007 part iv item 15 item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 2 financial statement schedules omitted applicable required information shown financial statements notes thereto 3 exhibits 31 restated articles incorporation amended effect may 6 1999 exhibit 31 form 10q period ended march 31 1999 file 12255 incorporated reference amended december 12 2001 december 18 2001 filed herewith 32 bylaws amended effect april 28 2000 exhibit 3 form 10q period ended march 31 2000 file 12255 incorporated reference 41 see exhibit 3 42 indenture mortgage company dated november 1 1935 supplemented modified fiftyeight supplemental indentures exhibit 4ii form 10k fiscal year ended december 31 1985 file 12255 incorporated reference sixtyseventh supplemental indenture exhibit 4i form 8k dated april 2 1991 file 12255 incorporated reference seventieth supplemental indenture exhibit 4iii form 8k dated february 25 1992 file 12255 incorporated reference seventyfirst supplemental indenture exhibit 4i seventysecond supplemental indenture exhibit 4ii form 8k dated july 7 1992 file 12255 incorporated reference seventythird supplemental indenture exhibit 4i form 8k dated august 6 1992 file 12255 incorporated reference seventyfourth supplemental indenture exhibit 4i form 8k dated february 10 1993 file 12255 incorporated reference seventyfifth supplemental indenture exhibit 4i form 8k dated april 6 1993 file 12255 incorporated reference seventysixth supplemental indenture exhibit 4i form 8k dated april 21 1993 file 12255 incorporated reference seventyseventh supplemental indenture exhibit 4i form 8k dated june 8 1993 file 12255 incorporated reference seventyeighth supplemental indenture exhibit 4i form 8k dated august 10 1993 file 12255 incorporated reference seventyninth supplemental indenture exhibit 4i form 8k dated august 10 1993 file 12255 incorporated reference eightieth supplemental indenture exhibit 4i form 8k dated october 12 1993 file 1 2255 incorporated reference eightyfirst supplemental indenture exhibit 4iii form 10k fiscal year ended december 31 1993 file 12255 incorporated reference eightysecond supplemental indenture exhibit 4i form 8k dated january 18 1994 file 12255 incorporated reference eightythird supplemental indenture exhibit 4i form 8k dated october 19 1994 file 12255 incorporated reference eightyfourth supplemental indenture exhibit 4i form 8k dated march 22 1995 file 12255 incorporated reference eightyfifth supplemental indenture exhibit 4i form 8k dated february 20 1997 file 12255 incorporated reference 43 indenture dated june 1 1986 virginia electric power company jp morgan chase bank formerly chase manhattan bank chemical bank exhibit 4v form 10k fiscal year ended december 31 1993 file 12255 incorporated reference 44 indenture dated april 1 1988 virginia electric power company jp morgan chase bank formerly chase manhattan bank chemical bank supplemented modified first supplemental indenture dated august 1 1989 exhibit 4vi form 10k fiscal year ended december 31 1993 file 12255 incorporated reference second supplemental indenture exhibit 42 form s3 dated april 13 1999 file 33376155 incorporated reference 45 subordinated note indenture dated august 1 1995 virginia electric power company jp morgan chase bank formerly chase manhattan bank chemical bank trustee supplemented exhibit 4a form s3 registration statement file 33320561 filed january 28 1997 incorporated reference 46 form senior indenture dated june 1 1998 virginia electric power company jp morgan chase bank formerly chase manhattan bank supplemented first supplemental indenture exhibit 42 form 8k dated june 12 1998 file 12255 incorporated reference second supplemental indenture exhibit 42 form 8k dated june 3 1999 file no12255 incorporated reference third supplemental indenture exhibit 42 form 8k dated october 27 1999 file 1 2255 incorporated reference form fourth supplemental indenture exhibit 42 form 8k dated march 22 2001 file 12255 incorporated reference form fifth supplemental indenture exhibit 43 form 8k dated march 22 2001 file 12255 incorporated reference form sixth supplemental indenture exhibit 42 form 8k dated january 24 2002 incorporated reference 47 virginia electric power company agrees furnish commission upon request instrument respect long term debt total amount securities authorized thereunder exceed 10 percent virginia electric power company’s total assets 101 amended restated interconnection operating agreement dated july 29 1997 virginia electric power company old dominion electric cooperative exhibit 103 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 102 services agreement dominion resources services inc virginia electric power company dated january 1 2000 exhibit 1019 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 103 support agreement dominion resources services inc virginia electric power company effective january 1 2000 exhibit 1020 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 104 alliance agreement establishing alliance independent transmission system operator inc alliance transmission company inc alliance transmission company llc dated may 27 1999 exhibit 1021 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 105 description arrangements certain officers regarding additional credited years service retirement purposes exhibit 10 xii form 10k fiscal year ended december 31 1992 file 12255 incorporated reference 106 dominion resources inc executive supplemental retirement plan effective january 1 1981 amended restated september 1 1996 amendment dated june 20 1997 amendment dated march 3 1998 exhibit 1014 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference amendment dated november 26 2001 filed herewith 107 dominion resources inc’s cash incentive plan adopted december 20 1991 exhibit 10 xxv form 10k fiscal year ended december 31 1994 file 12255 incorporated reference 108 dominion resources inc retirement benefit funding plan effective june 29 1990 amended restated september 1 1996 exhibit 1016 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 109 dominion resources inc retirement benefit restoration plan adopted effective january 1 1991 amended restated september 1 1996 exhibit 1017 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference amendment dated november 26 2001 filed herewith 1010 dominion resources inc executives’ deferred compensation plan effective january 1 1994 amended restated effective december 1 2001 filed herewith 1011 dominion resources inc incentive compensation plan effective april 22 1997 amended restated effective july 20 2001 exhibit 101 form 10q quarter ended june 30 2001 file 18489 incorporated reference 1012 employment agreement dated september 15 1995 virginia power robert e rigsby exhibit 10 xxii form 10k fiscal year ended december 31 1996 file 12255 incorporated reference clarification letter dated may 27 1997 filed herewith 1013 form employment agreement dated march 16 1998 virginia power certain executive officers exhibit 101 form 10q period ended march 31 1998 file 12255 incorporated reference material respect particular employment agreements differ base salary set forth therein 1014 employment agreement dated september 12 1997 dominion thomas f farrell ii exhibit 1024 form 10k fiscal year ended december 31 1998 file 12255 incorporated reference expired september 12 2000 except section 5c 1015 form employment continuity agreement certain officers company including messrs roach farrell christian o’hanlon staton rivas rigsby exhibit 102 form 10q period ended june 30 1999 file 12255 incorporated reference amended october 19 2001 filed herewith 1016 employment agreement dated september 12 1997 dominion edgar roach jr exhibit 10xxxiv form 10k fiscal year ended december 31 1997 file 18489 incorporated reference expired september 12 2000 except section 5c 1017 dominion resources inc leadership stock option plan effective july 1 2000 amended restated effective july 20 2001 exhibit 102 form 10q quarter ended june 30 2001 file 18489 incorporated reference 1018 dominion resources inc executive stock purchase tool kit effective september 1 2001 exhibit 101 form 10q quarter ended september 30 2001 file 18489 incorporated reference 1019 form executive supplemental retirement plan lifetime benefits certain officers company including messrs roach farrell rigsby filed herewith 1020 supplemental agreement dated december 12 2000 company thomas f farrell ii filed herewith 1021 supplemental agreement dated december 12 2000 company edgar roach jr filed herewith 1022 offer employment dated may 26 1989 company james p ohanlon amended september 18 1997 filed herewith 1023 retirement agreement dated november 16 2000 robert e rigsby filed herewith 1024 employment agreement dated august 1 2000 company jimmy staton filed herewith 1025 supplemental retirement agreement dated december 12 2000 company david christian filed herewith 18 letter change accounting principles exhibit 18 form 10q period ended september 30 2000 file 12255 incorporated reference 231 consent mcguirewoods llp filed herewith 232 consent jackson kelly filed herewith 233 consent deloitte touche llp filed herewith indicates management contract compensatory plan arrangement b reports form 8k 1 company filed report form 8k dated january 18 2002 relating virginia commission’s order functional separation 2 company filed report form 8k dated january 29 2002 relating dominion’s press release announcing unaudited results operations fiscal year ended december 31 2001 independent auditors’ report board directors virginia electric power company richmond virginia audited consolidated financial statements virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries company december 31 2001 2000 three years period ended december 31 2001 issued report thereon dated january 22 2002 report includes explanatory paragraph change accounting principle derivative instruments hedging activities 2001 change method accounting used develop marketrelated value pension plan assets 2000 consolidated financial statements report included elsewhere form 10k audits also included consolidated financial statement schedule virginia electric power company subsidiaries listed item 14 consolidated financial statement schedule responsibility company’s management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp richmond virginia january 22 virginia electric power company schedule iivaluation qualifying accounts represents net amounts charged uncollectible b represents adjustments reflecting changes estimates c represents payments workforce reductions andor restructuring liabilities signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date march 11 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 11th day march 2002 name position thos e capps thos e capps chairman board directors edgar roach jr edgar roach jr president chief executive officer director thomas f farrell ii thomas f farrell ii chief executive officer director g scott hetzer g scott hetzer senior vice president treasurer principal financial officer steven rogers steven rogers vice president principal accounting officer item 14 principal accountant fees services dominion information concerning principal accountant fees services contained heading auditor fees preapproval policy 2016 proxy statement incorporated reference virginia power dominion gas following table presents fees paid deloitte touche llp services related virginia power dominion gas fiscal years ended december 31 2015 2014 audit fees represent fees deloitte touche llp audit virginia power’s dominion gas’ annual consolidated financial statements review financial statements included virginia power’s dominion gas’ quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s dominion gas’ consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power’s dominion gas’ boards directors adopted dominion audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion audit committee accordance delegation year dominion audit committee preapproves schedule details services provided following year estimated charge services january 2016 meeting dominion audit committee approved virginia power’s dominion gas’ schedules services fees 2016 accordance preapproval policy changes preapproved schedule may preapproved dominion audit committee member dominion audit committee fees dominion gas presented year ended december 31 2014 professional services rendered period subsequent dominion gas becoming sec registrant total audit fees auditrelated fees incurred prior dominion gas becoming sec registrant 680 thousand 70 thousand respectively paid dominion part iv item 15 item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 19 2 exhibits indicates management contract compensatory plan arrangement b reports form 8k virginia power filed report form 8k dated december 5 1994 reporting release staff virginia state corporation commission staff report filed december 1 1994 entitled staff investigation corporate relationships affiliate arrangements financial diversification issues dominion resources inc virginia power virginia power filed report form 8k dated february 21 1995 reporting entry consent order virginia state corporation commission joint motion dominion resources virginia power staff withdrawal delegate clinton miller certain legislation introduced delegate miller 1995 virginia general assembly request commission signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company date march 8 1995 john b adams jr john b adams jr chairman board directors pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities march 8 1995 item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 21 2 exhibits indicates management contract compensatory plan arrangement b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company date thos e capps chairman board directors pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 31 2 exhibits indicates management contract compensatory plan arrangement b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company date thos e capps thos e capps chairman board directors pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated day march 7 2000 bolton jr principal accounting officer item 14 principal accountant fees services dominion energy information concerning principal accountant fees services contained heading auditor fees preapproval policy 2018 proxy statement incorporated reference virginia power dominion energy gas following table presents fees paid deloitte touche llp services related virginia power dominion energy gas fiscal years ended december 31 2017 2016 audit fees represent fees deloitte touche llp audit virginia power dominion energy gas’ annual consolidated financial statements review financial statements included virginia power dominion energy gas’ quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power dominion energy gas’ consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power dominion energy gas’ boards directors adopted dominion energy audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion energy audit committee accordance delegation year dominion energy audit committee preapproves schedule details services provided following year estimated charge services january 2018 meeting dominion energy audit committee approved virginia power dominion energy gas’ schedules services fees 2018 accordance preapproval policy changes preapproved schedule may preapproved dominion energy audit committee delegated member dominion energy audit committee part iv item 15 item 14 principal accountant fees services dominion information concerning principal accounting fees services contained heading fees preapproval policy 2011 proxy statement incorporated reference virginia power following table presents fees paid deloitte touche llp fiscal years ended december 31 2010 2009 audit fees represent fees deloitte touche llp audit virginia power’s annual consolidated financial statements review financial statements included virginia power’s quarterly form 10q reports services independent auditor would customarily provide connection subsidiary audits statutory requirements regulatory filings similar engagements fiscal year comfort letters attest services consents assistance review documents filed sec auditrelated fees consist assurance related services reasonably related performance audit review virginia power’s consolidated financial statements internal control financial reporting category may include fees related performance audits attest services required statute regulations due diligence related mergers acquisitions investments accounting consultations application gaap proposed transactions virginia power’s board adopted dominion’s audit committee preapproval policy independent auditor’s services fees delegated execution policy dominion’s audit committee dri audit committee accordance delegation year dri audit committee preapproves schedule details services provided following year estimated charge services december 2010 meeting dri audit committee approved virginia power’s schedule services fees 2011 accordance preapproval policy changes preapproved schedule may preapproved dri audit committee member committee part iv item 15 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contains forwardlooking statements defined private securities litigation reform act 1995 including without limitation discussions expectations beliefs plans objectives future financial performance assumptions underlying concerning matters discussed document discussions including certain contingency matters respective cautionary statements discussed elsewhere report historical facts forwardlooking accordingly involve estimates projections goals forecasts assumptions uncertainties could cause actual results outcomes differ materially expressed forwardlooking statements important factors could cause actual results outcomes differ materially discussed forwardlooking statements include current governmental policies regulatory actions including ferc epa nrc virginia commission industry rate structure operation nuclear power facilities acquisition disposal assets facilities operation storage facilities recovery cost purchased power nuclear decommissioning costs present prospective wholesale retail competition business profitability virginia power also influenced economic geographic factors including political economic risks changes compliance environmental laws policies weather conditions catastrophic weatherrelated damage competition retail wholesale customers pricing transportation commodities market demand energy inflation capital market conditions unanticipated changes operating expenses capital expenditures competition new energy development opportunities legal administrative proceedings factors difficult predict contain uncertainties may materially affect actual results may beyond control virginia power new factors emerge time possible management predict factors assess impact factor business company forwardlooking statement speaks date statement made virginia power undertakes obligation update forwardlooking statement statements reflect events circumstances date statement made liquidity capital resources cash flow operating activities accounted average 75 companys cash requirements past three years completion 882 mw coalfired power station near clover virginia company period internal cash generation exceed construction expenditures internal generation cash 1996 1995 1994 provided 143 119 88 respectively funds required companys capital requirements net cash provided operating activities decreased 101 million 1996 compared 1995 primarily result normal operations net cash provided operating activities increased 1071 million 1995 compared 1994 primarily result increased sales partially offset number factors resulting normal operations cash financing activities follows 1996 company issued 245 million variable rate solid waste disposal securities refund 245 million securities assumed acquisition north branch power station also 1996 company retired total 2596 million mediumterm notes mandatory maturities june 1996 company increased limit commercial paper program 300 million 500 million execution 500 million revolving credit facilities replaced existing liquidity support proceeds sale commercial paper primarily used finance working capital operations net borrowings commercial paper program 3124 million december 31 1996 january 1997 company filed registration statement securities exchange commission 400 million junior subordinated debentures december 31 1996 company two additional shelf registration statements debt securities registered securities exchange commission one 575 million first refunding mortgage bonds 200 million mediumterm notes series f february 1997 company issued 200 million first refunding mortgage bonds proceeds primarily used refund portion companys debt matured february march 1997 three shelf registrations combine provide company 975 million unused debt capital resources addition company preferred stock shelf registered securities exchange commission 100 million aggregate principal amount utilized company intends issue securities time meet capital requirements cash used investing activities follows investing activities 1996 resulted net cash outflow 5464 million primarily due 3938 million construction expenditures 902 million nuclear fuel expenditures construction expenditures included approximately 786 million production projects 2446 million transmission distribution projects 171 million new generating facilities capital requirements company presently anticipates kilowatthour sales grow approximately 24 percent year 2011 hoosier 400 mw aep 500 mw longterm purchase agreements expire december 31 1999 scheduled termination 900 mw longterm purchases continued system load growth company presently anticipates adding 1200 mw shortterm threeyear purchases beginning year 2000 company pursue capacity acquisition plans provide capacity maintain high degree service reliability capacity may owned operated others sold company may built company determines build capacity lower overall cost companys construction nuclear fuel expenditures excluding afc 1997 1998 1999 expected aggregate 5292 million 5392 million 3970 million respectively clover unit 2 part twounit facility jointly owned odec began commercial operation march 1996 companys fifty percent ownership share cost construction completed cost 235 million company require 3113 million meet longterm debt maturities 1997 company presently estimates 1997 construction expenditures including nuclear fuel expenditures met cash flow operations capital requirements met combination sales securities shortterm borrowings results operations following discussion results operations years ended 1996 compared 1995 compared 1994 1996 compared 1995 balance available common stock increased 331 million compared 1995 primarily result increase operating revenues reduction maintenance expenses primarily attributable companys vision 2000 initiatives decline restructuring costs offset part higher storm damage costs incurred destructive summer storms increased depreciation expense related nuclear decommissioning clover units 1 2 began operations october 1995 march 1996 respectively operating revenues changed primarily due following detailed chart decrease retail revenues reflects reduction fuel rate revenues reduction base revenues due effect mild summer weather 1996 companys summer retail rates designed reflect expected usage normal weather conditions offset part continued customer growth 1996 increased sales resale primarily result companys marketing efforts 1996 offset decrease sales odec due completion clover units 1 2 odec owns 50 percent interest operating revenues increased primarily result revenues generated companys nonregulated subsidiary ac enercom inc formed january 1996 provide marketing program planning design customer engineering energy consulting services 1996 company 44528 new connections system compared 44955 46741 1995 1994 respectively customer kilowatthour sales changed follows cooling heating degree days follows increase retail kilowatthour sales 1996 compared 1995 reflects continued customer growth increase kilowatthour sales resale primarily due companys power marketing efforts average fuel cost system energy output shown system energy output shown excludes odecs 116 percent ownership interest north anna power station companys four nuclear units operated combined capacity factor 882 1996 company record excludes odecs 50 percent ownership interest clover power station fuel net decreased compared 1995 primarily result higher recovery fuel expenses subject deferral accounting 1995 offset part increased purchases energy wholesale power suppliers maintenance decreased compared 1995 primarily result reduction expenses attributable companys vision 2000 initiatives offset part higher storm damage costs incurred destructive summer storms including hurricane fran restructuring charges incurred part vision 2000 program see note p consolidated financial statements decreased compared 1995 primarily result 373 million charge 1995 cancellation project construct facility handle low level radioactive waste companys north anna power station 1995 writedown inventory certain real estate partially offset reserve recorded 1996 expected adjustments regulatory assets company recorded 916 million 1179 million restructuring charges 1996 1995 respectively restructuring charges included severance costs purchased power contract restructuring negotiated settlement costs capital project cancellation costs company estimates staffing reductions result annual savings net outsourcing costs range 62 million 90 million realized savings staffing reductions reflected lower construction expenditures well lower operation maintenance expenses company may incur additional charges staffing reductions 1997 amounts expected significant incurrence restructuring charges savings resulting therefrom subsequent periods elements companys cost operations considered cost service information filed company response virginia commissions order issued november 12 1996 see regulation virginia commission item 1 business additional information current rate proceedings increasingly competitive environment company also concluded appropriate utilize available savings cost reductions generated vision 2000 program accelerate writeoff existing unamortized regulatory assets strategically position company anticipation competition also reflects companys commitment mitigate exposure potentially stranded costs see competition december 31 1996 company identified savings 267 million used establish reserve expected adjustments regulatory assets part reengineering operations company adopted plan improve customer service require investment excess 100 million next several years plan includes installation automated electric meters metropolitan inaccessible rural urban locations plan also provides installation mobile data dispatch technology companys service fleet accompanied digitized mapping companys service territory furthermore technological changes made enhance companys ability handle customer calls power outages order increase service reliability company initiated local regional distribution line improvement projects depreciation amortization increased compared 1995 primarily result greater nuclear decommissioning expense depreciation related clover units 1 2 placed service october 1995 march 1996 respectively 1995 compared 1994 operating revenues increased compared 1994 primarily result weather ie increased heating cooling degree days experienced last six months 1995 customer growth increased sales resale operating expenses maintenance decreased compared 1994 expenses 1994 included payroll voluntary separation costs employees elected terminate service company 1994 early retirement voluntary separation programs offset part recognition insurance policyholder distributions expenses 1995 reflected decrease payroll costs due reduced staffing levels weatherrelated overtime offset 1995 salary increases impact employees reassigned capital operation maintenance activities addition 1995 expenses include expenses associated north branch power station increased obsolete inventory costs increased accruals employee benefits increased nuclear outage costs restructuring company announced implementation phase vision 2000 program march 1995 company recorded 1179 million restructuring charges included severance costs purchase power contract cancellation negotiated settlement costs capital project cancellation costs interest charges interest longterm debt increased compared 1994 primarily result higher interest rates first refunding mortgage bonds pollution control notes interest charges increased 1995 primarily result reduction 106 million interest accrued prior years certain tax obligations 1994 future issues utility rate regulation regulatory policy continues fundamental importance company financial performance november 12 1996 virginia commission instituted proceeding directed company provide certain information including alternative form regulation proposed company time march 31 1997 march 7 1997 proceeding separate annual information filing proceeding virginia commission entered order providing companys rates shall become interim rates subject refund march 1 1997 additional information current rate proceedings see regulation item 1 business environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations company costs historically recovered ratemaking process however material costs incurred recovered rates companys results operations financial condition could adversely impacted environmental protection monitoring expenditures company incurred 711 million 683 million 673 million including depreciation 1996 1995 1994 respectively connection use environmental protection facilities expects expenses approximately 715 million 1997 addition capital expenditures limit monitor hazardous substances 224 million 234 million 473 million 1996 1995 1994 respectively amount estimated 1997 expenditures 143 million clean air act compliance clean air act amended 1990 requires company reduce emissions sulfur dioxide so2 nitrogen oxides nox beginning 1995 so2 reduction program based issuance limited number so2 emission allowances may used permit emit one ton so2 atmosphere may sold someone else program administered epa company installed so2 control equipment unit 3 mt storm power station so2 control equipment began operation october 31 1994 cost related equipment 147 million additional plans so2 control involve switching lower sulfur coal purchase emmission allowances additional so2 controls maximum flexibility leastcost compliance maintained annual studies company completed compliance plan nox control exception additional studies concerning phase ii clean air act epa issued final regulations december 1996 ozone control requirements final regulations yet promulgated 1996 company installed nox controls possum point unit 4 cost 4 million mt storm unit 3 cost 6 million company plans install additional nox controls modify existing controls mt storm units 1 2 1997 seek alternative emission limitations epa three mt storm units company notified epa decision called early election begin complying phase nox limits ten units virginia 1997 three years earlier otherwise required result units subject stringent phase ii limits 2008 order assist virginia department environmental quality maintaining good air quality richmond hampton roads regions avoid necessity stringent regulations company made voluntary commitments 1996 cap nox emissions chesterfield yorktown power stations chesapeake energy center beginning 2000 capital expenditures clean air act compliance next five years projected approximately 21 million changes regulatory environment availability allowances emissions control technology could substantially impact timing magnitude compliance expenditures clean air act amendments also require company obtain operating permits major emissionsemitting facilities permit applications submitted deemed complete regulatory authorities mt storm north branch power stations applications virginia stations expected filed within next two years global climate change 1993 united nations framework convention climate change also called global warming treaty signed 150 countries including united states became effective objective treaty stabilization greenhouse gas concentrations level would prevent manmade emissions interfering climate system although considerable scientific disagreement concerning effects greenhouse gas emissions global climate united states many nations supporting international treaty finalized december 1997 containing legally binding emissions targets achieved 2010 2020 reduction greenhouse gas emissions necessary achieve targets likely substantial financial impact companies consume produce fossil fuel derived electric power including virginia power electromagnetic fields possibility exposure electromagnetic fields emanating power lines household appliances electric sources may result adverse health effects subject increased public governmental media attention considerable amount scientific research conducted topic without definitive results research continuing resolve scientific uncertainties soon tell impact actions may companys financial condition nuclear operations nrc revised nuclear power plant license renewal rules issued 1991 company intends work industry groups license renewal programs apply renewal current 40year licenses information nuclear decommissioning see note c consolidated financial statements risk management policy january 1997 company adopted formal risk management policy primary purpose policy ensure companys risk management activities 1 support advancement companys strategic business plan 2 properly manage mitigate business financial risks company implementation strategies respect trading contracting tactics order coordinate effective management companys physical assets 3 manage total risk profile company including physical financial risk positions utilizing portfolio approach nymex futures nymex exchange options overthecounter otc swaps otc options permitted financial instruments utilized natural gas oil products electric power coal markets use derivatives financial instruments underlyings also permitted subject review approval individual transaction basis risk management policy strictly prohibits undertaking activities purely speculative purposes company past used swaps options derivative instruments hedge business financial risks activity material competition general number developments united states causing trend toward less regulation competition electric utility industry evidenced legislative regulatory action federal state levels extent competition either authorized mandated regulation eliminated relaxed electric utilities longer absence appropriate legislative regulatory action transition period guaranteed opportunity recover prudentlyincurred costs including cost capital utilities costs exceed market prices established competitive market run risk suffering losses may substantial virginia power responded trends undertaking costcutting measures engaging reengineering efforts core business processes pursuing strategic planning initiative called vision 2000 encourage innovative approaches servicing traditional markets develop appropriate methods service future markets company established separate business units nuclear operations fossil hydroelectric operations commercial operations energy services business created subsidiary provide nuclear management operation services electric utilities seeking assistance management operation nuclear generating facilities acquired operating business ac enercom inc provider marketing program planning design customer engineering energy consulting services seeking approval engage telecommunications business planning stages creating additional subsidiaries engage unregulated businesses also taking regulatory legislative initiatives designed enhance likelihood transition competition orderly one company prevented recovering prudentlyincurred costs investments addition virginia power actively pursuing opportunities expand markets strategic alliances partners whose strengths market position strategies complement companys efficiencies gained alliance significant part companys strategy relies developing nontraditional business opportunities designed provide growth earnings energy services business unit prominent example growth strategy energy services business unit expected contribute earnings growth offering market portfolio energy related products services examples opportunities include fossil hydro business unit company target process type industries chemical paper plastics petroleum become service provider instrumentation equipment nuclear business unit whose position industry leader offers opportunities provide services nuclear utilities striving improve safety operating records commercial operations business unit provide power distribution related services finally telecommunications act 1996 opened opportunities generate growth use existing telecommunications infrastructure provide telecommunications services new energy services companys existing fiberoptic network virginia power organized wholesale power group engage offsystem wholesale purchases sales group developing trading relationships beyond geographic limits virginia powers retail service territory company also successful negotiation wholesale requirements contracts multiyear provisions notice termination service longterm contract large federal government customers service facilities within companys service territory obtained regulatory approval innovative pricing proposals industrial loads although rate concessions necessary cases date company experienced material loss load reduction 1997 revenues attributable rate concessions expected approximate 22 million competition wholesale competition wholesale level mandated energy policy act ferc regulations thereunder 1996 sales wholesale customers represented approximately 8 percent companys total revenues electric sales approximately 4 percent wholesale revenues resulted companys power marketing efforts make offsystem sales ferc established requirements open transmission access related matters final rules issued april 24 1996 order 888 order 889 enables suppliers power displace electric service provided utility wholesale customers served utilitys transmission system unless customers required contract take service utility orders required utilities file ferc open access transmission tariff virginia power july 9 1996 require utilities take transmission service tariff wholesale power sales provide utilities recover legitimate prudent verifiable costs would unrecoverable competitive market stranded costs require utilities participate open access sametime information system oasis require separation transmission operations reliability functions wholesale merchant marketing functions ferc also issued notice proposed rulemaking proposing replacement open access tariffs capacity reservation tariff december 31 1997 march 4 1997 ferc issued order 888a addressed requests rehearing order 888 order 888a essentially reaffirms basic principles order 888 clarifies makes limited modifications order 888 parties seeking judicial review order nos 888 888a must file petition review appropriate united states court appeal may 5 1997 august 15 1996 pursuant provisions interconnection operating agreement odec virginia power odec gave written notice intent reduce supplemental demand purchases agreement zero within nine years 1997 supplemental demand charges relating transmission distribution continue case expected 63 million november 19 1996 company odec reached principles agreement providing virginia power continue supply odecs supplemental capacity needs 2005 rather declining amounts 1999 prior agreements principles agreement companys recovery fixed charges reduced time supplemental capacity rates transition fullyembedded costs marketbased pricing company estimates reduced rates offset part revenues may earned agreement decrease income taxes approximately 38 million 2005 competition retail general retail competition presently authorized virginia north carolina result virginia power faces competition retail sales ability certain business customers relocate among utility service territories substitute energy sources electric power generate electricity major customers principally industrial suppliers power advocating retail competition vigorously congress virginia north carolina legislatures commissions legislation either authorize require retail competition consideration present congress joint subcommittee virginia senate house delegates considering whether competition allowed required legislation pending north carolina general assembly would establish study commission determine whether legislation necessary ensure adequate reliable economical electric service light current trends industry virginia power advocating cautious measured approach question retail competition 1996 initiated legislation enacted virginia general assembly became effective july 1 1996 authorizes virginia commission approve alternative forms regulation economic development rates packages incentive rates facilitates regulated utilitys ability enter joint ventures partnerships authorizes virginia commission determine treatment stranded costs service federal customer accounts otherwise outside commissions ratemaking jurisdiction establishes local referendum must held municipalization utility services may occur services previously provided utility authorizes virginia commission determine stranded cost payments utility property condemned municipality corporation possessing power eminent domain company also obtained regulatory approval innovative pricing proposals industrial loads virginia north carolina entered energy partnership key industrial customer virginia commission taking active interest retail competition electric utility industry restructuring might accompany competition instituted generic investigation industry restructuring competition separate proceeding specifically involving virginia power company proposed case alternative regulatory plan intended facilitate orderly transition competition allowed including full recovery potentially stranded costs companys case filed commission march 24 1997 proposes freeze present rates december 31 2002 portion earnings approved level would used accelerate writeoff generationrelated regulatory assets mitigate costs associated payments power purchase contracts nonutility generators proposed plan approved company would commit writeoff 494 million regulatory assets potentially stranded costs fiveyear rate freeze period however company believes current rates requested remain effect would sufficient permit recognition costs without adversely impacting results operations fiveyear period company also seeks approval principle stranded cost recovery well approval transition cost charge mechanism costs may become stranded onset competition recoverable customers elect purchase power competitive market retail competition allowed virginia commission established procedural schedule companys case detailed description virginia commission proceedings see regulation item 1 business competition sfas 71 virginia powers regulated rates designed recover prudently incurred costs providing service including opportunity earn reasonable return shareholders investment companys financial statements reflect assets costs costbased rate regulation accordance statement financial accounting standards 71 sfas 71 accounting effects certain types regulation provides certain expenses normally reflected income deferred balance sheet regulatory assets recognized related amounts included rates recovered customers continued accounting sfas 71 requires rates designed recover utilitys specific costs providing service continue established regulators presence increasing competition limits utilitys ability charge rates recover costs change method regulation effect could result discontinued applicability sfas 71 rateregulated companies required write regulatory assets earnings whenever assets longer meet criteria recognition defined sfas 71 addition sfas 121 accounting impairment longlived assets longlived assets disposed requires review longlived assets impairment whenever events changes circumstances used determine continued applicability sfas 71 indicate carrying amount asset may recoverable virginia powers operations currently satisfy sfas 71 criteria however events circumstances change criteria longer satisfied management believes material adverse effect companys results operations financial position may result light changes predicted electric utility industry however company continue monitoring regulatory operations light sfas 71 requirements competition exposure potentially stranded costs traditional costbased regulation utilities generally obligation serve supported implicit promise opportunity recover prudently incurred costs significant potential adverse effect competition stranded costs stranded costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market regulatory assets recognized sfas 71 unrecovered investment power plants commitments longterm purchased power contracts nuclear decommissioning costs items may become stranded costs prices electric services determined market rather based cost providing service companys potential exposure stranded costs comprised longterm purchased power contracts may market costs pertaining certain generating plants may become uneconomic deregulated environment regulatory assets items income tax benefits previously flowedthrough customers deferred losses reacquired debt costs see note g consolidated financial statements addition unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements could contribute companys exposure potentially stranded costs see notes c consolidated financial statements forecast potentially stranded costs inextricably tied assumptions made time analysis including timing open access customer choice market electric service extent open access permitted potential prices competitive market sales load growth forecasts future operating performance rate revenues permitted transition cost structure time mitigation opportunities stranded cost recovery mechanisms calculation potentially stranded costs extremely sensitive various assumptions made certain combinations assumptions applied virginia power would produce little stranded costs scenarios virginia powers exposure potentially stranded costs could substantial virginia power presently assessing reasonableness various possible assumptions able settle particular combination thereof thus virginia powers maximum exposure potentially stranded costs uncertain extent costs recoverable customers virginia power believes recovery costs appropriate vigorously pursue recovery potentially stranded costs regulatory commissions jurisdiction operations continue implement costreduction measures effort mitigate amount risk presently virginia power expects continue operate regulation recover cost providing traditional electric service however form costbased rate regulation virginia power operates likely evolve result various legislative regulatory initiatives including virginia powers alternative regulatory plan filed virginia commission march 24 1997 time virginia power management predict neither ultimate outcome regulatory reform electric utility industry impact changes would virginia power item 8 item 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations mda discusses results operations general financial condition virginia electric power company mda read conjunction consolidated financial statements item 8 financial statements supplementary data terms “virginia power” “company” “we” “our” “us” used throughout report depending context use may represent following legal entity virginia electric power company one virginia electric power company’s consolidated subsidiaries operating segments entirety virginia electric power company consolidated subsidiaries common stock owned parent company dominion resources inc dominion contents mda consists following information  forwardlooking statements  introduction  accounting matters  results operations  segment results operations  liquidity capital resources  future issues matters forwardlooking statements report contains statements concerning expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “target” similar words make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events including hurricanes winter storms cause outages property damage facilities  state federal legislative regulatory developments changes environmental laws regulations including related climate change subject  cost environmental compliance including costs related climate change  risks associated operation nuclear facilities  fluctuations energyrelated commodity prices effect could earnings liquidity position underlying value assets  changes federal state tax laws regulations  capital market conditions including price risk due marketable securities held investments nuclear decommissioning trusts  fluctuations interest rates  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  inability complete planned construction projects within terms time frames initially anticipated  changes rules regional transmission organizations rtos participate including changes rate designs new evolving capacity models  political economic conditions including threat domestic terrorism inflation deflation additionally risks could cause actual results differ predicted results set forth item 1a risk factors forwardlooking statements based beliefs assumptions using information available time statements made caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results undertake obligation update forwardlooking statement reflect developments occurring statement made introduction virginia electric power company virginia public service company regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina serve approximately 24 million retail customer accounts including governmental agencies well wholesale customers rural electric cooperatives municipalities prior fourth quarter segment realignment managed daily operations three primary operating segments delivery energy generation fourth quarter 2007 realigned business units began managing daily operations two primary operating segments dominion virginia power dvp generation also report corporate segment includes corporate functions manage daily operations operating segments assets remain whollyowned us legal subsidiaries contributions net income primary operating segments determined based measure profit believe represents segments’ core earnings result certain specific items attributable segments included profit measures evaluated management assessing segment performance allocating resources among segments specific items reported corporate segment dvp includes regulated electric transmission distribution operations virginia northeastern north carolina management’s discussion analysis financial condition results operations continued well customer service operations electric transmission distribution operations serve residential commercial industrial governmental customers revenue provided electric transmission operations based primarily rates approved federal energy regulatory commission ferc profitability business dependent ability rates permitted charge recover costs earn reasonable return capital investments variability results changes rates demand services primarily weather dependent operating maintenance expenditures member pjm interconnection llc pjm rto electric transmission facilities integrated pjm wholesale electricity markets consistent increased authority given north american electric reliability corporation nerc energy policy act 2005 committed meeting nerc standards modernizing infrastructure maintaining superior system reliability continue focus safety operational performance execution pjm’s regional transmission expansion plan rtep move toward future revenue provided electric distribution operations based primarily rates established state regulatory authorities state law actual revenues driven primarily weather customer growth usage per customer operationally electric distribution continues focus improving service levels striving reduce costs link capital investments operational results part continued focus implemented asset management process ensure optimizing investments balance cost performance risk also using technology enhance customer service options move toward future safety operational performance customer relationships remain key focal areas transmission distribution operations seeing continued strong growth new customers increased usage per customer weathernormalized basis growth particularly strong major metropolitan areas virginia combination higher energy usage efficient operations maintenance spending critical performance operationally continue enhance customer experience solid reliability performance completing automation electric residential meters generation includes portfolio electric generating facilities power purchase agreements energy supply operations generation mix diversified includes coal nuclear gas oil renewables purchased power electric generation operations serve customers virginia northeastern north carolina generation facilities located virginia west virginia north carolina energy supply operations responsible managing energy capacity needs utility system generation’s earnings primarily result generation sale electricity due 1999 virginia deregulation legislation amended 2004 2007 revenues serving virginia jurisdictional retail load based capped rates 2008 additionally fuel costs including purchased power subject fixed rate recovery provisions july 1 2007 pursuant 2007 amendments fuel cost recovery statute annual fuel rate adjustments deferred fuel accounting underrecoveries fuel costs instituted beginning july 1 2007 virginia jurisdictional customers discussed status electric regulation virginia future issues matters virginia general assembly enacted legislation april 2007 returned virginia jurisdiction generation operations modified costofservice rate model subject rate caps effect december 31 2008 remainder capped rate period changes utility operating costs relative costs used establish capped rates likely impact earnings variability earnings also results changes demand primarily dependent weather cost labor benefits timing duration costs outages corporate includes corporate functions specific items attributable primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments including net impact virginia power energy marketing inc vpem prior transfer dominion december 31 2005 completed transfer indirect whollyowned subsidiary vpem dominion series dividend distributions exchange capital contribution vpem provides fuel risk management services us acting agent one indirect whollyowned subsidiaries vpem also engages energy trading activities provides price risk management services dominion affiliates use derivative contracts owned vpem certain derivative contracts required reported fair value consolidated balance sheets changes fair value reflected earnings price risk management activities dominion affiliates generated derivative gains losses turn affected consolidated financial statements result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation accounting matters critical accounting policies estimates identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions discussed development selection disclosure policies board directors also serves audit committee accounting regulated operations accounting regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets amortized expense regulatory liabilities amortized income period authorized regulator discussed note 2 consolidated financial statements april 2007 virginia general assembly passed legislation returns virginia jurisdiction utility generation operations costofservice rate regulation result reapplied provisions statement financial accounting standards sfas 71 accounting effects certain types regulation sfas 71 operations april 4 2007 date legislation enacted reapplication sfas 71 virginia jurisdiction generation operations resulted 259 million 158 million tax extraordinary charge reclassification 195 million 119 million tax unrealized gains accumulated comprehensive income aoci related nuclear decommissioning trust funds established 454 million longterm regulatory liability amounts previously collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning utility nuclear generation stations excess amounts recorded pursuant sfas 143 accounting asset retirement obligations connection reapplication sfas 71 prospectively changed certain accounting policies virginia jurisdiction generation operations used costofservice rateregulated entities extraordinary item previously discussed overall impact changes material results operations financial condition 2007 evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made currently believe recovery regulatory assets probable see notes 2 12 consolidated financial statements asset retirement obligations recognize liabilities expected cost retiring tangible longlived assets legal obligation exists asset retirement obligations aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates aros currently reported consolidated balance sheets measured period historically low interest rates impact measurements new aros remeasurements existing aros using different rates future may significant revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset accrete aro liability reflect passage time 2007 2006 2005 recognized 38 million 40 million 44 million respectively accretion expect incur 38 million 2008 upon reapplication sfas 71 virginia jurisdiction generation operations began recording accretion depreciation associated nuclear decommissioning aros formerly charged expense adjustment regulatory liability nuclear decommissioning trust funds previously discussed order match recognition ratemaking purposes significant portion aros relates future decommissioning nuclear facilities december 31 2007 nuclear decommissioning aros reported generation segment totaled 637 million representing approximately 94 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated nuclear decommissioning obligations utilize periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants obtained updated cost studies nuclear plants 2006 reflected increases base year costs cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition cost estimates include cost escalation rates applied base year costs selection cost escalation rates dependent subjective factors consider critical assumption determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facilities use alternative rates could material liabilities recognized example increased cost escalation rate 05 amount recognized december 31 2007 aros related nuclear decommissioning would 117 million higher revenue recognitionunbilled revenue recognize record revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amounts electric energy delivered customers yet billed estimated recorded unbilled revenue estimate reversed following month actual revenue recorded based meter readings customer receivables included 270 million 233 million accrued unbilled revenue december 31 2007 2006 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage management’s discussion analysis financial condition results operations continued applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes generation patterns customer usage patterns meter accuracy factors basis estimates unbilled revenues could significant effect calculation therefore results operations financial condition income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material prior 2007 established liabilities taxrelated contingencies believed probable liability incurred amount could reasonably estimated accordance sfas 5 accounting contingencies subsequently reviewed light changing facts circumstances however discussed note 3 consolidated financial statements effective january 1 2007 adopted financial accounting standards board interpretation 48 accounting uncertainty income taxes fin 48 taking consideration uncertainty judgment involved determination filing income taxes fin 48 establishes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information take expect take tax return position recognized financial statements disclose amount unrecognized tax benefit december 31 2007 195 million unrecognized tax benefits majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes evaluate quarterly probability realizing deferred tax assets reviewing forecast future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets establish valuation allowance likely portion deferred tax asset realized december 31 2007 valuation allowances deferred tax assets accounting standards 2007 2006 2005 required adopt several new accounting standards discussed note 3 consolidated financial statements see note 4 consolidated financial statements discussion recently issued accounting standards adopted future results operations presented summary consolidated results overview vs 2006 net income decreased 6 448 million unfavorable drivers include extraordinary charge connection reapplication sfas 71 virginia jurisdiction generation operations increase outage costs primarily due increase number scheduled outage days certain electric generating facilities decrease gains sales emissions allowances favorable drivers include increase regulated electric sales resulting favorable weather customer growth factors lower fuel expense due reinstatement annual fuel rate adjustments effective july 1 2007 virginia jurisdiction generation operations deferred fuel accounting underrecoveries fuel costs 2006 vs 2005 net income increased 478 million favorable drivers include absence 471 million aftertax losses incurred 2005 discontinued operations vpem absence 2005 charge resulting termination longterm power purchase agreement results also positively impacted decreased consumption fossil fuel due milder weather increase gains realized sale emissions allowances unfavorable drivers include decrease regulated electric sales resulting milder weather factors reduced benefit financial transmission rights ftrs excess congestion costs major storm damage service restoration costs associated tropical storm ernesto september 2006 analysis consolidated operations presented selected amounts related results operations analysis results operations 2007 compared 2006 compared 2005 follows 2007 vs 2006 operating revenue increased 10 62 billion reflecting combined effects  166 million increase due impact comparatively higher fuel rate certain customer jurisdictions  162 million increase sales retail customers attributable variations rates resulting changes sales mix factors 95 million new customer connections 67 million primarily residential commercial customer classes  131 million increase sales retail customers due increase number heating cooling degree days compared prior year experienced 15 increase cooling degree days 10 increase heating degree days  80 million increase sales wholesale customers  42 million increase resulting primarily higher ancillary service revenue reflecting higher regulation operating reserves revenue received pjm operating expenses items electric fuel energy purchases expense increased 4 25 billion underlying fuel costs including subject deferral accounting increased approximately 501 million due higher consumption fossil fuel purchased power resulting increase number heating cooling degree days higher commodity costs change generation mix increase largely offset 408 million decrease primarily due deferral fuel expenses excess current period fuel rate recovery purchased electric capacity expense decreased 5 429 million primarily due scheduled capacity reductions certain longterm power purchase contracts energyrelated commodity purchases expense decreased 52 27 million primarily reflecting decrease nonutility coal activities substantially exited operations maintenance expense increased 25 13 billion primarily reflecting  74 million increase outage costs related scheduled outages certain generating facilities  54 million decrease gains sale emissions allowances held consumption  40 million increase due higher salaries wages 42 million incentivebased compensation 30 million partially offset decrease pension postretirement benefits expense 32 million  34 million increase related services provided dominion resources services inc drs affiliate provides accounting legal certain administrative technical services us  31 million increase primarily due inclusion certain ftr proceeds electric fuel energy purchases expense beginning july 1 2007 result reapplication deferred fuel accounting virginia jurisdiction ftr proceeds used offset congestion costs associated pjm spot market activity incurred generation operations  23 million increase related outside services tree trimming brush removal expenses partially offset  16 million decrease expenses major storms service restoration associated distribution operations depreciation amortization expense increased 6 568 million due incremental expense resulting property additions change depreciation rates generation assets reflect results new depreciation study increased amortization expense associated emissions allowances held consumption taxes increased 6 173 million primarily due recognition increased property taxes 2007 reflecting changes tax rates assessed valuations income decreased 27 55 million resulting primarily recognition decommissioning trust earnings regulatory liability due reapplication sfas 71 virginia jurisdiction generation operations extraordinary item reflects 158 million aftertax charge connection reapplication sfas 71 virginia jurisdiction generation operations management’s discussion analysis financial condition results operations continued 2006 vs 2005 operating revenue decreased 2 56 billion reflecting combined effects  218 million decrease associated milder weather compared prior year experienced 9 decline cooling degree days 16 decline heating degree days  53 million decrease sales wholesale customers primarily resulting milder weather partially offset  81 million increase due new customer connections primarily residential commercial customer classes  56 million increase attributable rate variations resulting changes customer usage patterns sales mix factors  18 million increase ancillary service revenue pjm  13 million increase due collection new virginia sales use tax surcharge customers  9 million increase primarily due impact comparatively higher fuel rate certain customer jurisdictions offset comparable increase electric fuel energy purchases expense operating expenses items electric fuel energy purchases expense decreased 7 24 billion primarily due lower commodity prices including purchased power decreased consumption fossil fuel reflecting effects milder weather demand partially offset increase purchased power volumes purchased electric capacity expense decreased 5 453 million primarily due scheduled capacity reductions certain longterm power purchase contracts well termination longterm power purchase agreement connection purchase related generating facility february 2005 energyrelated commodity purchases expense increased 65 56 million primarily reflecting increase nonutility coal purchased resale operations maintenance expense increased 9 10 billion primarily reflecting  41 million increase due reduced benefit ftrs granted pjm used offset congestion costs associated pjm spot market activity included electric fuel energy purchases expense  29 million increase related major storm damage service restoration costs associated distribution operations including costs resulting tropical storm ernesto september 2006  15 million increase resulting higher salaries wages pension medical benefits expense  12 million increase outage costs primarily due increase number scheduled outages certain electric generating facilities  9 million increase due amortization regulatory asset associated amounts subject collection virginia sales use tax surcharge net credits resulting additions regulatory asset period  7 million increase related services provided drs  7 million charge resulting writeoff certain assets longer use one electric generating facilities  4 million increase pjm ancillary service charges partially offset  20 million increase gains sale emissions allowances held consumption  net benefit absence following items recognized 2005  77 million charge resulting termination longterm power purchase agreement partially offset  25 million net benefit resulting establishment certain regulatory assets connection settlement north carolina rate case interest related charges decreased 8 296 million primarily reflecting absence prepayment penalties resulting early redemption debt 2005 partially offset additional borrowings higher interest rates variable rate debt loss discontinued operations reflects absence losses incurred discontinued operations vpem prior disposition december 2005 outlook believe operating businesses provide stable growth net income 2008 following growth factors impact expected results  full year deferred fuel accounting virginia jurisdiction fuel costs compared six months 2007  decrease outage costs reflecting decrease number scheduled outage days certain electric generating facilities  continued growth utility customers growth factors 2008 expected partially offset  potential decrease regulated electric sales compared 2007 assuming utility service territory experiences return normal weather 2008  increase depreciation expense attributable implementation revised depreciation rates generation assets resulting new depreciation study fourth quarter 2007 segment results operations presented summary contributions operating segments net income dvp presented operating statistics related dvp operations mwhrs megawatt hours 1 includes electricity delivered retail choice program virginia jurisdictional electric customers 2 cooling degree days cdds units measuring extent average daily temperature greater 65 degrees cdds calculated difference average temperature day 65 degrees 3 heating degree days hdds units measuring extent average temperature less 65 degrees hdds calculated difference average temperature 65 degrees 4 thirteenmonth average thousands presented aftertax basis key factors impacting dvp’s net income contribution 2007 vs 2006 1 primarily resulting absence 2007 expenses associated tropical storm ernesto september 2006 vs 2005 1 reflects increase major storm damage service restoration expenses including expenses associated tropical storm ernesto september 2006 generation presented operating statistics related generation operations presented aftertax basis key factors impacting generation’s net income contribution 2007 vs 2006 1 primarily reflects reapplication deferred fuel accounting effective july 1 2007 benefit partially offset increased consumption fossil fuel higher purchased power costs first six months 2007 2 primarily reflects increase scheduled outage costs certain nuclear fossil units 2006 vs 2005 1 primarily reflects reduced benefit ftrs excess congestion costs management’s discussion analysis financial condition results operations continued corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate includes specific items attributable primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 consolidated financial statements discussion items liquidity capital resources depend internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2007 20 billion unused capacity joint credit facility see discussion joint credit facilities shortterm debt summary cash flows presented operating cash flows 2007 net cash provided operating activities increased 136 million compared 2006 primarily due reduction income taxes paid believe operations provide stable source cash flow contribute planned levels capital expenditures provide dividends dominion however operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk exposure potential concentrations credit risk results primarily sales wholesale customers presented summary gross exposure december 31 2007 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral however held collateral transactions december 31 2007 1 designations investment grade based minimum credit ratings assigned moody’s investors service moody’s standard poor’s ratings services division mcgrawhill companies inc standard poor’s five largest counterparty exposures combined category represented approximately 40 total gross credit exposure 2 five largest counterparty exposures combined category represented approximately 8 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 51 total gross credit exposure investing cash flows 2007 net cash used investing activities increased 346 million compared 2006 reflects increase capital expenditures reduction proceeds sale emissions allowances held consumption financing cash flows liquidity rely banks capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory approvals including authorization virginia state corporation commission virginia commission december 2005 securities exchange commission sec adopted rules currently govern registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital rules meet definition wellknown seasoned issuer allows us use automatic shelf registration statement register offering securities business combination transactions 2007 net cash provided financing activities 121 million compared net cash used financing activities 156 million 2006 change reflects net increase borrowings joint credit facilities shortterm debt use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing level borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations shortterm financing supported 30 billion fiveyear joint revolving credit facility dominion dated february 2006 scheduled terminate february 2011 credit facility used working capital support combined commercial paper programs dominion us general corporate purposes credit facility also used support 15 billion letters credit financial policy precludes issuing commercial paper excess supporting lines credit december 31 2007 total commercial paper outstanding supported joint credit facility 757 million borrowings 257 million total amount letter credit issuances 229 million less 8 million issued behalf leaving approximately 20 billion available issuance longterm debt 2007 issued following longterm debt proceeds used general corporate purposes including repayment shortterm debt january 2008 borrowed 30 million connection economic development authority city chesapeake pollution control refunding revenue bonds series 2008 mature 2032 bear coupon rate 36 proceeds used refund principal amount industrial development authority city chesapeake money market municipals pollution control revenue series 1985 would otherwise matured february 2008 november 2007 borrowed 14 million connection economic development authority county chesterfield’s issuance solid waste sewage disposal revenue bonds series 2007 mature 2031 bear coupon rate 560 bonds issued pursuant trust agreement whereby funds withdrawn trust improvements made chesterfield power station located chester virginia withdrawn less 1 million trust december 31 2007 repaid 13 billion longterm debt securities borrowings parent ability borrow funds dominion shortterm longterm borrowing arrangements december 31 2007 nonregulated subsidiaries outstanding borrowings net repayments dominion money pool 114 million december 2007 recorded contributed capital 220 million reflecting conversion 220 million note payable dominion equity shortterm longterm demand note borrowings december 31 2007 credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related us may affect ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing credit ratings credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies “event risk” applicable credit ratings parent company dominion credit ratings february 1 2008 follow february 1 2008 fitch ratings ltd fitch moody’s standard poor’s maintain stable outlook ratings company december 2007 standard poor’s raised corporate credit rating company ‘a’ ‘bbb’ reflect lower risk profile standard poor’s also affirmed ‘a2’ commercial paper rating generally downgrade credit rating would restrict ability raise shortterm longterm financing long credit rating remains “investment grade” would increase cost borrowing work closely fitch moody’s standard poor’s objective maintaining current credit ratings order maintain current ratings may find necessary modify business plans changes may adversely affect growth debt covenants part borrowing funds issuing debt shortterm longterm preferred securities must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock dominion including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity management’s discussion analysis financial condition results operations continued holders provisions customary agreement specifying covenants apply provisions necessarily unique us typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens required pay minimal annual commitment fees maintain joint credit facility addition joint credit agreement contains various terms conditions could affect ability borrow funds facility include maximum debt total capital ratio crossdefault provisions ratio debt total capital defined agreement exceed 65 end fiscal quarter december 31 2007 calculated debt total capital ratio 47 agreement’s crossdefault provisions material subsidiaries fail make payment various debt obligations excess 35 million may required lenders accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds us however defaults indebtedness dominion material subsidiaries dominion would affect lenders’ commitment us joint credit agreement monitor covenants regular basis order ensure events default occur december 31 2007 events default covenants dividend restrictions virginia commission may prohibit public service company declaring paying dividend affiliate found detrimental public interest december 31 2007 virginia commission restricted payment dividends certain agreements associated joint credit facility dominion contain restrictions ratio debt total capitalization limitations restrict ability pay dividends dominion december 31 2007 see note 16 consolidated financial statements description potential restrictions dividend payments connection deferral distribution payments trust preferred securities future cash payments contractual obligations planned capital expenditures contractual obligations party numerous contracts arrangements obligating us make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services presented table summarizing cash payments may result contracts party december 31 2007 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable interest rate swaps majority current liabilities paid cash 2008 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 reflect ability defer payments related trust preferred securities 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 primarily includes interest rate swap agreements excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 12 13 20 consolidated financial statements due uncertainty timing amounts ultimately paid 144 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 6 consolidated financial statements planned capital expenditures planned capital expenditures expected total approximately 22 billion 28 billion 26 billion 2008 2009 2010 respectively expect fund capital expenditures cash operations combination securities issuances capital contributions dominion planned capital expenditures include capital projects subject approval regulators board directors annual capital expenditures plant equipment 2008 including environmental upgrades construction improvements expected total approximately follows  generation nuclear fuel 14 billion  transmission 327 million  distribution 463 million based available generation capacity current estimates growth customer demand need additional generation capacity future see generation expansion future issues matters discussion expansion plans may choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances future issues matters status electric regulation virginia 2007 virginia restructuring act fuel factor amendments july 1 2007 legislation amending virginia electric utility restructuring act restructuring act fuel factor became effective significantly changes electricity regulation virginia prior restructuring act base rates virginia capped 1999 levels december 31 2010 restructuring act ends capped rates two years early december 31 2008 capped rates end retail choice eliminated individual retail customers demand 5 mw nonresidential retail customers obtain virginia commission approval aggregate load reach 5 mw threshold individual retail customers permitted purchase renewable energy competitive suppliers incumbent electric utility offer renewable energy tariff also end capped rates virginia commission set base rates modified costofservice model among features new model provides virginia commission  initiate base rate case first six months 2009 reviewing 2008 test year result virginia commission  shall establish return equity roe lower reported least majority group utilities within southeastern us certain limitations described legislation  may increase decrease roe 100 basis points based generating plant performance customer service operating efficiency appropriate  shall increase base rates needed allow company opportunity recover costs earn fair rate return found earnings 50 basis points established roe  may reduce rates prospectively upon completion 2009 review alternatively order credit customers found test year earnings 50 basis points established roe  initial rate case review base rates biennially result virginia commission  shall establish roe lower reported least majority group utilities within southeastern us certain limitations described legislation  may increase decrease roe 100 basis points based generating plant performance customer service operating efficiency appropriate  2010 authorize increased roe overall rate base upon achieving goals established renewable energy portfolio standard programs increased roe would lieu increased decreased roe preceding paragraph unless increase roe awarded preceding paragraph higher renewable energy portfolio standard increase  shall increase base rates needed allow company opportunity recover costs earn fair rate return found earned test period 50 basis points currently established roe  may order credit customers found earned test period 50 basis points currently established roe reduce rates found excess earnings two consecutive biennial review periods  authorize standalone rate adjustments recovery certain costs including new generation projects major generating unit modifications environmental compliance projects fercapproved costs transmission service energy efficiency conservation renewable energy programs  authorize enhanced roe new capital expenditures financial incentive construction certain major generation projects legislation also continues statutory provisions directing us file annual fuel cost recovery cases virginia commission beginning 2007 continuing thereafter discussed virginia fuel expenses discussed previously legislation provides virginia commission initiate base rate case first six months 2009 result virginia commission may reduce rates alternatively order credit customers found earnings 50 basis points established roe unable predict outcome future rate actions time however unfavorable outcome could adversely affect results operations virginia fuel expenses amendments virginia fuel cost recovery statute passed 2004 fuel factor provisions frozen july 1 2007 fuel prices increased considerably since 2004 resulted fuel expenses significantly excess fuel cost recovery pursuant 2007 amendments fuel cost recovery statute annual fuel rate adjustments deferred fuel accounting underrecoveries fuel costs instituted beginning july 1 2007 amendments allow us collect unrecovered fuel expenses incurred prior july 1 2007 fuel factor adjusted mechanism ensures dollar recovery prudently incurred fuel costs april 2007 filed virginia fuel factor application virginia commission application showed need annual increase fuel expense recovery period july 1 2007 june 30 2008 approximately 662 million however requested increase limited 219 million 2007 amendments fuel cost recovery statute amendments fuel factor increase july 1 2007 limited amount results residential customer class receiving increase 4 total rates effect june 30 2007 virginia commission approved fuel factor increase virginia jurisdictional customers approximately 219 million effective july 1 2007 balance approximately 443 million deferred subsequent recovery subject virginia commission approval without interest period commencing july 1 2008 ending june 30 2011 management’s discussion analysis financial condition results operations continued north carolina regulation 2004 north carolina utilities commission north carolina commission commenced investigation north carolina base rates subsequently ordered us file general rate case show cause north carolina jurisdictional base rates reduced rate case filed september 2004 march 2005 north carolina commission approved settlement included prospective 12 million annual reduction current base rates fiveyear base rate moratorium effective april 2005 fuel rates still subject change annual fuel cost adjustment proceedings regional transmission expansion plan year part pjm’s rtep process reliability projects authorized june 2006 pjm rtep process authorized construction numerous electric transmission upgrades 2011 involved two major construction projects first project approximately 270mile 500kilovolt kv transmission line southwestern pennsylvania northern virginia construct approximately 65 miles virginia subsidiary allegheny energy inc transallegheny interstate line company construct remainder project estimated cost approximately 243 million expected completed june 2011 second project approximately 60mile 500 kv transmission line construct southeastern virginia project estimated cost approximately 180 million expected completed june 2011 transmission upgrades designed improve reliability service customers region siting construction transmission lines subject applicable state federal permits approvals april 2007 along transallegheny interstate line company filed application virginia commission requesting approval proposed construction 65mile transmission line northern virginia may 2007 filed application virginia commission requesting approval proposed construction 60mile transmission line southeastern virginia evidentiary hearings applications commenced february 2008 generation expansion based available generation capacity current estimates growth customer demand utility service area need additional generation capacity next ten years announced comprehensive generation growth program referred powering virginia involves development financing construction operation new multifuel multitechnology generation capacity meet growing demand core market virginia part program following projects various stages development april 2007 filed application virginia commission requesting approval add two 150 mw natural gasfired electric generating units 3 4 ladysmith power station ladysmith supply electricity periods peak demand facility expected operation august 2008 estimated cost 135 million virginia commission approved application august 2007 construction commenced december 2007 received approval north carolina commission related affiliate transaction november 2007 filed application virginia commission approval fifth combustion turbine unit 5 ladysmith estimated cost 79 million july 2007 filed application virginia commission requesting approval construct operate 585 mw nominal carboncapture compatible cleancoal powered electric generation facility virginia city hybrid energy center located wise county virginia also requested approval continue accrue allowance funds used construction capped rates end beginning january 1 2009 receive current recovery financing costs including return common equity 1175 together 200basis point enhancement rate adjustment clause evidentiary hearing held february 2008 application permit construct operate virginia city hybrid energy center compliance federal state air pollution laws filed july 2006 virginia department environmental quality pending regulatory approval necessary permits facility expected operation 2012 estimated capital cost approximately 18 billion also february 2008 announced proposed conversion bremo power station bremo coal natural gas part plan build virginia city hybrid energy center proposal contingent upon virginia hybrid energy center entering service receiving approvals virginia commission virginia department environmental quality proposed conversion project part overall effort reduce air emissions subject applicable regulatory approvals conversion would occur within two years virginia city hybrid energy center entering service considering construction third nuclear unit within next 20 years site located north anna power station north anna along old dominion electric cooperative odec november 2007 nrc issued early site permit esp north anna site also november 2007 along odec filed application nrc combined construction permit operating license col would allow us build operate new nuclear unit north anna january 2008 nrc accepted application col deemed complete dominion cooperative agreement department energy share equally cost col yet committed building new unit december 2007 announced agreement purchase power station development project buckingham county virginia generate 600 mw project already air water permits combinedcycle natural gasfired power station however permits may need modified addition construction project subject approval virginia commission including approval state regulations relating bidding purchase electric capacity energy power suppliers receipt environmental permits gas pipeline also required constructed provide gas supply power station pending closing purchase agreement receipt regulatory approvals plan build combined cycle unit operations expected begin summer 2011 pjm rate design may 2005 ferc issued order finding pjm’s existing transmission service rate design may reasonable ordered investigation hearings matter january 2008 ferc affirmed earlier decision pjm transmission rate design existing facilities become unjust unreasonable recovery costs investments new pjmplanned transmission facilities operate 500 kv ferc established regional rate design customers pay uniform rate based costs investment recovery costs investment new pjmplanned transmission facilities operate 500kv ferc affirmed earlier decision allocate costs beneficiary pays approach notice appeal decision filed february 2008 united states court appeals seventh circuit cannot predict outcome appeal environmental matters subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2008 excess level currently included virginia jurisdictional rates results operations could decrease date allowed seek recovery rates environmental protection monitoring expenditures incurred approximately 121 million 102 million 134 million expenses including depreciation 2007 2006 2005 respectively connection environmental protection monitoring activities expect expenses approximately 139 million 143 million 2008 2009 respectively addition capital expenditures related environmental controls 189 million 170 million 42 million 2007 2006 2005 respectively expenditures expected approximately 129 million 89 million 2008 2009 respectively clean air act compliance march 2005 environmental protection agency epa administrator signed clean air interstate rule cair clean air mercury rule camr rules implemented require significant reductions sulfur dioxide so2 nitrogen oxide nox mercury emissions electric generating facilities so2 nox emission reduction requirements imposed two phases initial reduction levels targeted 2009 nox 2010 so2 second phase reductions targeted 2015 so2 nox mercury emission reduction requirements also two phases initial reduction levels targeted 2010 second phase reductions targeted 2018 federal rules allow use capandtrade programs west virginia adopted final regulations cair camr virginia adopted final regu lations cair requirements strict federal rule adopt final regulations camr requirements strict federal rule regulatory actions require additional reductions emissions fossil fuelfired generating facilities already addressed current compliance planning june 2005 epa finalized amendments regional haze rule also known clean air visibility rule cavr although anticipate emission reductions achieved compliance cair camr address cavr time cannot predict certainty additional financial impacts regional haze regulations operations implementation projects comply so2 nox mercury limitations state emission control programs ongoing influenced changes regulatory environment availability emission allowances emission control technology response requirements estimate make capital expenditures affected generating facilities approximately 350 million period 2008 2012 february 2008 us court appeals district columbia issued ruling vacates camr promulgated epa time cannot determine ruling subject appeals epa subsequently states may alter approach reducing mercury emissions also cannot estimate time impact future capital expenditures clean water act compliance july 2004 epa published regulations clean water act section 316b govern existing utilities employ cooling water intake structure flow levels exceeding minimum threshold epa’s rule presents several compliance options however january 2007 us court appeals second circuit issued decision appeal regulations remanding rule epa july 2007 epa suspended regulations pending rulemaking consistent decision issued u court appeals second circuit november 2007 number industries appealed lower court decision u supreme court eight facilities likely subject regulations cannot predict outcome judicial epa regulatory processes determine certainty specific controls may required regulation greenhouse gas emissions april 2007 u supreme court ruled epa authority regulate greenhouse gas emissions could result future epa action june 2007 president announced us support effort develop new post2012 framework climate change involving top ten fifteen greenhouse gas emitting countries would focus establishing longterm global goal reduce greenhouse gas emissions country establishing midterm targets programs state level virginia energy plan released governor virginia september 2007 includes goal reducing greenhouse gas emissions statewide back 2000 levels 2025 governor formed commission climate change develop plan achieve goal results legislative regulatory action outcome terms management’s discussion analysis financial condition results operations continued specific requirements timing uncertain cost compliance future greenhouse gas reduction programs could significant given highly uncertain outcome timing future action us federal government states issue cannot predict financial impact future greenhouse gas reduction programs operations customers time environmental strategy committed good environmental steward ongoing objective provide reliable affordable energy customers environmentally responsible integrated strategy meet objective consists four major elements • conservation efficiency • renewable generation development • generation development maintain fuel diversity including clean coal advanced nuclear energy natural gas • improvements energy infrastructure conservation plays critical role meeting growing demand electricity virginia reregulation legislation enacted 2007 provides incentives energy conservation sets goal reduce electricity consumption retail customers 2022 ten percent amount consumed 2006 implementation conservation programs announced plans september 2007 series pilot programs focused energy conservation demand response pilots offered selection 4550 customers central eastern northern virginia service areas help ensure results representative customers able volunteer pilots participate one pilot report results pilots least quarterly virginia commission staff help evaluate effectiveness pilots approved virginia commission include • 1000 residential customers four different energysaving pilots designed cycle central heating air conditioning units peakenergy demand times inform customers realtime energy consumption patterns promote programmable thermostats allow customers control use electricity educate customers value reducing energy use peakuse times • free energy audits energy efficiency kits 150 existing residential customers 100 new homes meeting energy efficiency guidelines set epa 50 small commercial customers addition 250 new homes receive energy efficiency welcome kits include compact fluorescent light bulbs • incentives commercial customers reduce load periods peak demand running generators produce 100 mw electricity would addition existing options commercial industrial customers reduced demand 300 mw peakdemand periods renewable energy also important component diverse reliable energy mix virginia north carolina passed legislation setting goals renewable power committed meeting virginia’s goal 12 renewable power 2022 north carolina’s renewable portfolio standard 125 2021 actively assessing development opportunities service territories renewable technologies november 2007 issued request proposals rfp renewable energy projects virginia north carolina elsewhere pjm interconnect region rfp seeks purchase renewable energy generation projects well renewable energy credits generation currently provides approximately two percent generation renewable sources also anticipate using 20 biomass woodwaste proposed virginia city hybrid energy center announced comprehensive generation growth program referred powering virginia involves development financing construction operation new multifuel multitechnology generation capacity meet growing demand core market virginia expect investments collectively provide following benefits expanded electricity production capability increased technological fuel diversity reduction carbon dioxide co2 emissions intensity generation fleet critical aspect powering virginia program extent seek reduce carbon intensity generation fleet developing generation facilities zero co2 low co2 emissions well economically viable facilities equipped co2 separation sequestration current economically viable technological solution retrofit existing fossilfueled technology capture sequester greenhouse gas emissions given new generation units useful lives 50 years give full consideration co2 greenhouse gas emissions making longterm investment decisions finally plan make significant investment improving capabilities reliability electric transmission distribution system enhancements primarily aimed meeting continued goal providing reliable service additional benefit added capacity efficiently deliver electricity renewable projects developed future environmental regulations expect may federal legislative regulatory action regarding regulation greenhouse gas emissions regarding compliance stringent air emission standards future respect greenhouse gas emissions outcome terms specific requirements timing uncertain may include greenhouse gas emissions capandtrade program carbon tax electric generators natural gas businesses respect emission reductions specific requirements consideration would phased periods ten fifteen years new proposals adopted additional significant expenditures may required item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s results operations general financial condition virginia power’s dominion gas’ results operations mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data virginia power dominion gas meet conditions file reduced disclosure format therefore omitted certain sections mda contents mda consists following information  forwardlooking statements  accounting mattersdominion  dominion  results operations  segment results operations  virginia power  results operations  dominion gas  results operations  liquidity capital resourcesdominion  future issues mattersdominion forwardlooking statements report contains statements concerning companies’ expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words companies make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events natural disasters including hurricanes high winds severe storms earthquakes flooding changes water temperatures availability cause outages property damage facilities  federal state local legislative regulatory developments including changes federal state tax laws regulations  changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs emissions extensive permitting requirements regulation additional substances  cost environmental compliance including costs related climate change  changes enforcement practices regulators relating environmental standards litigation exposure remedial activities  changes regulator implementation environmental standards litigation exposure remedial activities  difficult anticipate mitigation requirements associated environmental approvals  risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities  unplanned outages facilities companies ownership interest  fluctuations energyrelated commodity prices effect could dominion’s dominion gas’ earnings companies’ liquidity position underlying value assets  counterparty credit performance risk  capital market conditions including availability credit ability obtain financing reasonable terms  risks associated virginia power’s membership participation pjm including risks related obligations created default participants  fluctuations value investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion gas  fluctuations interest rates  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  impacts acquisitions divestitures transfers assets joint ventures dominion midstream retirements assets based asset portfolio reviews  receipt approvals timing closing dates acquisitions divestitures  timing execution dominion midstream’s growth strategy  changes rules rtos isos dominion virginia power participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models  political economic conditions including inflation deflation  domestic terrorism threats companies’ physical intangible assets well threats cybersecurity  changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes supplies natural gas delivered dominion gas’ pipeline processing systems failure maintain replace customer contracts favorable terms changes customer growth usage patterns including result energy conservation programs availability energy efficient devices use distributed generation methods  additional competition industries companies operate including electric markets dominion’s merchant generation facilities operate competition development construction ownership certain electric transmission facilities virginia power’s service territory connection ferc order 1000  changes technology particularly respect new developing alternative sources generation smart grid technologies management’s discussion analysis financial condition results operations continued  changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion  changes operating maintenance construction costs  timing receipt regulatory approvals necessary planned construction expansion projects compliance conditions associated regulatory approvals  inability complete planned construction conversion expansion projects outcomes within terms time frames initially anticipated  adverse outcomes litigation matters regulatory proceedings  impact operational hazards including adverse developments respect pipeline safety integrity catastrophic events additionally risks could cause actual results differ predicted results set forth item 1a risk factors companies’ forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results companies undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion discussed development selection disclosure policies audit committee board directors accounting regulated operations accounting dominion’s regulated electric gas operations differs accounting nonregulated operations dominion required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs deferred regulatory assets otherwise would expensed nonregulated companies likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator dominion evaluates whether recovery regulatory assets future rates probable makes various assumptions analysis expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices dominion estimates fair value aros using present value techniques makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant dominion revises assumptions used calculate fair value existing aros adjusts carrying amount aro liability related longlived asset assets service assets ceased operations dominion adjusts carrying amount aro liability changes recognized income dominion accretes aro liability reflect passage time 2014 2013 2012 dominion recognized 81 million 86 million 77 million respectively accretion expects recognize 86 million 2015 dominion records accretion depreciation associated utility nuclear decommissioning aros adjustment regulatory liability related nuclear decommissioning trust significant portion dominion’s aros relates future decommissioning merchant utility nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2014 dominion’s nuclear decommissioning aros totaled 14 billion representing approximately 84 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated dominion’s nuclear decommissioning obligations dominion obtains thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition dominion’s cost estimates include cost escalation rates applied base year costs dominion determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions primarily result shift delayed planned date doe expected begin accepting spent nuclear fuel 2014 dominion recorded increase 95 million nuclear decommissioning aros december 2013 dominion recorded reduction 129 million 47 million credited income nuclear decommissioning aros units due reduction estimated costs income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2014 dominion 145 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion evaluates quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets dominion establishes valuation allowance morelikelythannot portion deferred tax asset realized december 31 2014 dominion established 87 million valuation allowances accounting derivative contracts instruments fair value dominion uses derivative contracts futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s nuclear decommissioning rabbi benefit plan trust funds also subject fair value accounting see notes 6 21 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluat ing pricing information provided brokers pricing services dominion considers whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available dominion believes observable pricing information indicative fair value judgment required develop estimates fair value cases dominion must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions dominion maximizes use observable inputs minimizes use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2014 dominion reported 30 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2014 2013 2012 annual tests interim tests result recognition goodwill impairment general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived management’s discussion analysis financial condition results operations continued assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operating longlived assets selection appropriate discount rate determining whether asset group impaired management groups assets lowest level identifiable cash flows although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see note 6 consolidated financial statements discussion impairments related certain longlived assets employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations mortality rates anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination  expected inflation riskfree interest rate assumptions  historical return analysis determine long term historic returns well historic risk premiums various asset classes  expected future risk premiums asset volatilities correlations  forecasts independent investment advisor  forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices  investment allocation plan assets strategic target asset allocation dominion’s pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion develops assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 875 2014 850 2013 2012 2015 expected longterm rate return pension cost assumption 875 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 850 2014 775 2013 2012 2015 expected longterm rate return postretirement benefit cost assumption 850 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost ranged 520 530 pension plans 500 510 postretirement benefit plans 2014 ranged 440 480 2013 550 2012 dominion selected discount rate 440 determining december 31 2014 projected pension postretirement benefit obligations dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2014 700 expected gradually decrease 500 2018 continue rate years thereafter dominion develops mortality assumption using planspecific studies projects mortality improvement using scales developed society actuaries following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2014 025 decrease discount rate would increase dominion’s projected pension benefit obligation 236 million accumulated postretirement benefit obligation 47 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 186 million see note 21 consolidated financial statements additional information dominion’s employee benefit plans dominion results operations presented summary dominion’s consolidated results overview vs 2013 net income attributable dominion decreased 23 primarily due charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities charges associated dominion’s liability management exercise repositioning dominion’s producer services business completed first quarter 2014 see note 13 information legislation related north anna offshore wind facilities see liquidity capital resources information liability management exercise decreases partially offset increase investment tax credits received primarily new solar projects 2013 vs 2012 net income attributable dominion increased 14 billion primarily due absence impairment charges recorded 2012 related discontinued operations brayton point kincaid management’s decision cease operations begin decommissioning kewaunee 2013 analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2014 vs 2013 net revenue decreased 3 primarily reflecting  263 million decrease retail energy marketing operations primarily due sale retail electric business march 2014  195 million decrease primarily related repositioning dominion’s producer services business completed first quarter 2014 reflecting termination natural gas trading certain energy marketing activities decreases partially offset  171 million increase electric utility operations primarily reflecting  increase rate adjustment clauses electric utility operations 132 million  increase sales electric utility operations primarily due increase heating degree days 34 million  46 million increase gas transportation storage activities revenues largely due various expansion projects placed service  35 million increase merchant generation margins primarily due higher realized prices 120 million partially offset lower generation output due decommissioning kewaunee beginning may 2013 95 million operations maintenance increased 12 primarily reflecting  370 million charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities  135 million increase planned outage costs certain merchant generation facilities certain nonnuclear utility facilities management’s discussion analysis financial condition results operations continued  121 million charge related settlement offer incur future ash pond closure costs certain utility generation facilities increases partially offset  gain sale dominion’s electric retail energy marketing business march 2014 100 million net 31 million writeoff goodwill  67 million decrease primarily due deferral utility nuclear outage costs beginning second quarter 2014 pursuant virginia legislation enacted april 2014  absence 65 million charge primarily reflecting impairment charges recorded 2013 certain natural gas infrastructure assets  decrease bad debt expense regulated natural gas distribution operations primarily related lowincome assistance programs 53 million bad debt expenses recovered rates impact net income interest related charges increased 36 primarily due charges associated dominion’s liability management exercise 2014 284 million higher longterm debt interest expense resulting debt issuances 2014 44 million income tax expense decreased 49 primarily reflecting lower pretax income 350 million impact federal renewable energy investment tax credits 105 million loss discontinued operations reflects sale brayton point kincaid 2013 vs 2012 net revenue decreased 1 primarily reflecting  162 million decrease producer services primarily related unfavorable price changes economic hedging positions partially offset higher physical margins associated natural gas aggregation marketing trading activities  111 million decrease retail energy marketing activities primarily due impact lower margins electric sales due higher purchased power costs  98 million decrease merchant generation operations primarily due lower generation output 133 million largely due may 2013 closure kewaunee partially offset higher realized prices 35 million decreases partially offset  161 million increase electric utility operations primarily reflecting  increase sales retail customers primarily due increase heating degree days 112 million  increase rate adjustment clauses 92 million partially offset  decrease ancillary revenues received pjm 12 million primarily due decrease net operating reserve credits  144 million increase regulated natural gas transmission operations primarily related appalachian gateway project placed service september 2012 44 million increase gathering storage services 38 million ngl activities primarily related increase processing fractionation volumes 19 million northeast expansion project placed service november 2012 16 million operations maintenance decreased 20 primarily reflecting  589 million decrease related kewaunee largely due absence charges recorded 2012 following management’s decision cease operations begin decommissioning 2013  123 million decrease certain electric transmissionrelated expenditures expenses recovered ferc rates  54 million decrease storm damage service restoration costs primarily due absence damage caused late june summer storms 2012  42 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs expenses recovered rates impact net income  increased gains sales assets blue racer 32 million decreases partially offset  65 million increase primarily related impairment charges certain natural gas infrastructure assets  46 million increase resulting impacts 2013 biennial review order  35 million increase due absence adjustments recorded 2012 connection 2012 north carolina rate case  34 million increase pjm operating reserves reactive service charges  26 million charge related expected shutdown certain coalfired generating units income increased 19 primarily due higher realized gains including investment income nuclear decommissioning trust funds 40 million gain sale dominion’s 50 equity method investment elwood 35 million partially offset decrease equity component afudc 15 million decrease earnings equity method investments 11 million income tax expense increased 10 primarily reflecting higher pretax income 2013 169 million partially offset increase renewable energy investment tax credits 46 million lower effective rate state income taxes 45 million loss discontinued operations reflects sale brayton point kincaid 2013 outlook dominion’s strategy continue focusing regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide earnings per share growth growing dividend maintain stable credit profile dominion expects 80 90 future earnings primary operating segments come regulated longterm contracted businesses 2015 dominion expected experience increase net income per share basis compared 2014 dominion’s anticipated 2015 results reflect following significant factors  return normal weather electric utility operations  growth weathernormalized electric utility sales approximately 1 comparable 2014 growth  construction operation growth projects electric utility operations associated rate adjustment clause revenue  absence certain charges incurred 2014 including charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities charges associated dominion’s liability management exercise charges related repositioning dominion’s producer services business completed first quarter 2014 charges related settlement offer incur future ash pond closure costs certain utility generation facilities  construction operation growth projects gas transmission distribution partially offset  increase depreciation depletion amortization  higher operating maintenance expenses  higher effective tax rate driven primarily higher state income tax expense lower investment tax credits additionally 2015 dominion expects focus meeting new developing environmental requirements including making significant investments utility solar generation particularly virginia segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion dvp presented operating statistics related dvp’s operations 1 period average presented aftertax basis key factors impacting dvp’s net income contribution 2014 vs 2013 vs 2012 1 excludes restoration costs associated damage caused severe storms 2012 reflected corporate segment dominion generation presented operating statistics related dominion generation’s operations 1 excludes 76 million 128 million mwh 2013 2012 respectively related kewaunee brayton point kincaid state line salem dominion’s equity method investment elwood exclusions related stations 2014 2 period average 3 excludes 511 thousand average retail electric energy marketing customer accounts due sale business march 2014 management’s discussion analysis financial condition results operations continued presented aftertax basis key factors impacting dominion generation’s net income contribution 2014 vs 2013 1 excludes earnings retail electric energy marketing sold march 2014 2013 vs 2012 dominion energy presented selected operating statistics related dominion energy’s operations 1 period average presented aftertax basis key factors impacting dominion energy’s net income contribution 2014 vs 2013 1 includes 24 million decrease gains sale assets 2013 vs 2012 1 excludes charges incurred 2013 associated ongoing exit natural gas trading certain energy marketing activities reflected corporate segment 2 primarily reflects full year appalachian gateway project service 3 includes 15 million increase gains sale assets corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 consolidated financial statements discussion items detail corporate also includes specific items attributable corporate segment 2014 primarily includes 174 million aftertax charges associated dominion’s liability management exercise virginia power results operations presented summary virginia power’s consolidated results overview vs 2013 net income decreased 25 primarily due charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities 2013 vs 2012 net income increased 8 primarily due increase rate adjustment clause revenue impact favorable weather utility operations absence restoration costs associated damage caused late june 2012 summer storms analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2014 vs 2013 operations maintenance increased 32 primarily reflecting  370 million charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities  121 million charge related settlement offer incur future ash pond closure costs certain generation facilities interest related charges increased 11 primarily due higher longterm debt interest expense resulting debt issuances august 2013 february 2014 income tax expense decreased 17 primarily reflecting lower pretax income 2013 vs 2012 net revenue increased 4 primarily reflecting  increase sales retail customers primarily due increase heating degree days 112 million  increase rate adjustment clauses 92 million partially offset  decrease ancillary revenues received pjm 12 million primarily due decrease net operating reserve credits operations maintenance decreased 1 primarily reflecting  123 million decrease certain electric transmissionrelated expenditures expenses recovered ferc rates  54 million decrease storm damage service restoration costs primarily due absence damage caused late june summer storms 2012 decreases partially offset  46 million increase resulting impacts 2013 biennial review order  35 million increase due absence adjustments recorded 2012 connection 2012 north carolina rate case  34 million increase pjm operating reserves reactive service charges  26 million charge related expected shutdown certain coalfired generating units  22 million increase salaries wages benefits dominion gas results operations presented summary dominion gas’ consolidated results overview vs 2013 net income increased 11 primarily due absence impairment charges certain natural gas infrastructure assets increased gains due assignments marcellus acreage partially offset decreased gains sales assets related parties 2013 vs 2012 net income increased 2 million due increased revenue operations primarily reflecting appalachian gateway project northeast expansion project placed service partially offset decreased gains sales assets impairment charges related certain natural gas infrastructure assets management’s discussion analysis financial condition results operations continued analysis consolidated operations presented selected amounts related dominion gas’ results operations analysis dominion gas’ results operations follows 2014 vs 2013 operations maintenance decreased 20 primarily reflecting  absence impairment charges related certain natural gas infrastructure assets 55 million  decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs 53 million bad debt expenses recovered rates impact net income  increase gains associated assignments marcellus acreage 42 million partially offset  decreased gains sale assets related parties 43 million income tax expense increased 11 primarily reflecting higher pretax income 2013 vs 2012 net revenue increased 9 primarily reflecting  increase gas transmission transportation revenue primarily due appalachian gateway project placed service september 2012 64 million northeast expansion project placed service november 2012 16 million  increase gathering storage services 32 million  increase sales gas distribution customers primarily due increase heating degree days revenues 18 million  increase amr pir program revenues 16 million increases partially offset  decrease rider revenue primarily related bad debt expense 42 million related low income assistance programs operations maintenance increased 26 primarily reflecting  decreased gains sales pipeline systems 72 million  impairment charges related certain natural gas infrastructure assets 55 million decreases partially offset  42 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs bad debt expenses recovered rates impact net income  18 million gain agreements convey marcellus shale development rights underneath several natural gas storage fields income decreased 24 primarily due decrease equity component afudc due significant projects placed service second half 2012 interest related charges decreased 30 primarily due lower interest affiliated longterm debt resulting lower outstanding debt due extinguishment intercompany borrowings sale two pipelines affiliate december 2012 acquisition intercompany borrowings debt issued third parties october 2013 18 million partially offset decrease debt component afudc 7 million due significant projects placed service second half 2012 liquidity capital resources dominion depends internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2014 dominion 17 billion unused capacity credit facilities see additional discussion credit facilities shortterm debt summary dominion’s cash flows presented operating cash flows net cash provided dominion’s operating activities change significantly 2014 dominion believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares 2015 dominion’s board directors updated dividend policy set december 2012 target payout ratio 7075 established annual dividend rate 2015 259 per share common stock 8 increase 2014 rate january 2015 dominion’s board directors declared dividends payable march 20 2015 6475 cents per share common stock declarations dividends subject board directors approval dominion’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2014 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 47 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 6 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 20 total net credit exposure investing cash flows 2014 net cash used dominion’s investing activities increased 17 billion primarily due higher capital expenditures lower proceeds sales assets businesses financing cash flows liquidity dominion relies capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings dominion’s ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances dominion currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows dominion use automatic shelf registration statements register offering securities exchange offers business combination transactions 2014 net cash provided dominion’s financing activities increased 17 billion primarily reflecting higher net debt issuances proceeds dominion midstream’s initial public offering absence acquisition juniper noncontrolling interest recorded 2013 related fairless liability management 2014 dominion elected redeem certain debt preferred securities prior stated maturities proceeds issuance lowercost senior enhanced junior subordinated notes used fund redemption payments see note 17 consolidated financial statements descriptions redemptions time dominion may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions tender offers otherwise credit facilities shortterm debt dominion uses shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties connection commodity hedging activities dominion required provide collateral counterparties circumstances certain collateral arrangements dominion may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time dominion may vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates dominion issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives management’s discussion analysis financial condition results operations continued dominion’s commercial paper letters credit outstanding well capacity available credit facilities follows 1 may 2014 credit facility amended restated facility limit increased 3 billion 4 billion maturity date extended september 2018 april 2019 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 may 2014 credit facility amended restated maturity date extended september 2018 april 2019 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 038 033 december 31 2014 2013 respectively shortterm notes november 2013 dominion issued 400 million private placement shortterm notes matured repaid november 2014 bore interest variable rate proceeds used general corporate purposes november 2014 dominion issued 400 million private placement shortterm notes mature november 2015 bear interest variable rate proceeds used general corporate purposes longterm debt 2014 dominion issued following longterm debt 2014 dominion repaid repurchased 4 billion longterm debt including redemption premiums issuance common stock equity securities dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion began purchasing common stock open market plans april 2014 dominion began issuing new common shares direct stock purchase plans 2014 dominion issued approximately 38 million shares common stock totaling 273 million employee savings plans direct stock purchase dividend reinvestment plans converted securities employee director benefit plans dominion received cash proceeds 205 million issuance 29 million shares dominion direct employee savings plans december 2014 dominion filed sec shelf registration sale debt equity securities including ability sell common stock atthemarket program see note 19 consolidated financial statements description atthemarket program june 2013 july 2014 dominion issued equity units initially form corporate units corporate unit consists stock purchase contract 120 interest rsn issued dominion stock purchase contracts obligate holders purchase shares dominion common stock future settlement date see note 17 consolidated financial statements description common stock issued dominion repurchase common stock dominion repurchase shares 2014 plan repurchase shares 2015 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion believes current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion may affect ability access funding sources cause increase return required investors dominion’s credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions november 2014 standard poor’s changed dominion’s rating outlook negative stable dominion cannot predict potential impact negative outlook standard poor’s could cost borrowing credit ratings february 23 2015 follow february 23 2015 fitch moody’s maintained stable outlook respective ratings dominion standard poor’s maintained negative outlook respective ratings dominion downgrade individual company’s credit rating would necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade could result increase cost borrowing dominion works closely fitch moody’s standard poor’s objective achieving targeted credit ratings dominion may find necessary modify business plan maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec information changes dominion’s credit ratings lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens dominion required pay annual commitment fees maintain credit facilities addition dominion’s credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2014 calculated total debt total capital ratio pursuant terms agreements follows 1 indebtedness defined bank agreements excludes junior subordinated remarketable subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets dominion material subsidiaries fails make payment various debt obligations excess 100 million lenders could require company accelerate repayment outstanding borrowings credit facilities lenders could terminate commitment lend funds company accordingly default virginia power dominion gas joint credit facilities dominion would affect lender’s commitment dominion executed rccs connection issuance following hybrid securities  june 2006 hybrids  september 2006 hybrids  june 2009 hybrids october 2014 dominion redeemed june 2009 hybrids redemption conducted compliance rcc see note 17 consolidated financial statements additional information including terms rccs december 31 2014 termination dates covered debt rccs associated dominion’s hybrids follows dominion monitors debt covenants regular basis order ensure events default occur december 31 2014 events default changes dominion’s debt covenants dividend restrictions certain agreements associated dominion’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s ability pay dividends receive dividends subsidiaries december 31 2014 see note 17 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes equity units initially form corporate units information incorporated herein reference management’s discussion analysis financial condition results operations continued future cash payments contractual obligations planned capital expenditures contractual obligations dominion party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion party december 31 2014 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s current liabilities paid cash 2015 1 based stated maturity dates rather earlier redemption dates could elected instrument holders option holders 510 million dominion’s 525 senior notes due 2033 subject redemption 100 principal amount plus accrued interest august 2015 result december 31 2014 notes included securities due within one year consolidated balance sheets 2 includes interest payments terms debt payments related stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2014 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements reflect dominion’s ability defer interest stock purchase contract payments junior subordinated notes rsns equity units initially form corporate units 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 represents summation net losses contracts due dominion physical financial transactions among counterparties dominion liquidated terminated 6 includes capital operations maintenance commitments 7 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 79 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 8 includes interest rate swap agreements planned capital expenditures dominion’s planned capital expenditures expected total approximately 58 billion 56 billion 46 billion 2015 2016 2017 respectively dominion’s expenditures expected include construction expansion electric generation natural gas transmission storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel construction liquefaction project dominion’s portion atlantic coast pipeline project dominion expects fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors see dvp dominion generation dominion energyproperties item 1 business discussion dominion’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion’s board directors late 2014 subject continuing review adjustment actual capital expenditures may vary estimates dominion may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others see note 22 consolidated financial statements additional information incorporated herein reference future issues matters see item 1 business notes 13 22 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred approximately 192 million 182 million 189 million expenses including depreciation 2014 2013 2012 respectively connection environmental protection monitoring activities expects expenses approximately 193 million 188 million 2015 2016 respectively addition capital expenditures related environmental controls 101 million 64 million 213 million 2014 2013 2012 respectively expenditures expected approximately 97 million 60 million 2015 2016 respectively future environmental regulations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum delegated states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements december 2012 epa issued final rule set stringent annual air quality standard fine particulate matter epa issued final attainmentnonattainment designations january 2015 states develop implementation plans dominion cannot determine whether facilities located areas designated nonattainment standard impacted expect impacts material epa finalized rules establishing new 1hour naaqs no2 new 1hour naaqs so2 could require additional nox so2 controls certain areas dominion operates states developed implementation plans standards impact dominion’s facilities emit nox so2 uncertain additionally impact permit limits implementing naaqs dominion’s facilities uncertain time january 2010 epa also proposed new stringent naaqs ozone planned finalize rule 2011 september 2011 epa announced delay 2011 2014 rulemaking november 2014 epa issued new proposal tighten ozone standard expects finalize rule october 2015 epa expected complete attainment designations new standard 2017 states 2020 develop plans address new standard states developed implementation plans dominion unable predict whether extent new rules ultimately require additional controls however significant expenditures required implement additional controls could adversely affect dominion’s results operations cash flows june 2005 epa finalized amendments regional haze rule also known clean air visibility rule requires states implement best available retrofit technology requirements sources address impacts visual air quality regional haze state implementation plans allows alternative options dominion anticipates emission reductions achieved compliance caarequired programs generally address rule clear power plan uses set measures reducing emissions existing sources includes efficiency improvements coal plants displacing coalfired generation increased utilization natural gas combined cycle units expanding renewable resources increasing customer energy efficiency proposal would require states meet statebystate emission rate intensitybased co2 binding goals limits epa expected finalize guidelines summer 2015 states required submit plans epa summer 2016 identifying comply rule possible one twoyear extensions dominion’s recent integrated resources plan filed august 2014 included alternative scenario benchmarked proposed epa rule plausible compliance strategy includes additional coal unit retirements additional low zerocarbon resources however state plans developed epa approves plans dominion cannot predict potential financial statement impacts believes potential expenditures comply could material june 2014 epa published proposed performance standards address co2 emissions modified reconstructed electric generating units proposed standards would apply coal naturalgas fired boilers natural gasfired combined cycle units constructed purpose supplying onethird potential output grid designed sell approximately 25 mw meet certain specific conditions described caa modified reconstructed modifications undertaken primary purpose installing pollution control technology subject proposed standards dominion currently cannot predict certainty direct indirect financial impact operations rule revisions believes expenditures comply new requirements could material january 2015 epa announced plans reduce methane emissions natural gas processing transmission sources part climate action plan would impose regulations reduce methane new sources including compressor stations expected proposed summer 2015 finalized 2016 epa develop control technology guidelines reduce emissions volatile organic compounds existing sources ozone nonattainment areas northeast ozone transport region regulations guidelines finalized dominion unable predict future requirements estimate compliance costs management’s discussion analysis financial condition results operations continued water cwa comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion must comply applicable aspects cwa programs operating facilities june 2013 epa issued proposed rule revise effluent limitations guidelines steam electric power generating category proposed rule establishes updated standards wastewater discharges coal oil gas nuclear steam generating stations affected facilities could required convert wet dry coal ash management improve existing wastewater treatment systems andor install new wastewater treatment technologies order meet new discharge limits epa subject consent decree requiring take final action proposed rule september 30 2015 dominion currently cannot predict certainty direct indirect financial impact operations rule revisions believes expenditures comply new requirements could material climate change legislation regulation regions states dominion operates already adopted may adopt ghg emission reduction programs new contemplated regulations may affect capital costs create significant permitting delays new modified facilities emit ghgs doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets cea amended title vii dodd frank act requires certain overthe counter derivatives swaps cleared derivatives clearing organization swap subject clearing requirement executed designated contract market swap execution facility nonfinancial entities use swaps hedge mitigate commercial risk often referred end users may elect enduser exception cea’s clearing requirements dominion elected exempt swaps cea’s clearing requirements cftc may continue adopt final rules implement provisions doddfrank act ongoing rulemaking process including rules regarding margin requirements noncleared swaps result rulemaking process dominion’s derivative activities exempted clearing exchange trading margin requirements could subject higher costs due decreased market liquidity increased margin payments addition dominion’s swap dealer counterparties may attempt passthrough additional trading costs connection implementation compliance title vii doddfrank act due ongoing rulemaking process dominion currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion energy’s results operations general financial condition virginia power dominion energy gas’ results operations mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data virginia power dominion energy gas meet conditions file reduced disclosure format therefore omitted certain sections mda contents mda consists following information • forwardlooking statements • accounting mattersdominion energy • dominion energy • results operations • segment results operations • virginia power • results operations • dominion energy gas • results operations • liquidity capital resourcesdominion energy • future issues mattersdominion energy forwardlooking statements report contains statements concerning companies’ expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words companies make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited • unusual weather conditions effect energy sales customers energy commodity prices • extreme weather events natural disasters including limited hurricanes high winds severe storms earthquakes flooding climate changes water temperatures availability cause outages property damage facilities • federal state local legislative regulatory developments including changes federal state tax laws regulations • risks operating businesses regulated industries subject changing regulatory structures • changes regulated electric rates collected dominion energy virginia power regulated gas distribution transportation storage rates including lng storage collected dominion energy dominion energy gas • changes rules rtos isos dominion energy virginia power join andor participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models • risks associated virginia power’s membership participation pjm including risks related obligations created default participants • risks associated entities dominion energy dominion energy gas share ownership third parties including risks result lack sole decision making authority disputes may arise dominion energy dominion energy gas third party participants difficulties exiting arrangements • changes future levels domestic international natural gas production supply consumption • fluctuations future volumes lng imports exports us countries worldwide demand purchases prices related natural gas lng • timing receipt regulatory approvals necessary planned construction growth projects compliance conditions associated regulatory approvals • inability complete planned construction conversion growth projects outcomes within terms time frames initially anticipated including result increased public involvement intervention litigation projects • changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs substances extensive permitting requirements regulation additional substances • cost environmental compliance including costs related climate change • changes implementation enforcement practices regulators relating environmental standards litigation exposure remedial activities • difficulty anticipating mitigation requirements associated environmental regulatory approvals related appeals • unplanned outages facilities companies ownership interest • impact operational hazards including adverse developments respect pipeline plant safety integrity equipment loss malfunction failure operator error catastrophic events • risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities • changes operating maintenance construction costs • domestic terrorism threats companies’ physical intangible assets well threats cybersecurity • additional competition industries companies operate including electric markets dominion energy’s merchant generation facilities operate potential competition development deployment alternative energy sources selfgeneration distributed generation technologies availability market alternatives large commercial industrial customers • competition development construction ownership certain electric transmission facilities dominion energy virginia power’s service territory connection order 1000 • changes technology particularly respect new developing alternative sources generation smart grid technologies • changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes supplies natural gas delivered dominion energy dominion energy gas’ pipeline systems failure maintain replace customer contracts favorable terms changes customer growth usage patterns including result energy conservation programs availability energy efficient devices use distributed generation methods • receipt approvals timing closing dates acquisitions divestitures • impacts acquisitions divestitures transfers assets joint ventures retirements assets based asset portfolio reviews • adverse outcomes litigation matters regulatory proceedings including matters acquired scana combination • counterparty credit performance risk • fluctuations value investments held nuclear decommissioning trusts dominion energy virginia power benefit plan trusts dominion energy dominion energy gas • fluctuations energyrelated commodity prices effect could dominion energy’s earnings companies’ liquidity position underlying value assets • fluctuations interest rates foreign currency exchange rates • changes rating agency requirements credit ratings effect availability cost capital • global capital market conditions including availability credit ability obtain financing reasonable terms • political economic conditions including inflation deflation • employee workforce factors including collective bargaining agreements labor negotiations union employees • changes financial regulatory accounting principles policies imposed governing bodies additionally risks could cause actual results differ predicted results set forth item 1a risk factors companies’ forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results companies undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion energy identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion energy discussed development selection disclosure policies audit committee board directors accounting regulated operations accounting dominion energy’s regulated electric gas operations differs accounting nonregulated operations dominion energy required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred dominion energy evaluates whether recovery regulatory assets future rates probable well whether regulatory liability due customers probable makes various assumptions analyses generally based • orders issued regulatory commissions legislation judicial actions • past experience • discussions applicable regulatory authorities legal counsel • forecasted earnings • considerations around likelihood impacts events unusual weather conditions extreme weather events natural disasters unplanned outages facilities recovery regulatory asset determined less probable written period assessment made regulatory liability considered probable recorded period assessment made reversed earnings longer probable see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion energy recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred sufficient information becomes available determine fair value generally capitalized part cost related longlived assets management’s discussion analysis financial condition results operations continued absence quoted market prices dominion energy estimates fair value aros using present value techniques makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation creditadjusted risk free rates future may significant dominion energy revises assumptions used calculate fair value existing aros adjusts carrying amount aro liability related longlived asset assets service assets ceased operations dominion energy adjusts carrying amount aro liability changes recognized income dominion energy’s aros include significant balance related future decommissioning merchant utility nuclear facilities nuclear decommissioning aros reported dominion energy virginia dominion energy south carolina contracted generation december 31 2019 dominion energy’s nuclear decommissioning aros totaled 17 billion following discusses critical assumptions inherent determining fair value aros associated dominion energy’s nuclear decommissioning obligations dominion energy obtains thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results cash flows include estimates timing decommissioning regulated nuclear units factors probability nrc approval license extensions addition dominion energy’s cost estimates include cost escalation rates applied base year costs dominion energy determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws including provisions 2017 tax reform act involves uncertainty since tax authorities may interpret laws differently addition states companies operate may conform provisions 2017 tax reform act ultimate resolution clarification income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikely thannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2019 dominion energy 175 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion energy evaluates quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets dominion energy establishes valuation allowance morelikelythannot portion deferred tax asset realized december 31 2019 dominion energy established 161 million valuation allowances 2017 tax reform act included broad range tax reform provisions affecting companies including changes corporate tax rates business deductions many provisions differ significantly prior us tax law resulting pervasive financial reporting implications companies 2017 tax reform act included significant changes internal revenue code 1986 including amendments significantly change taxation individuals business entities included specific provisions related regulated public utilities significant changes impact companies included 2017 tax reform act reducing corporate federal income tax rate 35 21 ii effective 2018 limiting deductibility interest expense 30 adjusted taxable income certain businesses disallowed interest allowed carried forward indefinitely iii permitting 100 expensing 100 bonus depreciation certain qualified property iv eliminating deduction qualified domestic production activities v limiting utilization net operating losses arising december 31 2017 80 taxable income indefinite carryforward specific provisions related regulated public utilities 2017 tax reform act generally allow continued deductibility interest expense exclusion full expensing tax purposes certain property acquired placed service september 27 2017 continued certain rate normalization requirements accelerated depreciation benefits date enactment companies’ deferred taxes remeasured based upon new tax rate expected apply temporary differences realized settled regulated operations many changes deferred taxes represented amounts probable collection refund customers recorded either increase regulatory asset liability 2017 tax reform act included provisions stipulate excess deferred taxes may passed back customers certain accelerated tax depreciation benefits potential refunds deferred taxes determined companies’ regulators nonregulated operations changes deferred taxes recorded adjustment deferred tax expense accounting derivative contracts financial instruments fair value dominion energy uses derivative contracts physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value majority investments held dominion energy’s nuclear decommissioning rabbi trusts pension postretirement funds also subject fair value accounting see notes 6 22 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services dominion energy considers whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available dominion energy believes observable pricing information indicative fair value judgment required develop estimates fair value cases dominion energy must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions dominion energy maximizes use observable inputs minimizes use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2019 dominion energy reported 89 billion goodwill consolidated balance sheet majority balance relates scana combination discussed note 3 consolidated financial statements dominion energy questar combination 2016 acquisition former cng 2000 april year dominion energy tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount addition fourth quarter 2019 dominion energy performed impairment tests immediately realignment operating segments 2019 2018 2017 annual tests interim tests result recognition goodwill impairment general dominion energy estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion energy’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion energy’s estimates future cash flows could result future impairment goodwill although dominion energy consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset equity method investment impairment testing impairment testing individual group longlived assets including intangible assets definite lives equity method investments required circumstances indicate assets may impaired longlived asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount equity method investment’s carrying amount exceeds fair value decline value deemed otherthantemporary impairment recognized extent fair value less carrying amount performing impairment test longlived assets equity method investments involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets case longlived assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operations longlived assets equity method investments selection appropriate discount rate determining whether longlived asset group impaired management groups assets lowest level identifiable cash flows although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset underlying assets equity method investees including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see notes 6 9 consolidated financial statements discussion impairments related certain longlived assets equity method investments discussed future issues matters continued delays obtaining maintaining permits necessary construction along construction delays due judicial actions impacted estimated cost schedule atlantic management’s discussion analysis financial condition results operations continued coast pipeline project result dominion energy evaluated carrying amount equity method investment atlantic coast pipeline otherthantemporary impairment determined impaired significant changes affecting discounted cash flow estimates associated atlantic coast pipeline project future unfavorable judicial regulatory actions resulting construction inservice delays along increase construction costs could result impairment charge employee benefit plans dominion energy sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations mortality rates anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion energy’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates critical assumptions dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine longterm historic returns well historic risk premiums various asset classes • expected future risk premiums asset classes’ volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major capital market assumptions • investment allocation plan assets strategic target asset allocation dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments private equity investments strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line targets future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion energy calculated pension cost using expected longterm rate return plan assets assumption ranged 700 865 2019 875 2018 2017 2020 expected longterm rate return pension cost assumption ranged 700 860 dominion energy’s plans held december 31 2019 dominion energy calculated postretirement benefit cost using expected longterm rate return plan assets assumption 850 2019 2018 2017 2020 expected longterm rate return postretirement benefit cost assumption 850 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost ranged 357 443 pension plans 405 441 postretirement benefit plans 2019 ranged 380 381 pension plans 376 postretirement benefit plans 2018 ranged 331 450 pension plans 392 447 postretirement benefit plans 2017 dominion energy selected discount rate ranging 347 363 pension plans 344 352 postretirement benefit plans determining december 31 2019 projected benefit obligations dominion energy establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion energy’s healthcare cost trend rate assumption december 31 2019 ranged 650 660 expected gradually decrease 500 2025 continue rate years thereafter following table illustrates effect cost changing critical actuarial assumptions previously discussed dominion energy’s plans held december 31 2019 holding assumptions constant addition effects cost december 31 2019 025 decrease discount rate would increase dominion energy’s projected pension benefit obligation 371 million accumulated postretirement benefit obligation 52 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 153 million see note 22 consolidated financial statements additional information dominion energy’s employee benefit plans new accounting standards see note 2 consolidated financial statements discussion new accounting standards dominion energy results operations presented summary dominion energy’s consolidated results overview 2019 vs 2018 net income attributable dominion energy decreased 45 primarily due charges refunds amounts previously collected retail electric customers desc nnd project litigation acquired scana combination voluntary retirement program planned early retirement certain virginia power electric generation facilities absence gains sales certain equity method investments decreases partially offset increase net investment earnings nuclear decommissioning trust funds operations acquired scana combination 2018 vs 2017 net income attributable dominion energy decreased 18 primarily due absence benefits 2017 resulting remeasurement deferred income taxes new corporate income tax rate impairment charge certain gathering processing assets charge associated virginia legislation enacted march 2018 decreased net investment earnings nuclear decommissioning trust funds lower renewable energy investment tax credits charge disallowance fercregulated plant decreases partially offset gains sales certain merchant generation facilities equity method investments commencement commercial operations liquefaction facility absence charges associated equity method investments windpowered generation facilities analysis consolidated operations presented selected amounts related dominion energy’s results operations analysis dominion energy’s results operations follows 2019 vs 2018 net revenue increased 23 primarily reflecting • 15 billion increase scana combination due operations acquired 25 billion partially offset 10 billion charge refunds amounts previously collected retail electric customers desc nnd project • 348 million increase virginia power rate adjustment clauses • 257 million increase liquefaction facility including terminalling services provided export customers 190 million decrease credits associated startup phase 44 million regulated gas transportation contracts serve export customers 23 million • absence 215 million charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers • 74 million decrease virginia power electric capacity expense related annual pjm capacity performance market effective june 2019 63 million contract termination nonutility generator 37 million partially offset annual pjm capacity performance market effective june 2018 26 million • 57 million increase due favorable pricing millstone including effects millstone 2019 power purchase agreements • 40 million decrease virginia power fuel costs due expiration energy supply contract increases partially offset • 211 million decrease absence certain merchant generation facilities sold 2018 management’s discussion analysis financial condition results operations continued • 99 million decrease services performed atlantic coast pipeline • 45 million decrease sales virginia power retail customers lower heating degree days heating season partially offset 25 million increase higher cooling degree days cooling season operations maintenance increased 28 primarily reflecting • 735 million increase operations acquired scana combination • increase merger integrationrelated costs associated scana combination 474 million including charge related voluntary retirement program 291 million • 116 million increase certain virginia power transmission generationrelated expenditures expenses primarily recovered state ferc rates impact net income • 38 million increase operating expenses commercial operations liquefaction facility costs associated regulated gas transportation contracts serve export customers increases partially offset • 113 million benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 • 99 million decrease services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • absence 81 million charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 • 43 million decrease absence certain merchant generation facilities sold 2018 depreciation depletion amortization increased 33 primarily due property plant equipment acquired scana combination 559 million including amortization nnd project costs 127 million increase various growth projects placed service 134 million including liquefaction facility 28 million absence benefit retroactive application depreciation rates regulated nuclear plants comply virginia commission requirements 31 million partially offset planned early retirement certain virginia power electric generation facilities automated meter reading infrastructure 40 million sale certain merchant electric generation facilities 2018 37 million taxes increased 48 primarily due scana combination 258 million increase property tax charges growth projects placed service 56 million charge related voluntary retirement program 24 million impairment assets related charges increased 11 billion primarily due • charges associated litigation acquired scana combination 641 million • 346 million charge related early retirement certain virginia power electric generation facilities • 160 million charge related virginia power’s planned early retirement certain automated meter reading infrastructure • 135 million charge related virginia power’s contract termination nonutility generator • 105 million charge property plant equipment acquired scana combination dominion energy committed forgo recovery • 62 million charge related abandonment project virginia power electric generating facility • abandonment certain property plant equipment 39 million partially offset • absence 219 impairment charge certain gathering processing assets • absence 135 million charge disallowance fercregulated plant • absence 37 million writeoff associated eastern market access project gains sales assets decreased 57 primarily due absence sale fairless manchester 210 million absence gains related agreements convey shale development rights natural gas storage fields 115 million partially offset increase gains sales nonregulated retail energy marketing assets 82 million income decreased 3 primarily reflecting absence gain equity earnings sale dominion energy’s 50 limited partnership interest blue racer 603 million charge related voluntary retirement program 112 million absence gain sale dominion energy’s 25 limited partnership interest catalyst old river hydroelectric limited partnership 87 million decreases partially offset increase net investment earnings nuclear decommissioning trust funds 720 million increase equity earnings atlantic coast pipeline 50 million interest related charges increased 19 primarily due debt acquired scana combination net debt redeemed 2019 314 million absence capitalization interest expense associated liquefaction facility upon completion construction 46 million partially offset absence charges associated early redemption certain debt securities 2018 69 million income tax expense decreased 39 primarily due lower pretax income 299 million impacts changes tax status certain subsidiaries connection dominion energy gas restructuring 48 million higher investment tax credits 39 million absence 2017 tax reform act impacts 46 million partially offset charge certain income taxrelated regulatory assets acquired scana combination dominion energy committed forgo recovery 194 million absence state legislative change 20 million noncontrolling interests decreased 82 primarily due acquisition public interest dominion energy midstream january 2019 2018 vs 2017 net revenue increased 2 primarily reflecting • 500 million increase due commencement commercial operations liquefaction facility including terminalling services provided export customers 508 million regulated gas transportation contracts serve export customers 58 million partially offset credits associated startup phase liquefaction facility 66 million • increase sales electric utility retail customers increase heating degree days heating season 2018 71 million increase cooling degree days cooling season 2018 69 million • 130 million increase due favorable pricing merchant generation facilities • 92 million increase due growth projects placed service liquefaction facility • 74 million increase services performed atlantic coast pipeline • 46 million increase sales electric utility retail customers due customer growth increases partially offset • 325 million decrease regulated electric generation electric gas distribution operations result 2017 tax reform act • 215 million charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers • 94 million increase net electric capacity expense related annual pjm capacity performance market effective june 2017 112 million annual pjm capacity performance market effective june 2018 39 million partially offset benefit related nonutility generators 57 million • 89 million decrease rate adjustment clauses associated electric utility operations includes impacts 2017 tax reform act • 38 million decrease scheduled declines expiration certain deti cove point contracts net revenue reflect impact reduction planned outage days millstone offsetting increase unplanned outage days operations maintenance increased 8 primarily reflecting • 102 million increase storm damage service restoration costs regulated electric service territory • 81 million increase due charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 • 73 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 47 million increase operating expenses commercial operations liquefaction facility costs associated regulated gas transportation contracts serve export customers • 38 million increase salaries wages benefits partially offset • 74 million decrease reduction planned outage days certain merchant utility generation facilities depreciation depletion amortization increased 5 primarily due increase various growth projects placed service 187 million including liquefaction facility 81 million partially offset revised depreciation rates regulated nuclear plants comply virginia commission requirements 61 million impairment assets related charges increased 388 million primarily due 219 million impairment charge certain gathering processing assets 135 million charge disallowance fercregulated plant 37 million writeoff associated eastern market access project gains sales assets increased 233 million primarily due sale fairless manchester 210 million increase gains related agreements convey shale development rights natural gas storage fields 46 million income increased 663 million primarily reflecting gain sale dominion energy’s 50 limited partnership interest blue racer 546 million absence charges associated equity method investments windpowered generation facilities 158 million gain sale dominion energy’s 25 limited partnership interest catalyst old river hydroelectric limited partnership 87 million decrease nonservice components pension postretirement employee benefit credits capitalized property plant equipment 2018 45 million partially offset decrease net investment earnings nuclear decommissioning trust funds 209 million interest related charges increased 24 primarily due absence capitalization interest expense associated liquefaction facility upon completion construction 111 million higher longterm debt interest expense resulting net debt issuances 2018 2017 92 million charges associated early redemption certain debt securities 69 million income tax expense increased 610 million primarily due absence benefits resulting remeasurement deferred income taxes new corporate income tax rate 851 million lower renewable energy investment tax credits 138 million partially offset reduced corporate income tax rate 414 million outlook dominion energy’s 2020 net income expected increase per share basis compared 2019 primarily following • absence charges refunds amounts previously collected retail electric customers desc nnd project • absence charges associated early retirement certain virginia power electric generation facilities automated meter reading infrastructure • reduction merger integrationrelated costs associated scana combination including charges related voluntary retirement program management’s discussion analysis financial condition results operations continued • decrease charges associated litigation acquired scana combination • construction operation growth projects gas transmission distribution • construction operation growth projects electric utility operations • lower depreciation virginia power’s nuclear plants associated expected approval license extensions nrc • reduced interest expense result early redemptions longterm debt • delivery millstone 2019 power purchase agreements entire year increases expected partially offset following • absence benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 • noncontrolling 25 limited partnership interest cove point sold december 2019 • increase planned outage days millstone • share dilution segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss december 2019 dominion energy realigned segments resulted formation five primary operating segments historical information presented herein recast reflect current segment presentation presented summary contributions dominion energy’s operating segments net income attributable dominion energy dominion energy virginia presented operating statistics related dominion energy virginia’s operations presented aftertax basis key factors impacting dominion energy virginia’s net income contribution 2019 vs 2018 vs 2017 gas transmission storage presented operating statistics related gas transmission storage’s operations 1 includes semi effective january 2019 december 2019 presented aftertax basis key factors impacting gas transmission storage’s net income contribution 2019 vs 2018 vs 2017 gas distribution presented selected operating statistics related gas distribution’s operations 1 includes psnc effective january 1 2019 presented aftertax basis key factors impacting gas distribution’s net income contribution 2019 vs 2018 vs 2017 management’s discussion analysis financial condition results operations continued dominion energy south carolina presented selected operating statistics related dominion energy south carolina’s operations 2019 vs 2018 presented aftertax basis key factors impacting dominion energy south carolina’s net income contribution contracted generation presented selected operating statistics related contracted generation’s operations presented aftertax basis key factors impacting contracted generation’s net income contribution 2019 vs 2018 vs 2017 corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion energy’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources see note 26 consolidated financial statements discussion items detail corporate also includes specific items attributable corporate segment 2019 primarily included 40 million aftertax transaction transition costs associated scana combination 2018 primarily included 51 million aftertax charges associated early redemption certain debt securities 31 million aftertax transaction transition costs associated dominion energy questar combination scana combination 2017 primarily included 124 million tax benefits resulting remeasurement deferred income taxes new corporate income tax rate virginia power results operations presented summary virginia power’s consolidated results overview 2019 vs 2018 net income decreased 10 primarily due charges associated planned early retirement certain electric generation facilities automated meter reading infrastructure voluntary retirement program contract termination nonutility generator decreases partially offset increases related higher rate adjustment clause equity returns revision future ash pond landfill closure costs result virginia legislation enacted march 2019 absence charges associated virginia legislation enacted march 2018 april 2018 vs 2017 net income decreased 17 primarily due charge associated virginia legislation enacted march 2018 increase storm damage service restoration costs charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 increase net electric capacity expense partially offset increase heating cooling degree days service territory analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2019 vs 2018 net revenue increased 14 primarily reflecting • 348 million increase rate adjustment clauses • absence 215 million charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers • 74 million decrease electric capacity expense primarily related annual pjm capacity performance market effective june 2019 63 million contract termination nonutility generator 37 million partially offset annual pjm capacity performance market effective june 2018 26 million • 40 million decrease fuel costs due expiration energy supply contract partially offset • 45 million decrease sales retail customers lower heating degree days heating season partially offset 25 million increase higher cooling degree days cooling season operations maintenance increased 4 primarily reflecting • 190 million charge related voluntary retirement program • 116 million increase certain transmission generationrelated expenses primarily recovered state ferc rates impact net income partially offset • 113 million benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 • absence 81 million charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 • 25 million decrease storm damage service restoration costs depreciation amortization increased 8 primarily due various projects placed service 92 million absence benefit retroactive application depreciation rates regulated nuclear plants comply virginia commission requirements 31 million partially offset absence depreciation certain electric generation facilities automated meter reading infrastructure retired early 40 million impairment assets charges increased 757 million primarily reflecting • 346 million charge related early retirement certain electric generation facilities • 160 million charge related planned early retirement certain automated meter reading infrastructure • 135 million charge related contract termination nonutility generator • 62 million charge related abandonment project electric generating facility income increased 76 million primarily reflecting increase net investment earnings nuclear decommissioning trust funds income tax expense decreased 12 primarily due lower pretax income 29 million absence 2017 tax reform act impacts 23 million partially offset lower investment tax credits 14 million 2018 vs 2017 net revenue decreased 8 primarily reflecting • 238 million decrease regulated generation distribution operations result 2017 tax reform act • 215 million charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers • 94 million increase net electric capacity expense related annual pjm capacity performance market effective june 2017 112 million annual pjm capacity performance market effective june 2018 39 million partially offset benefit related nonutility generators 57 million • 89 million decrease rate adjustment clauses includes impacts 2017 tax reform act partially offset • increase sales retail customers increase heating degree days heating season 2018 71 million increase cooling degree days cooling season 2018 69 million • 46 million increase sales retail customers due customer growth management’s discussion analysis financial condition results operations continued operations maintenance increased 13 primarily reflecting • 102 million increase due storm damage service restoration costs • 81 million increase due charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 partially offset • 19 million decrease reduction planned outage days certain generation facilities depreciation amortization substantially consistent decrease due revised depreciation rates regulated nuclear plants comply virginia commission requirements 61 million substantially offset various growth projects placed service 56 million income decreased 71 primarily related lower realized gains including investment income nuclear decommissioning trust funds 23 million electric transmission tower rental portfolio including absence assignment amounts vertical bridge towers ii llc 18 million absence interest income associated settlement state income tax refund claims 11 million partially offset absence charge associated customer settlement 16 million income tax expense decreased 61 primarily due lower pretax income 256 million reduced corporate income tax rate 235 million higher renewable energy investment tax credits 35 million partially offset absence benefits resulting remeasurement deferred income taxes new corporate income tax rate 93 million dominion energy gas results operations presented summary dominion energy gas’ consolidated results overview 2019 vs 2018 net income attributable dominion energy gas increased 50 primarily due absence charge disallowance fercregulated plant commercial operations liquefaction facility entire year absence writeoff associated eastern market access project absence impairment charge certain gathering processing assets included discontinued operations partially offset absence gains related agreements convey shale development rights natural gas storage fields charge related voluntary retirement program 2018 vs 2017 net income attributable dominion energy gas decreased 32 primarily due impairment charge certain gathering processing assets included discontinued operations charge disallowance fercregulated plant absence benefits 2017 tax reform act partially offset commencement commercial operations liquefaction facility regulated natural gas transmission activities growth projects placed service increase gains agreements convey shale development rights underneath several natural gas storage fields analysis consolidated operations presented selected amounts related dominion energy gas’ results operations analysis dominion energy gas’ results operations follows 2019 vs 2018 net revenue increased 8 primarily reflecting • 257 million increase liquefaction facility including terminalling services provided export customers 190 million decrease credits associated startup phase 44 million regulated gas transportation contracts serve export customers 23 million • 18 million increase due deti contract changes partially offset • 99 million decrease services performed atlantic coast pipeline • 42 million increase net fuel carrying costs result depressed natural gas market conditions operations maintenance remained substantially consistent primarily reflecting • 45 million increase operating expenses commercial operations liquefaction facility costs associated regulated gas transportation contracts serve export customers • 39 million charge related voluntary retirement program • 10 million increase salaries wages benefits general administrative expenses substantially offset • 99 million decrease services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income depreciation amortization increased 10 primarily due increase various growth projects placed service including liquefaction facility taxes increased 28 primarily due property taxes associated liquefaction facility impairment assets related charges decreased 92 primarily due absence charge disallowance fercregulated plant 127 million absence writeoff associated eastern market access project 37 million partially offset abandonment sweden valley project 13 million gains sales assets decreased 98 primarily due absence gains related agreements convey shale development rights natural gas storage fields earnings equity method investees decreased 20 primarily due lower earnings iroquois income increased 87 primarily due interest income cove point’s promissory notes receivable dominion energy issued 2018 interest related charges increased 79 primarily due cove point’s term loan borrowings 78 million absence capitalization interest expense associated liquefaction facility upon completion construction 46 million higher interest expense due increased affiliate borrowings 10 million income tax expense decreased 19 primarily due impacts changes tax status certain subsidiaries connection dominion energy gas restructuring 48 million partially offset reductions noncontrolling interest associated dominion energy’s purchase dominion energy midstream publicly held common units 9 million absence state legislative change 15 million noncontrolling interests decreased 31 primarily due acquisition public interest dominion energy midstream january 2019 2018 vs 2017 net revenue increased 42 primarily reflecting • 500 million increase due commencement commercial operations liquefaction facility including terminalling services provided export customers 508 million regulated gas transportation contracts serve export customers 58 million partially offset credits associated startup phase liquefaction facility 66 million • 74 million increase services performed atlantic coast pipeline • 57 million increase due regulated natural gas transmission growth projects placed service liquefaction facility partially offset • 38 million decrease scheduled declines expiration certain deti cove point contracts operations maintenance increased 25 primarily reflecting • 73 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 47 million increase operating expenses commercial operations liquefaction facility costs associated regulated gas transportation contracts serve export customers • 13 million increase salaries wages benefits general administrative expenses depreciation amortization increased 38 primarily due increase various growth projects placed service including liquefaction facility taxes increased 21 primarily due property taxes associated liquefaction facility commencing commercial operations impairment assets related charges increased 148 million primarily due charge disallowance fercregulated plant 127 million writeoff associated eastern market access project 37 million partially offset absence charge writeoff balance regulatory asset longer considered probable recovery 15 million gains sales assets increased 67 primarily due increased gains agreements convey shale development rights underneath several natural gas storage fields earnings equity method investees increased 15 primarily due higher earnings unsubscribed capacity result increase heating degree days iroquois income increased 44 primarily due interest income cove point’s promissory notes receivable dominion energy issued september 2018 20 million decrease nonservice components pension postretirement employee benefit credits capitalized property plant equipment 2018 13 million partially offset afudc rateregulated projects 7 million interest related charges increased 114 million primarily due absence capitalization interest expense associated liquefaction facility upon completion construction 72 million cove point’s term loan borrowings 36 million income tax expense increased 189 million primarily due absence benefits resulting remeasurement deferred income taxes new corporate income tax rate 246 million higher pretax income 37 million absence settlement state tax authorities 5 million partially offset reduced corporate income tax rate 90 million state legislative change 10 million management’s discussion analysis financial condition results operations continued liquidity capital resources dominion energy depends internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2019 dominion energy 51 billion unused capacity credit facility see additional discussion credit facilities shortterm debt summary dominion energy’s cash flows presented operating cash flows net cash provided dominion energy’s operating activities increased 431 million primarily due operations acquired scana combination commercial operations liquefaction facility entire year higher deferred fuel cost recoveries virginia jurisdiction partially offset increase property tax payments increased interest expense higher customer rate refunds contract termination payment nonutility generator increase merger integrationrelated costs associated scana combination net decrease working capital items dominion energy believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares december 2019 dominion energy’s board directors established annual dividend rate 2020 376 per share common stock 25 increase 2019 rate dividends subject declaration board directors january 2020 dominion energy’s board directors declared dividends payable march 2020 94 cents per share common stock dominion energy’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion energy’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion energy’s credit exposure december 31 2019 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 25 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 51 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 11 total net credit exposure 4 excludes millstone 2019 power purchase agreements investing cash flows net cash used dominion energy’s investing activities increased 23 billion primarily due decrease net proceeds sale certain merchant generation facilities interests certain equity method investments increase plant construction property additions partially offset cash restricted cash acquired scana combination financing cash flows liquidity dominion energy relies capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings dominion energy’s ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances dominion energy currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 amended rules provide streamlined shelf registration process provide registrants timely access capital allows dominion energy use automatic shelf registration statements register offering securities exchange offers business combination transactions time dominion energy may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions tender offers otherwise net cash used dominion energy’s financing activities decreased 15 billion primarily due proceeds sale 25 noncontrolling limited partnership interest cove point issuance 2019 equity units series b preferred stock partially offset increase net debt repayments 2019 compared 2018 higher common stock dividend payments credit facilities shortterm debt dominion energy uses shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties connection commodity hedging activities dominion energy required provide collateral counterparties circumstances certain collateral arrangements dominion energy may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time dominion energy may vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates dominion energy issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion energy’s commercial paper letters credit outstanding well capacity available credit facility follows 1 weightedaverage interest rate outstanding commercial paper supported dominion energy’s credit facility 210 december 31 2019 2 credit facility matures march 2023 used borrowers credit facility support bank borrowings issuance commercial paper well support combined 20 billion letters credit november 2017 dominion energy filed sec shelf registration statement sale 30 billion variable denomination floating rate demand notes called dominion energy reliability investmentsm registration limits principal amount may outstanding one time 10 billion notes offered continuous basis bear interest floating rate per annum determined dominion energy reliability investment committee designee weekly basis notes stated maturity date nontransferable may redeemed whole part dominion energy investor’s option time balance december 31 2019 75 million notes shortterm debt obligations dominion energy’s consolidated balance sheets proceeds used general corporate purposes repay debt march 2019 desc’s 700 million credit facility terminated desc added borrower joint revolving credit facility discussed dominion energy virginia power dominion energy gas questar gas december 31 2019 sublimit desc 500 million south carolina fuel company inc’s credit facility terminated february 2019 scana psnc’s credit facilities terminated march 2019 liquidity needs entities may satisfied shortterm company borrowings dominion energy february 2019 dominion energy midstream terminated 500 million revolving credit facility subsequent repaying outstanding balance 73 million plus accrued interest september 2019 dominion energy questar borrowed 30 billion 364day term loan agreement bore interest variable rate proceeds borrowing used repay principal cove point’s 30 billion term loan due 2021 dominion energy provided guarantee support dominion energy questar’s obligation 364day term loan agreement november december 2019 principal 10 billion 20 billion respectively plus accrued interest repaid longterm debt 2019 dominion energy issued following longterm public debt 2019 dominion energy also issued following longterm private debt • august 2019 dominion energy issued 10 billion 245 senior notes mature 2023 private placement proceeds used general corporate purposes repay shortterm debt including commercial paper 2019 dominion energy also remarketed following longterm debt • may 2019 virginia power remarketed four series taxexempt bonds aggregate outstanding principal 198 million new investors one bonds bear interest coupon rate 18 april 2022 bear interest market rate determined time three bonds bear interest coupon rate 19 june 2023 bear interest market rate determined time • june 2019 dominion energy successfully remarketed 700 million 2016 series a1 20 rsns due 2021 700 million 2016 series a2 20 rsns due 2024 pursuant terms 2016 equity units connection remarketing interest rates series a1 series a2 notes reset 2715 3071 respectively dominion energy receive proceeds remarketing • october 2019 dominion energy terminal company remarketed 27 million peninsula ports authority virginia coal management’s discussion analysis financial condition results operations continued terminal revenue refunding bonds series 2003 due 2033 resulting reset interest rate 155 170 october 2022 2019 dominion energy repaid repurchased redeemed following longterm debt stated maturity • february 2019 dominion energy midstream repaid 300 million variable rate term loan agreement due december 2019 principal outstanding plus accrued interest • february march 2019 desc purchased certain first mortgage bonds aggregate purchase price 12 billion pursuant tender offers also march 2019 scana purchased certain medium term notes aggregate purchase price 300 million pursuant tender offer desc tender offers scana tender offer expired first quarter 2019 • may 2019 virginia power redeemed 40 million 50 economic development authority county chesterfield pollution control refunding revenue bonds series 2009a due 2023 principal outstanding plus accrued interest • may 2019 genco redeemed 549 senior secured notes due 2024 remaining principal outstanding 33 million plus accrued interest june 2019 first mortgage lien electric generating facility previously secured notes released • june 2019 dominion energy purchased canceled 12 million 13 million june 2006 hybrids september 2006 hybrids respectively purchases conducted compliance applicable rcc • september 2019 desc purchased certain first mortgage bonds outstanding principal balance 552 million pursuant tender offer expired third quarter 2019 • november 2019 dominion energy gas redeemed 450 million 2014 series 250 senior notes would otherwise matured december 2019 dominion energy repaid repurchased redeemed 91 billion longterm debt including redemption premiums january 2020 scana provided notice redeem floating rate senior notes remaining principal outstanding 66 million plus accrued interest march 2020 notes would otherwise matured june 2034 february 2020 scana provided notice redeem remaining principal outstanding 183 million 475 mediumterm notes 155 million 4125 mediumterm notes plus accrued interest makewhole premiums march 2020 notes would otherwise matured may 2021 february 2022 respectively february 2020 addition june 2019 purchases described dominion energy redeemed remaining principal outstanding 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 purchases conducted compliance applicable rcc noncontrolling interest dominion energy midstream january 2019 dominion energy dominion energy midstream closed agreement plan merger pursuant dominion energy acquired outstanding common unit representing limited partner interests dominion energy midstream already owned dominion energy issuance 225 million shares common stock valued 16 billion terms agreement plan merger publicly held outstanding common unit representing limited partner interests dominion energy midstream converted right receive 02492 shares dominion energy common stock immediately prior closing series preferred unit representing limited partner interests dominion energy midstream converted common units representing limited partner interests dominion energy midstream accordance terms dominion energy midstream’s partnership agreement see note 20 consolidated financial statements information issuance common stock preferred stock equity securities dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans currently dominion energy issuing new shares common stock direct stock purchase plans 2019 dominion energy issued approximately 157 million shares common stock valued 114 billion acquisitions settlements stock purchase contracts various programs including dominion energy direct® atthemarket program january 2019 connection scana combination dominion energy issued 956 million shares dominion energy common stock valued 68 billion representing 06690 share dominion energy common stock share scana common stock outstanding closing scana’s outstanding debt totaled 69 billion closing also january 2019 dominion energy issued 225 million shares common stock acquire interests dominion energy midstream noted december 2019 dominion energy contributed 61 million shares common stock valued 499 million qualified defined benefit pension plan 2020 dominion energy plans issue shares employee savings plans direct stock purchase dividend reinvestment plans 2019 dominion energy received cash 309 million issuance 40 million shares dominion energy direct® employee savings plans august 2019 dominion energy issued 185 million shares related stock purchase contracts entered part dominion energy’s 2016 equity units received proceeds 14 billion 2019 dominion energy issued 99 million shares received cash proceeds 793 million net fees commissions paid 8 million atthemarket program december 2019 dominion energy completed program see note 20 consolidated financial statements description atthemarket program june 2019 dominion energy issued 16 billion 2019 equity units initially form 2019 series corporate units corporate units listed nyse symbol dcue december 2019 dominion energy issued 800000 shares series b preferred stock received proceeds 791 million repurchase common stock dominion energy repurchase shares 2019 plan repurchase shares 2020 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion energy believes current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion energy may affect ability access funding sources cause increase return required investors dominion energy’s credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion energy affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions credit ratings outlooks february 25 2020 follow downgrade individual company’s credit rating necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade could result increase cost borrowing dominion energy works closely fitch moody’s standard poor’s objective achieving targeted credit ratings dominion energy may find necessary modify business plan maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion energy must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion energy typical covenants include • timely payment principal interest • information requirements including submitting financial reports information changes dominion energy’s credit ratings lenders • performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets • compliance collateral minimums requirements related mortgage bonds • limitations liens dominion energy required pay annual commitment fees maintain credit facility addition dominion energy’s credit agreement contains various terms conditions could affect ability borrow facility include maximum debt total capital ratio crossdefault provisions december 31 2019 calculated total debt total capital ratio pursuant terms agreement follows 1 indebtedness defined bank agreements excludes certain junior subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets dominion energy material subsidiaries fails make payment various debt obligations excess 100 million lenders could require defaulting company borrower dominion energy’s credit facility accelerate repayment outstanding borrowings lenders could terminate commitments lend funds company credit facility addition defaulting company virginia power dominion energy’s obligations repay outstanding borrowing credit facility could also accelerated lenders’ commitments dominion energy could terminate dominion energy executed rccs connection issuance june 2006 hybrids september 2006 hybrids february 2020 rccs terminated subsequent redemption remaining principal outstanding june 2006 hybrids september 2006 hybrids see note 18 consolidated financial statements additional information management’s discussion analysis financial condition results operations continued dominion energy monitors debt covenants regular basis order ensure events default occur december 31 2019 events default dominion energy’s debt covenants dividend restrictions certain agreements associated dominion energy’s credit facility contain restrictions ratio debt total capitalization limitations restrict dominion energy’s ability pay dividends receive dividends subsidiaries december 31 2019 see notes 19 21 consolidated financial statements description potential restrictions dividend payments dominion energy including connection deferral contract adjustment payments associated 2019 equity units information incorporated herein reference well failure declare pay dividends series preferred stock series b preferred stock future cash payments contractual obligations planned capital expenditures contractual obligations dominion energy party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion energy party december 31 2019 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion energy’s current liabilities paid cash 2020 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt payments stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2019 outstanding principal instrument terms ending instrument’s stated maturity see note 18 consolidated financial statements reflect dominion energy’s ability defer stock purchase contract payments 2019 equity units initially form corporate units 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 includes capital operations maintenance commitments 5 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 22 consolidated financial statements due uncertainty timing amounts ultimately paid 118 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 6 includes interest rate foreign currency swap agreements planned capital expenditures dominion energy’s planned capital expenditures expected total approximately 82 billion 81 billion 76 billion 2020 2021 2022 respectively dominion energy’s planned expenditures expected include construction expansion electric generation including renewable energy natural gas distribution transmission storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel maintenance contributions atlantic coast pipeline fund dominion energy’s portion atlantic coast pipeline project dominion energy expects fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors see dominion energy virginia gas transmission storage gas distribution dominion energy south carolina contracted generation properties item 1 business discussion dominion energy’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion energy’s board directors late 2019 subject continuing review adjustment actual capital expenditures may vary estimates dominion energy may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements leasing arrangement december 2019 dominion energy signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 465 million fund estimated project costs dominion energy ultimately proceeds project completion expected completed earlier mid2023 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs project terminated certain events default dominion energy could required pay 899 funded amount specific full recourse events dominion energy could required pay 100 funded amount 51month lease term commence construction substantially complete facility able occupied end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 83 project costs difference project costs sale proceeds dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements dominion energy expects recognize rightofuse asset corresponding finance lease liability commencement lease term dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense guarantees dominion energy primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others addition dominion energy provided guarantee support portion atlantic coast pipeline’s obligation 34 billion revolving credit facility see note 23 consolidated financial statements additional information future issues matters see item 1 business notes 13 23 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion energy subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion energy incurred 260 million 198 million 200 million expenses including accretion depreciation 2019 2018 2017 respectively connection environmental protection monitoring activities dominion energy expects expenses approximately 286 million 275 million 2020 2021 respectively addition capital expenditures related environmental controls 134 million 104 million 201 million 2019 2018 2017 respectively dominion energy expects expenditures approximately 159 million 132 million 2020 2021 respectively future environmental regulations climate change december 2015 paris agreement formally adopted united nations framework convention climate change key element initial us commitment agreement implementation clean power plan epa proposed repeal june 2017 administration announced us intends file withdraw paris agreement 2019 several states including virginia subsequently announced commitment achieving carbon reduction goals paris agreement possible time predict timing impact withdrawal legal requirements us federal state local levels pursuant paris agreement could impact companies’ customers business state actions related air ghg emissions august 2017 ozone transport commission released draft model rule control nox emissions natural gas pipeline compressor fuelfire prime movers states within ozone transport region including states dominion energy natural gas operations expected develop reasonably achievable control technology rules existing sources based ozone transport commission model rule states outside ozone transport commission may also consider model rules setting new reasonably achievable control technology standards several states dominion energy operates including pennsylvania new york maryland virginia ohio developing announced plans develop statespecific regulations control ghg emissions including methane management’s discussion analysis financial condition results operations continued dominion energy cannot currently estimate potential financial statement impacts related matters could material impact financial condition andor cash flows water november 2019 epa released proposed revisions effluent limitations guidelines rule adopted could extend deadlines compliance certain standards several facilities impacts rule could material dominion energy’s results operations financial condition andor cash flows existing regulatory frameworks south carolina virginia provide rate recovery mechanisms could substantially mitigate impacts regulated electric utilities phmsa regulation recent reauthorization phmsa included new provisions historical records research maximumallowed operating pressure validation use automated remotecontrolled valves new replaced lines increased civil penalties evaluation expanding integrity management beyond highconsequence areas phmsa yet issued new rulemaking items doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets cea amended title vii doddfrank act requires certain overthe counter derivatives swaps cleared derivatives clearing organization swap subject clearing requirement executed designated contract market swap execution facility nonfinancial entities use swaps hedge mitigate commercial risk often referred end users may elect enduser exception cea’s clearing requirements dominion energy elected exempt swaps cea’s clearing requirements result changes rulemaking process dominion energy’s derivative activities exempted clearing exchange trading margin requirements could subject higher costs due decreased market liquidity increased margin payments addition dominion energy’s swap dealer counterparties may attempt passthrough additional trading costs connection changes elimination rulemaking implements title vii doddfrank act due evolving rulemaking process dominion energy currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows virginia legislation 2020 general assembly session virginia included several proposals ultimately enacted law could material impact dominion energy’s operations well impacts regulatory cost recovery items consideration include environmental requirements joining rggi meeting mandatory renewable portfolio standards could result need develop new renewable electric generation facilities closure certain existing electric generation facilities expanded use distributed renewable generation resources additional requirements related demand side management programs additionally legislation proposed may affect dominion energy’s plans andor cost recovery mechanisms offshore wind development replacing diesel school buses electric school buses due evolving legislative process dominion energy unable estimate potential financial statement impacts related matters currently consideration virginia general assembly could material impact results operations financial condition andor cash flows atlantic coast pipeline september 2014 dominion energy along duke southern announced formation atlantic coast pipeline atlantic coast pipeline focused constructing approximately 600mile natural gas pipeline running west virginia north carolina atlantic coast pipeline continued experience delays obtaining andor maintaining permits necessary construction along construction delays due judicial actions february 2020 supreme court us heard oral arguments atlantic coast pipeline’s case regarding appalachian trail crossing expected issue ruling june 2020 favorable ruling received atlantic coast pipeline also evaluating possible legislative administrative remedies issue given legal challenges ongoing discussions customers project construction expected completed end 2021 full inservice early 2022 project costs estimated approximately 8 billion excluding financing costs atlantic coast pipeline reached agreements principle major customers amend contracted rate share certain delay cost increases pending certain regulatory approvals project construction activities schedules costs subject uncertainty due permitting andor work delays including due judicial regulatory action abnormal weather conditions could result cost schedule modifications future suspension afudc atlantic coast pipeline andor impairment charges potentially material dominion energy’s cash flows financial position andor results operations see note 9 consolidated financial statements information north anna virginia power considering construction third nuclear unit site located north anna virginia power decides build new unit would require combined construction permit operating license nrc approval virginia commission certain environmental permits approvals june 2017 nrc issued combined construction permit operating license virginia power yet committed building new nuclear unit north anna item 7a item 7 management’s discussion analysis financial condition results operations mda discusses results operations general financial condition mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data contents mda consists following information  forwardlooking statements  accounting matters  results operations  segment results operations  liquidity capital resources  future issues matters forwardlooking statements report contains statements concerning expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “target” similar words make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events including hurricanes severe storms cause outages property damage facilities  state federal legislative regulatory developments changes environmental laws regulations including related climate change ghg emissions subject  cost environmental compliance including costs related climate change  risks associated operation nuclear facilities  fluctuations energyrelated commodity prices effect could earnings liquidity position underlying value assets  capital market conditions including availability credit ability obtain financing reasonable terms  risks associated membership participation pjm related obligations created default participants  price risk due securities held investments nuclear decommissioning trusts  fluctuations interest rates  changes federal state tax laws regulations  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  changes regulated electric rates collected company including outcome 2009 base rate review timing collection relates fuel costs  timing receipt regulatory approvals necessary planned construction expansion projects  inability complete planned construction expansion projects within terms time frames initially anticipated  changes rules rto participate including changes rate designs capacity models  political economic conditions including threat domestic terrorism inflation deflation  adverse outcomes litigation matters additionally risks could cause actual results differ predicted results set forth item 1a risk factors forwardlooking statements based beliefs assumptions using information available time statements made caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions discussed development selection disclosure policies board directors also serves audit committee accounting derivative contracts instruments fair value use derivative contracts futures swaps forwards options ftrs manage commodity financial markets risks business operations derivative contracts certain exceptions subject fair value accounting prescribed sfas 157 fair value measurements reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held nuclear decommissioning trust funds also subject fair value accounting see note 8 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices seek indicative price information external sources including broker quotes industry publications pricing information external sources available believe observable pricing information indicative fair value judgment required develop estimates fair value cases must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions options contracts optionlike characteristics observable pricing information available external sources generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value accordance sfas 157 maximize use observable inputs minimize use unobservable inputs measuring fair value utilize following fair value hierarchy prescribed sfas 157 categorizes inputs used measure fair value three levels level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments majority exchangetraded derivatives exchangelisted equities treasury securities held nuclear decommissioning trust funds level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include nonexchange traded derivatives overthecounter forwards swaps interest rate swaps foreign currency forwards options municipal bonds shortterm debt securities held nuclear decommissioning trust funds level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 consist longdated commodity derivatives ftrs modeled commodity derivatives fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes pjm auctions accurate dayone valuation generally considered representative ultimate settlement values modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets december 31 2008 net balance commodity derivatives categorized level 3 fair value measurements net liability 69 million hypothetical 10 increase commodity prices would decrease net liability 3 million hypothetical 10 decrease commodity prices would increase net liability 3 million sfas 157 clarifies fair value based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact nonperformance risk liabilities apply credit adjustments derivative fair values accordance guidance sfas 157 credit adjustments currently material derivative fair values cash flow hedges forecasted transactions estimate future cash flows forecasted transactions evaluate probability occurrence timing transactions changes conditions occurrence unforeseen events could require discontinuance hedge accounting could affect timing reclassification gains andor losses cash flow hedges aoci earnings accounting regulated operations accounting regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets amortized expense regulatory liabilities amortized income period authorized regulator discussed note 2 consolidated financial statements april 2007 virginia general assembly passed legislation returns virginia jurisdiction utility generation operations costofservice rate regulation result reapplied provisions sfas 71 operations april 4 2007 date legislation enacted reapplication sfas 71 virginia jurisdiction generation operations resulted 259 million 158 million tax extraordinary charge reclassification 195 management’s discussion analysis financial condition results operations continued million 119 million tax unrealized gains aoci related nuclear decommissioning trust funds established 454 million longterm regulatory liability amounts previously collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning utility nuclear generation stations excess amounts recorded pursuant sfas 143 accounting asset retirement obligations connection reapplication sfas 71 prospectively changed certain accounting policies virginia jurisdiction generation operations used costofservice rateregulated entities extraordinary item previously discussed overall impact changes material results operations financial condition 2007 evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made currently believe recovery regulatory assets probable see notes 2 11 consolidated financial statements asset retirement obligations recognize liabilities expected cost retiring tangible longlived assets legal obligation exists asset retirement obligations aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates aros currently reported consolidated balance sheets measured period historically low interest rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset accrete aro liability reflect passage time 2008 2007 2006 recognized 38 million 38 million 40 million respectively accretion expect incur 40 million 2009 upon reapplication sfas 71 virginia jurisdiction generation operations began recording accretion depreciation associated nuclear decommissioning aros formerly charged expense adjustment regulatory liability nuclear decommissioning trust funds previously discussed order match recognition ratemaking purposes significant portion aros relates future decommissioning nuclear facilities december 31 2008 nuclear decommissioning aros reported generation segment totaled 673 million representing approximately 94 total aros based significance following discussion critical assumptions inherent determin ing fair value aros relates associated nuclear decommissioning obligations utilize periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants obtained updated cost studies nuclear plants 2006 reflected increases base year costs cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition cost estimates include cost escalation rates applied base year costs selection cost escalation rates dependent subjective factors consider critical assumption determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facilities use alternative rates could material liabilities recognized example increased cost escalation rate 05 amount recognized december 31 2008 aros related nuclear decommissioning would 123 million higher revenue recognitionunbilled revenue recognize record revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amounts electric energy delivered customers yet billed estimated recorded unbilled revenue estimate reversed following month actual revenue recorded based meter readings customer receivables included 341 million 270 million accrued unbilled revenue december 31 2008 2007 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes generation patterns customer usage patterns meter accuracy factors basis estimates unbilled revenues could significant effect calculation therefore results operations financial condition income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material prior 2007 established liabilities taxrelated contingencies believed probable liability incurred amount could reasonably estimated accordance sfas 5 accounting contingencies subsequently reviewed light changing facts circumstances however discussed note 3 consolidated financial statements effective january 1 2007 adopted fin 48 accounting uncertainty income taxes taking consideration uncertainty judgment involved determination filing income taxes fin 48 establishes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information take expect take tax return position recognized financial statements disclose amount unrecognized tax benefit december 31 2008 180 million unrecognized tax benefits majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes evaluate quarterly probability realizing deferred tax assets reviewing forecast future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets establish valuation allowance likely portion deferred tax asset realized december 31 2008 valuation allowances deferred tax assets accounting standards policies 2008 2007 2006 required adopt several new accounting standards discussed note 3 consolidated financial statements see note 4 consolidated financial statements discussion recently issued accounting standards adopted future fourth quarter 2008 revised derivative income statement classification policy described note 2 consolidated financial statements present income statement activity nontrading derivatives based nature underlying risk includes unrealized changes fair value settlements financiallysettled derivatives held trading purposes well gains losses attributable ineffectiveness changes time value options discontinuances hedging instruments previously presented operations maintenance expense net basis prior year consolidated statements income recast conform 2008 presentation however impact earnings results operations presented summary consolidated results overview 2008 vs 2007 net income increased 93 864 million primarily due reinstatement annual fuel rate adjustments virginia jurisdiction generation operations effective july 1 2007 deferred fuel accounting underrecoveries fuel costs absence extraordinary charge incurred 2007 connection reapplication sfas 71 virginia jurisdiction generation operations 2007 vs 2006 net income decreased 6 448 million unfavorable drivers include extraordinary charge connection reapplication sfas 71 virginia jurisdiction generation operations increase outage costs primarily due increase number scheduled outage days certain electric generating facilities decrease gains sales emissions allowances favorable drivers include increase regulated electric sales resulting favorable weather customer growth factors lower fuel expense due reinstatement annual fuel rate adjustments virginia jurisdiction generation operations analysis consolidated operations presented selected amounts related results operations analysis results operations 2008 compared 2007 compared 2006 follows 2008 vs 2007 operating revenue increased 12 69 billion primarily reflecting combined effects  722 million increase fuel revenue primarily due impact comparatively higher fuel rate certain customer jurisdictions  84 million increase associated sales wholesale customers primarily due higher prices 46 million increased volumes 38 million management’s discussion analysis financial condition results operations continued  56 million increase new retail customer connections primarily residential commercial customer classes partially offset  95 million decrease sales retail customers due 10 decrease cooling degree days 2 decrease heating degree days operating expenses items electric fuel energy purchases expense increased 14 27 billion primarily reflecting 434 million increase fuel costs largely result higher commodity prices including purchased power partially offset 113 million decrease due deferral fuel expenses excess fuel rate recovery operations maintenance expense increased 1 14 billion primarily reflecting  69 million increase resulting higher salaries wages benefits expenses general administrative costs partially offset  58 million decrease outage costs resulting reduction scheduled outages certain electric generating facilities depreciation amortization expense increased 7 608 million primarily due increase depreciation rates generation assets 36 million property additions 15 million partially offset 11 million decrease amortization expense primarily associated lower consumption emissions allowances interest related charges increased 2 309 million primarily due 43 million impact additional borrowings partially offset 23 million benefit related redemption callable puttable enhanced securities capes lower interest rates variable rate debt 15 million see note 15 consolidated financial statements additional information capes income tax expense increased 35 500 million reflecting higher pretax income 2008 extraordinary item reflects absence 158 million aftertax charge 2007 connection reapplication sfas 71 virginia jurisdiction generation operations 2007 vs 2006 operating revenue increased 10 62 billion reflecting combined effects  166 million increase due impact comparatively higher fuel rate implemented july 2007 certain customer jurisdictions  162 million increase sales retail customers attributable variations rates resulting changes sales mix factors 95 million new customer connections 67 million primarily residential commercial customer classes  131 million increase sales retail customers due increase number heating cooling degree days compared prior year experienced 15 increase cooling degree days 10 increase heating degree days  80 million increase sales wholesale customers primarily due increased volumes  42 million increase resulting primarily higher ancillary service revenue reflecting higher regulation operating reserves revenue received pjm operating expenses items electric fuel energy purchases expense increased 6 24 billion primarily reflecting 536 million increase underlying fuel costs including subject deferral accounting due higher consumption fossil fuel purchased power resulting increase number heating cooling degree days higher commodity costs change generation mix increase largely offset 408 million decrease primarily due deferral fuel expenses excess current period fuel rate recovery purchased electric capacity expense decreased 5 429 million primarily due scheduled capacity reductions certain longterm power purchase contracts energyrelated commodity purchases expense decreased 52 27 million primarily reflecting decrease nonutility coal activities substantially exited operations maintenance expense increased 18 14 billion primarily reflecting  74 million increase outage costs related scheduled outages certain generating facilities  54 million decrease gains sale emissions allowances held consumption  40 million increase due higher salaries wages 42 million incentivebased compensation 30 million partially offset decrease pension postretirement benefits expense 32 million  34 million increase related services provided dominion resources services inc drs affiliate provides accounting legal finance certain administrative technical services us  23 million increase related outside services tree trimming brush removal expenses partially offset  16 million decrease expenses major storms service restoration associated distribution operations depreciation amortization expense increased 6 568 million due incremental expense resulting property additions 12 million change depreciation rates generation assets reflect results new depreciation study 10 million increased amortization expense associated emissions allowances held consumption 10 million taxes increased 6 173 million primarily due recognition increased property taxes 2007 reflecting changes tax rates assessed valuations income decreased 27 55 million resulting primarily recognition decommissioning trust earnings regulatory liability due reapplication sfas 71 virginia jurisdiction generation operations extraordinary item reflects 158 million aftertax charge connection reapplication sfas 71 virginia jurisdiction generation operations outlook believe operating businesses provide stable growth net income 2009 expected results 2009 include following growth factors  increase earnings assuming increase base rates resulting 2009 base rate review normal weather utility service territory rate adjustments certain generation transmission expansion projects continued growth sales despite recent economic downturn expect continued growth sales due several factors including limited exposure industrial customers unemployment rate virginia national average growing number energyintensive computer data centers significant government presence northern virginia service territory us military base closures reassignments resulted personnel shifted facilities virginia fort lee fort belvoir increase 2009 expected partially offset  higher interest expense reflecting difficult credit market conditions  increase costs dominionsponsored employee pension postretirement benefit plans employees participate largely reflecting impact 2008 declines market values investments held fund obligations segment results operations presented summary contributions operating segments net income dvp presented operating statistics related dvp operations 1 includes electricity delivered retail choice program virginia jurisdictional electric customers 2 cooling degree days units measuring extent average daily temperature greater 65 degrees calculated difference 65 degrees average temperature day 3 heating degree days units measuring extent average daily temperature less 65 degrees calculated difference 65 degrees average temperature day 4 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2008 vs 2007 1 reflects increase storm damage service restoration costs resulting severe weather 2008 2007 vs 2006 1 primarily resulting absence 2007 expenses associated tropical storm ernesto september 2006 generation presented operating statistics related generation operations management’s discussion analysis financial condition results operations continued presented aftertax basis key factors impacting generation’s net income contribution vs 2007 1 primarily reflects reapplication deferred fuel accounting effective july 1 2007 virginia jurisdiction generation operations 2 primarily reflects higher margins associated wholesale customers 3 primarily reflects reduction scheduled capacity certain longterm power purchase contracts 2007 vs 2006 1 primarily reflects reapplication deferred fuel accounting effective july 1 2007 partially offset increased consumption fossil fuel higher purchased power costs first six months 2007 2 primarily reflects increase scheduled outage costs certain nuclear fossil units corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate primarily includes specific items attributable primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 23 consolidated financial statements discussion items liquidity capital resources depend internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities impact recent credit market events despite recent disruptions credit markets sufficient access liquidity daily operations credit facilities discussed financing cash flows liquidity expect operations provide sufficient cash flow fund maintenance capital expenditures maintain grow dividend dominion however expect access capital markets fund growth capital expenditures necessary flexibility mitigate need future debt financings equity issuances postponing cancelling certain planned capital expenditures december 31 2008 24 billion unused capacity joint credit facility see discussion joint credit facilities shortterm debt summary cash flows presented operating cash flows 2008 net cash provided operating activities increased 19 million compared 2007 increase primarily due lower income tax payments benefit reinstatement annual fuel rate adjustments virginia jurisdiction effective july 1 2007 partially offset negative impact milder weather retail sales unfavorable changes working capital believe operations provide stable source cash flow contribute planned levels capital expenditures provide dividends dominion however operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk exposure potential concentrations credit risk results primarily sales wholesale customers presented summary gross credit exposure december 31 2008 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 43 total net credit exposure 2 counterparty exposure category represented 21 total net credit exposure 3 two counterparty exposures combined category represented 27 total net credit exposure investing cash flows 2008 net cash used investing activities increased 697 million compared 2007 primarily reflecting increase capital expenditures generation transmission construction projects including virginia city hybrid energy center financing cash flows liquidity rely banks capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject meeting certain regulatory requirements including registration sec approval virginia commission 2008 net cash provided financing activities increased 625 million compared 2007 change due higher net issuances shortterm debt affiliated current borrowings 2008 versus net repayments 2007 partially offset 2008 repayment affiliated notes payable joint credit facilities shortterm debt use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing level borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations credit facility commitments large consortium banks including lehman brothers holdings inc lehman september 2008 lehman filed protection chapter 11 federal bankruptcy code united states bankruptcy court southern district new york december 31 2008 lehman’s total commitment credit facilities less six percent aggregate commitment consortium banks believe potential reduction available capacity credit facilities could result lehman’s bankruptcy significant impact liquidity excluding commitments provided lehman shortterm financing supported 28 billion fiveyear joint revolving credit facility dominion dated february 2006 scheduled terminate february 2011 credit facility used working capital support combined commercial paper programs dominion us general corporate purposes credit facility also used support 15 billion letters credit addition credit facility commitments 28 billion disclosed also 182 million fiveyear credit facility excluding commitments provided lehman supports certain taxexempt financings december 31 2008 total outstanding commercial paper supported joint credit facility 297 million borrowings total amount letter credit issuances 187 million less 86 million issued behalf december 31 2008 capacity available joint credit facility approximately 24 billion longterm debt 2008 issued following longterm debt january 2008 borrowed 30 million connection economic development authority city chesapeake pollution control refunding revenue bonds series 2008 mature 2032 bear interest initial coupon rate 36 first five years market rate determined thereafter proceeds used refund principal amount industrial development authority city chesapeake money market municipals pollution control revenue bonds series 1985 would otherwise matured february 2008 november 2008 borrowed 122 million connection industrial development authority town louisa pollution control refunding revenue bonds series 2008 b mature 2035 bear interest initial coupon rate 5375 first five years market rate determined thereafter proceeds used refund principal amount industrial development authority town louisa money market municipals pollution control revenue bonds series 1984 1985 would otherwise matured december 2008 november 2008 borrowed approximately 38 million connection industrial development authority town louisa pollution control refunding revenue bonds series 2008 c mature 2035 bear interest initial coupon rate 50 first three years market rate determined thereafter proceeds used refund principal amount industrial development authority town louisa money market municipals pollution control revenue bonds series 1987 industrial development authority town louisa pollution control revenue bonds series 1994 would otherwise matured december 2015 january 2024 respectively management’s discussion analysis financial condition results operations continued including amounts discussed 2008 repaid 965 million longterm debt notes payable also includes repayment 412 million 7375 unsecured junior subordinated notes related redemption 16 million units 400 million 7375 virginia power capital trust ii preferred securities due july 30 2042 securities redeemed price 25 per preferred security plus accrued unpaid distributions common shareholder’s equity december 2008 approved virginia commission issued 11786 shares common stock dominion reflecting conversion 350 million shortterm demand note borrowings dominion equity borrowings parent ability borrow funds dominion shortterm longterm borrowing arrangements december 31 2008 nonregulated subsidiaries outstanding borrowings net repayments dominion money pool 198 million shortterm demand note borrowings dominion 219 million december 31 2008 longterm borrowings dominion december 31 2008 credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related us may affect ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing credit ratings credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies “event risk” applicable credit ratings parent company dominion april 2008 fitch upgraded credit ratings preferred stock senior unsecured junior subordinated debt securities affirmed ‘f2’ commercial paper rating credit ratings february 1 2009 follow february 1 2009 fitch moody’s standard poor’s maintain stable outlook respective ratings company generally downgrade credit rating would restrict ability raise shortterm longterm financing long credit rating remains “investment grade” would increase cost borrowing work closely fitch moody’s standard poor’s objective maintaining current credit ratings order maintain current ratings may find necessary modify business plans changes may adversely affect growth debt covenants part borrowing funds issuing debt shortterm longterm preferred securities must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock dominion including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique us typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens required pay minimal annual commitment fees maintain joint credit facility addition joint credit agreement contains various terms conditions could affect ability borrow funds facility include maximum debt total capital ratio crossdefault provisions ratio debt total capital defined agreement exceed 65 end fiscal quarter december 31 2008 debt total capital ratio calculated pursuant terms agreement 51 agreement’s crossdefault provisions material subsidiaries fail make payment various debt obligations excess 35 million may required lenders accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds us however defaults indebtedness dominion material subsidiaries dominion would affect lenders’ commitment us joint credit agreement monitor covenants regular basis order ensure events default occur december 31 2008 events default covenants dividend restrictions virginia commission may prohibit public service company declaring paying dividend affiliate found detrimental public interest december 31 2008 virginia commission restricted payment dividends certain agreements associated joint credit facility dominion contain restrictions ratio debt total capitalization limitations restrict ability pay dividends dominion december 31 2008 future cash payments contractual obligations planned capital expenditures contractual obligations party numerous contracts arrangements obligating us make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services presented table summarizing cash payments may result contracts party december 31 2008 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable interest rate swaps majority current liabilities paid cash 2009 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 amounts exclude open purchase orders services provided demand timing cannot determined 3 excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 11 12 19 consolidated financial statements due uncertainty timing amounts ultimately paid 140 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements planned capital expenditures planned capital expenditures expected total approximately 26 billion 23 billion 25 billion 2009 2010 2011 respectively expect fund capital expenditures cash operations combination securities issuances capital contributions dominion planned capital expenditures include capital projects subject approval regulators board directors annual capital expenditures plant equipment 2009 including environmental upgrades construction improvements expected total approximately  generation segment 18 billion generation operations including nuclear fuel  dvp segment 417 million transmission operations 447 million distribution operations based available generation capacity current estimates growth customer demand need additional generation capacity future see generationproperties item 1 business discussion expansion plans may choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances future issues matters see item 1 business item 3 legal proceedings note 20 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations andor financial condition environmental matters subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures incurred approximately 125 million 121 million 102 million expenses including depreciation 2008 2007 2006 respectively connection environmental protection monitoring activities expect expenses approximately 149 million 142 million 2009 2010 respectively addition capital expenditures related environmental controls 116 million 189 million 170 million 2008 2007 2006 respectively expenditures expected approximately 113 million 104 million 2009 2010 respectively future environmental regulations expect may federal legislative regulatory action regarding regulation ghg emissions regarding compliance stringent air emission standards regarding regulation cooling water intake structures discharges future respect ghg emissions outcome terms specific requirements timing uncertain may include ghg emissions capandtrade program carbon tax electric generators natural gas businesses respect emission reductions specific requirements depend epa andor states replace camr outcome epa’s response cair remand respect cooling water intakes discharges expect future federal regulation cooling water intake structures focus epa state regulatory authorities thermal discharge issues new proposals adopted additional significant expenditures may required management’s discussion analysis financial condition results operations continued item 7a item 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations mda discusses results operations general financial condition virginia electric power company mda read conjunction consolidated financial statements “company” used throughout mda depending context use may represent following legal entity virginia electric power company one virginia electric power company’s consolidated subsidiaries entirety virginia electric power company consolidated subsidiaries company whollyowned subsidiary dominion resources inc dominion contents mda reader find following information mda n forwardlooking statements n introduction n accounting matters n results operations n segment results operations n sources uses cash n future issues matters n risk factors cautionary statements may affect future results forwardlooking statements report contains statements concerning company’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” similar words company makes forwardlooking statements full knowledge risks uncertainties exist may cause actual results materially different predicted results factors may cause actual results differ often presented forwardlooking statements additionally risks may cause actual results differ predicted results set forth risk factors cautionary statements may affect future results company bases forwardlooking statements management’s beliefs assumptions using information available time statements made company cautions reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often materially differ actual results company undertakes obligation update forwardlooking statement reflect developments occurring statement made introduction virginia electric power company virginia public service company whollyowned subsidiary dominion company regulated public utility generates transmits distributes electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity approximately 22 million retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 virginia’s total land area accounts 80 population company trading relationships beyond geographic limits retail service territory buys sells wholesale electricity natural gas energy commodities maintaining improving company’s financial condition flexibility paramount importance management important measures entity’s financial strength creditworthiness credit ratings assigned moody’s investors service moody’s standard poor’s ratings group division mcgrawhill companies inc standard poor’s agencies determined company’s credit ratings investment grade company’s businesses managed along three primary operating segments generation energy delivery segments composition reflect changes made company’s management structure fourth quarter 2003 contributions net income company’s primary operating segments determined based measure profit executive management believes represents segments’ “core” earnings result certain specific items attributable segments included profit measures evaluated executive management assessing segment performance allocating resources among segments specific items reported corporate segment generation includes company’s electric generation operations fuel mix used operations diversified includes coal nuclear gas oil hydro purchased power company’s strategy electric generation operations focuses serving customers virginia northeastern north carolina generation facilities located virginia west virginia north carolina utility generation operations provide generation segment’s sources revenue cash flows operations sensitive external factors primarily weather currently revenue utility operations largely reflects capped rates charged customers virginia majority utility customer base virginia’s current deregulation legislation electric base rates capped mid2007 rates capped changes generation segment’s operating costs relative costs recovered capped rates impact company’s earnings generation segment reduced costs terminating certain longterm power purchase agreements based engineering studies extended estimated useful lives generation assets reducing annual depreciation expense assets currently legislators virginia evaluating future electric deregulation virginia well possibility extending capped rates period variability expenses generation segment relates primarily cost fuel consumed timing duration costs scheduled outages company currently permitted seek raterecovery fuel costs associated utility operations energy includes following operations n regulated electric transmission system located virginia northeastern north carolina n company’s clearinghouse operations clearinghouse responsible energy trading hedging arbitrage activities energy segment’s revenue cash flows derived regulated nonregulated operations revenue cash flows provided regulated electric transmission operations based primarily rates established federal energy regulatory commission ferc variability revenue cash flows provided business results fluctuation throughput primarily weather dependent variability expenses relates largely operating maintenance expenditures including decisions regarding use resources operations maintenance capitalrelated activities revenue cash flows energy segment’s clearinghouse business subject variability associated changes commodity prices energy segment’s nonregulated clearinghouse business uses physical financial commodity contracts hedge price risk certain hedging trading activities may require cash deposits satisfy margin requirements addition reported earnings segment reflect changes fair value certain derivatives values may change significantly period variability expenses nonregulated businesses relates largely labor benefits costs purchased commodities resale payments financiallysettled contracts delivery includes company’s electric distribution systems customer service operations electric distribution operations serve customers virginia northeastern north carolina revenue cash flows provided electric distribution operations based primarily rates established state regulatory authorities variability delivery segment’s revenue cash flows relates largely changes sales volumes primarily weather sensitive variability expenses results changes cost routine maintenance repairs including labor benefits well decisions regarding use resources operations maintenance capitalrelated activities stormrelated damage property recent property damage caused hurricane isabel corporate includes company’s corporate functions specific items attributable company’s operating segments reported corporate accounting matters critical accounting policies estimates company identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions accounting derivative contracts fair value company uses derivatives manage commodity financial market currency exchange risks addition company purchases sells commoditybased contracts natural gas electricity oil markets trading purposes accounting requirements derivatives hedging activities complex interpretation requirements standardsetting bodies ongoing generally derivatives reported consolidated balance sheets fair value addition 2002 prior years energy trading contracts reported fair value result new accounting requirements beginning 2003 nonderivative trading contracts longer reported fair value prior period financial statements restated change changes fair value derivatives designated accounting hedges recorded earnings measurement fair value based actively quoted market prices available otherwise company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available measurement involves judgment estimates based valuation methodologies considered appropriate management individual contracts use different assumptions could material effect contract’s estimated fair value addition hedges forecasted transactions company must estimate expected future cash flows forecasted transactions well evaluate probability occurrence timing transactions changes conditions occurrence unforeseen events could affect timing recognition earnings changes fair value certain hedging derivatives use estimates longlived asset impairment testing impairment testing longlived assets intangible assets definite lives required circumstances indicate assets may impaired performing impairment test company would estimate future cash flows associated individual assets groups assets impairment must recognized undiscounted estimated future cash flows less related asset’s carrying amount circumstances asset must written fair value absence market price information may estimated present value expected future net cash flows using appropriate discount rate although cash flow estimates used company based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results asset retirement obligations company recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists asset retirement obligations aros recognized fair value incurred capitalized part cost related tangible longlived assets absence quoted market prices company estimates fair value aros using present value techniques estimates future cash flows associated retirement activities discounted using creditadjusted risk free rate aros currently reported company’s consolidated balance sheet measured period historically low interest rates impact measurements new aros using different rates future may significant portion company’s aros relates future decommissioning nuclear facilities december 31 2003 nuclear decommissioning aros totaled 716 million represented approximately 97 company’s total aros significance following discussion critical assumptions inherent determining fair value aros relates associated company’s nuclear decommissioning obligations company obtains thirdparty experts periodic sitespecific “base year” cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods nature highly uncertain may vary significantly actual results addition estimates dependent subjective factors including selection cost escalation rates company considers critical assumption company determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facilities weighted average cost escalation used company 328 use alternative rates would material liabilities recognized example company increased cost escalation rate 05 378 amount recognized december 31 2003 aros related nuclear decommissioning would 140 million higher accounting regulated operations methods allocating costs accounting periods operations subject federal state costofservice rate regulation may differ accounting methods generally applied nonregulated companies timing cost recovery prescribed regulatory authorities differs timing expense recognition used accounting purposes company’s consolidated financial statements may recognize regulatory asset expenditures otherwise would expensed regulatory assets represent probable future revenue associated certain costs recovered customers rates regulatory liabilities represent probable future reductions revenue associated expected customer credits rates amounts collected customers expenditures yet incurred management makes assumptions regarding probability regulatory asset recovery future rates approved applicable regulatory authorities expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory assets determined less probable would expensed period assessment made see notes 2 11 consolidated financial statements newly adopted accounting standards 2003 company required adopt several new accounting standards affect comparability consolidated financial statements requirements standards discussed notes 2 3 consolidated financial statements following discussion presented provide understanding financial statement impacts standards comparing 2003 consolidated financial statements prior years sfas adopting statement financial accounting standards sfas 143 accounting asset retirement obligations january 1 2003 affected comparability company’s 2003 consolidated financial statements prior years follows n recognition asset retirement obligations 697 million compared liability 838 million previously recorded nuclear decommissioning n recognition 175 million capitalized asset retirement costs property plant equipment 77 million increase accumulated depreciation amortization representing depreciation costs december 31 2002 n beginning 2003 accretion aros nuclear decommissioning reported operations maintenance expense previously expenses associated provision nuclear decommissioning reported depreciation amortization expense described n beginning 2003 realized unrealized earnings trusts available funding decommissioning activities company’s nuclear plants recorded income comprehensive income appropriate previously permitted regulatory authorities earnings recorded income offsetting charge expense also recorded income accretion decommissioning liability eitf 023 0311 adoption emerging issues task force eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities related eitf 0311 reporting realized gains losses derivative instruments subject fasb statement 133 “held trading purposes” defined issue 023 changed timing recognition earnings certain clearinghouse energyrelated contracts well financial statement presentation gains losses associated energyrelated contracts consolidated statements income 2002 2001 restated prior 2003 energy trading contracts including nonderivative contracts recorded fair value changes fair value settlements reported revenue net basis specifically adopting eitf 023 0311 affected comparability company’s 2003 consolidated financial statements prior years follows n derivative contracts held trading purposes involve physical delivery commodities unrealized gains losses settlements sales contracts presented revenue unrealized gains losses settlements purchase contracts reported expense n nonderivative energyrelated contracts previously subject fair value accounting prior accounting guidance longer subject fair value accounting company recognizes revenue expense gross basis time contract performance settlement termination fin 46r upon adoption fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r december 31 2003 respect special purpose entities company required consolidate variable interest lessor entity company financed leased power generation project result consolidated balance sheet december 31 2003 reflected additional 364 million net property plant equipment deferred charges 370 million related debt addition fin 46r company reports junior subordinated notes held affiliated trust longterm debt rather trust preferred securities issued trust december 31 2002 company consolidated trust reported trust preferred securities consolidated balance sheet results operations following summary contributions operating segments net income years ended december 31 2003 2002 2001 overview 2003 vs 2002 net income decreased 27 561 million compared 2002 decrease included net impact 21 million aftertax loss cumulative effect changes accounting principles resulting adoption following new accounting standards n 139 million aftertax gainadoption sfas 143 n 101 million aftertax lossadoption sfas 133 implementation issue c20 n 55 million aftertax lossadoption eitf 023 n 4 million aftertax lossadoption fin 46r decrease net income also impacted following items recognized 2003 reported corporate segment n 197 million 122 million aftertax incremental restoration expenses associated hurricane isabel n 105 million 65 million aftertax cost terminating two longterm power purchase agreements n 21 million 12 million aftertax charges associated restructuring power sales contracts n 8 million 5 million aftertax severance costs associated workforce reductions 2002 vs 2001 net income increased 73 773 million compared 2001 increase net income reflected impact following items recognized 2001 recur 2002 items reported corporate segment n 220 million 136 million aftertax cost terminating certain longterm power purchase contracts n 48 million 29 million aftertax severance costs workforce reductions analysis consolidated operations presented selected amounts related company’s results operations years ended december 31 2003 2002 2001 analysis company’s results operations 2003 compared 2002 compared 2001 follows 2003 vs 2002 operating revenue regulated electric sales revenue increased less 1 49 billion primarily reflecting following n 54 million increase representing customer growth associated new customer connections n 42 million increase resulting fuel rate recoveries fuel rate recoveries generally offset comparable increase fuel expense materially affect net income increases partially offset n 103 million decrease associated milder weather n decreases sales revenue due hurricanerelated outages nonregulated gas sales revenue increased 553 263 million reflecting higher margins clearinghouse gas sales net applicable purchases due favorable changes fair value derivative contracts held trading purposes impact adopting eitf 023 increase included 54 million associated economic hedges described discussion energy segment’s results revenue increased 167 254 million reflecting n 52 million increase coal sales revenue n 115 million increase resulting change classification coal purchases revenue expense eitf 023 beginning 2003 operating expenses items electric fuel energy purchases net increased 15 billion primarily reflecting n 123 million increase associated nonregulated energy trading operations primarily resulting higher volumes purchased reclassification certain purchase contracts implementation eitf 023 n 68 million increase related regulated operations including 42 million associated rate recovery revenue recognition 14 million previously deferred fuel costs recovered settlement virginia jurisdictional fuel rate case purchased electric capacity expense decreased 12 607 million reflecting scheduled rate reductions certain nonutility generation supply contracts 54 million lower purchases capacity utility operations 30 million purchased energy commodities 304 million reflecting reclassification certain purchase contracts transportation storage coal adoption eitf 023 operations maintenance expense rose 43 13 billion primarily reflecting impact following 2003 items n incremental restoration expenses associated hurricane isabel 197 million n cost terminating two power purchase contracts used electric utility operations 105 million n charge associated restructuring certain electric sales contracts 21 million n accretion expense asset retirement obligations 38 million n expenses associated nuclear refueling outages 13 million depreciation amortization expense decreased 7 458 million primarily reflecting change presentation expenses associated asset retirement obligations taxes increased 14 173 million primarily due effect favorable resolution sales use tax issues 2002 benefits recognized 2003 income increased 153 81 million primarily reflecting net realized gains income 34 million associated nuclear decommissioning trust fund investments cumulative effect changes accounting principlesduring 2003 company required adopt several new accounting standards resulting net aftertax loss 21 million included following n 139 million aftertax gain sfas 143 n 101 million aftertax loss sfas 133 implementation issue c20 n 55 million aftertax loss eitf 023 n 4 million aftertax loss fin 46r 2002 vs 2001 operating revenue regulated electric sales revenue increased 5 49 billion primarily due n 195 million increase resulting favorable weather conditions reflecting increased cooling heating degreedays 2002 n 60 million increase resulting customer growth n 65 million increase fuel rate recoveries generally offset fuel expense materially affect net income partially offset n factors separately measurable impact economic conditions customer usage well variations seasonal rate premiums discounts nonregulated electric sales revenue decreased 57 78 million reflecting n 74 million decrease revenue wholesale marketing utility generation due higher demand utility service territory customers 2002 less production utility plant generation available profitable sale wholesale market n 31 million decrease clearinghouse electric revenue net applicable trading purchases reflecting effect unfavorable changes fair value contracts lower margins nonregulated gas sales revenue decreased 207 58 million primarily reflecting decrease clearinghouse gas revenue net applicable trading purchases due unfavorable changes fair value contracts lower overall margins decrease included 70 million associated economic hedges discussed energy segment’s results revenue increased 9 95 million primarily reflecting increase sales coal operating expenses items electric fuel energy purchases expense increased 2 13 billion reflecting increase 29 million related regulated utility operations including 66 million subject rate recovery partially offset 37 million decrease fuel expenses associated lower wholesale marketing utility plant generation operations maintenance expense decreased 29 900 million primarily reflecting n 220 million cost terminating certain longterm power purchase contracts 2001 n decrease 68 million 2002 scheduled outages routine maintenance costs nuclear fossil plants n 48 million severance costs workforce reductions 2001 n decrease 27 million 2002 general administrative expenses depreciation amortization expense decreased 4 495 million primarily reflecting 40 million decrease associated extension estimated useful lives fossil fuel stations electric transmission distribution properties 2002 taxes decreased 15 152 million primarily due reduction average business occupation tax rates recognition favorable resolution prior year’s sales use tax issues 2002 income taxes increased 49 425 million reflecting higher income taxes compared 2001 company’s effective tax rate decreased 391 355 2002 primarily due net benefit related permanent differences reduction percentages state income taxes book income decrease book depreciation regulated assets outlook company believes operating businesses provide stable growth net income following factors impact expected results n potential increase regulated electric sales compared 2003 assuming company’s utility service territories experience return normal weather 2004 n continued growth electric utility customers n reduced electric capacity expenses resulting terminated contracts n lower interest expense result refinanced debt n expected six sigma benefits n specific costs reductions earnings 2003 expected recur 2004 including n lost revenue due hurricane isabel n virginia fuel rate case settlement n costs associated refinancing callable debt growth factors partially offset n increased pension postretirement benefit costs n normalization clearinghouse contribution based projections company estimates cash flows operations increase 2004 compared 2003 management believes increase provide sufficient cash flows maintain grow company’s current dividend dominion segment results operations generation segment generation segment includes company’s electric generation operations generation segment provides electricity primarily nuclear coal oil purchased power presented summary system’s energy output energy source 1 nuclear mix excludes old dominion electric cooperative’s odec 116 ownership interest north anna power station 2 coal mix excludes odec’s 50 ownership interest clover power station 3 includes natural gas used combustion turbines fueled gas oil presented key factors impacting generation segment’s operating results 2003 vs 2002 generation segment decrease 82 million net income compared 2002 primarily reflecting following n change allocation electric base rate revenue among generation energy delivery segments effective january 1 2003 n decrease regulated electric sales due comparably milder summer weather resulting decrease cooling degree days 2003 partially offset increase heating degree days 2003 n increase regulated electric sales due customer growth electric franchise service area primarily reflecting increase new residential customers n scheduled decreases capacity expenses certain power purchase agreements n recognition previously deferred fuel costs connection virginia rate settlement n increased outage expenses reflecting nuclear refueling outages 2003 company’s nuclear generating units 2002 vs 2001 generation segment’s net income contribution increased 157 million compared 2001 primarily reflecting following n increase regulated electric sales due comparably warmer summer weather 2002 resulting increase cooling degree days n increase regulated electric sales due customer growth electric franchise service area primarily reflecting increase new residential customers n lower outage costs relating fossil hydro units due fewer planned outages energy segment energy segment includes company’s electric transmission business well company’s clearinghouse energy trading hedging arbitrage activities operations presented key factors impacting energy segment’s operating results 2003 vs 2002 energy segment’s net income contribution increased 74 million compared 2002 primarily reflecting n increase contribution clearinghouse operations reflecting 43 million increase margins settled contracts partially offset 20 million decrease net marktomarket gains energy trading contracts n lower net losses associated portfolio financial derivatives held clearinghouse economic hedges behalf dominion connection price risk management portion future sales natural gas production n change allocation electric base rate revenue among generation energy delivery segments effective january 1 2003 2002 vs 2001 net income energy segment decreased 76 million 2001 primarily reflecting n decrease contribution clearinghouse operations reflecting 92 million decrease net marktomarket gains energy trading contracts partially offset 30 million increase margins settled contracts n higher net losses associated portfolio financial derivatives held clearinghouse economic hedges behalf dominion connection price risk management portion future sales natural gas production selected informationenergy trading activities previously described energy segment manages company’s energy trading hedging arbitrage activities clearinghouse company believes operations complement integrated energy businesses facilitate risk management activities part operations clearinghouse enters contracts purchases sales energyrelated commodities including natural gas oil 2003 prior periods company’s clearinghouse operations also included contracts purchases sales electricity connection dominion’s plan conduct nonutility wholesale electric marketing trading activities another dominion subsidiary company assigned certain wholesale electric contracts supplied generation resources involve activities outside service territory company continue market generation resources needed serve utility customers part management utility system resources generation segment rather clearinghouse operations settlement contract may require physical delivery underlying commodity cash settlement clearinghouse enters contracts objective benefiting changes prices example entering contract purchase commodity clearinghouse typically enters sales contract combination sales contracts quantities delivery settlement terms identical similar purchase contract purchase sales contracts settled either physical delivery underlying commodity net cash settlement clearinghouse may receive net cash margin realized gain may pay net cash margin realized loss clearinghouse management continually monitors contract positions considering location timing delivery settlement energy commodity relation market price activity seeking arbitrage opportunities summary changes unrealized gains losses recognized company’s energyrelated derivative instruments held trading purposes 2003 follows balance net unrealized gains losses recognized company’s energyrelated derivative instruments held trading purposes december 31 2003 summarized following table based approach used determine fair value contract settlement delivery dates 1 exchangetraded overthecounter contracts 2 values based prices overthecounter broker activity industry services applicable conventional option pricing models 3 values based company’s estimate future commodity prices information external sources available use internallydeveloped models reflecting option pricing theory discounted cash flow concepts etc delivery segment delivery segment includes company’s electric distribution customer service operations presented key factors impacting delivery’s operating results 2003 vs 2002 delivery segment’s net income contribution increased 27 million compared 2002 reflecting n change allocation electric base rate revenue among generation energy delivery segments effective january 1 2003 n increase regulated electric sales due customer growth electric franchise service area primarily reflecting new residential customers n decrease regulated electric sales due comparably milder weather n increase pension postretirement benefit costs 2002 vs 2001 delivery segment’s net income contribution increased 78 million compared 2001 reflecting n increase regulated electric sales due customer growth electric franchise service area primarily reflecting new residential customers n increase regulated electric sales due comparably favorable weather n decrease expenses reflecting primarily workforce reductions savings result restructuring activities 2001 corporate includes company’s corporate functions presented corporate other’s operating results 2003 2002 2001 2003 vs 2002 company reported corporate segment following items 2003 attributable operating segments n cumulative effect changes accounting principles21 million net aftertax loss resulting adoption new accounting standards described note 3 consolidated financial statements including n sfas 143 139 million aftertax gain 140 million aftertax gaingeneration 1 million aftertax lossdelivery n sfas 133 interpretation c20 101 million aftertax loss generation n eitf 023 55 million aftertax loss energy n fin 46r 4 million aftertax loss generation n operations maintenance expenses n 197 million operations maintenance expense 122 million aftertax representing incremental restoration costs associated hurricane isabel primarily incurred delivery segment n 105 million 65 million aftertax cost terminating two longterm power purchase contracts generation segment n 21 million 12 million aftertax charge restructuring certain electric sales contracts generation segment n 8 million 5 million aftertax severance costs workforce reductions 2003 3 million generation 5 million delivery 2002 vs 2001 company reported specific items corporate attributable operating segments 2002 2001 corporate segment reported following items operations maintenance expenses n 220 million 136 million aftertax related cost terminating certain power purchase contracts generation n 48 million 29 million aftertax severance costs workforce reductions 10 million generation 5 million energy 33 million delivery sources uses cash company depends internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operating activities generally satisfied proceeds shortterm borrowings longterm cash needs met sales securities additional longterm financing december 31 2003 company cash equivalents 46 million 475 million unused capacity credit facilities longterm financing needs amounts available debt equity offerings currently effective shelf registrations totaled 670 million march 1 2004 cash provided operations presented company’s consolidated statements cash flows net cash flows operating activities 12 billion 2003 13 billion 2002 11 billion 2001 management believes operations provide stable source cash flow sufficient contribute planned levels capital expenditures maintain grow current dividends payable dominion company’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows including n unusual weather effect energy sales customers energy commodity prices n extreme weather events could disrupt cause catastrophic damage company’s electric distribution transmission systems n exposure unanticipated changes prices energy commodities purchased sold including effect derivative instruments may require use funds post margin deposits counterparties n effectiveness company’s risk management activities underlying assessment market conditions related factors including energy commodity prices basis liquidity volatility counterparty credit risk availability generation transmission capacity currency exchange rates interest rates n cost replacement electric energy event longerthanexpected unscheduled generation outages n contractual regulatory restrictions transfers funds among company dominion subsidiaries n timeliness recovery costs subject costofservice utility rate regulation credit risk company’s exposure potential concentrations credit risk results primarily energy trading activities presented summary company’s gross net credit exposure december 31 2003 activities company calculates gross credit exposure counterparty unrealized fair value derivative contracts plus outstanding receivables net payables netting agreements exist prior application collateral 1 designations investment grade based minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 16 total gross credit exposure 2 five largest counterparty exposures combined represented less 1 total gross credit exposure category 3 five largest counterparty exposures combined category represented approximately 39 total gross credit exposure 4 five largest counterparty exposures combined category represented approximately 8 total gross credit exposure cash provided financing activities company relies access bank capital markets significant source funding capital requirements satisfied cash provided company’s operations discussed credit ratings section company’s ability borrow funds issue securities return demanded investors affected company’s credit ratings addition raising external capital subject certain regulatory approvals including authorization virginia state corporation commission virginia commission 2003 company issued longterm debt totaling approximately 11 billion proceeds used primarily repay debt finance capital expenditures credit facilities shortterm debt company’s financial policy precludes issuing commercial paper excess supporting lines credit dominion consolidated natural gas company cng company maintain two joint credit facilities allow aggregate borrowings 2 billion company required pay minimal annual commitment fees maintain joint credit facilities include 125 billion 364day revolving credit facility terminates may 2004 750 million threeyear revolving credit facility terminates may 2005 364day facility includes option extend borrowings additional period one year may 2005 company expects 364day revolving credit facility renewed prior maturity may 2004 threeyear facility also used support 200 million letters credit remaining joint credit facilities used working capital support combined commercial paper programs dominion cng company general corporate purposes december 31 2003 capacity available two credit facilities 475 million joint credit agreements contain terms conditions could affect company’s ability borrow funds facilities accelerate repayment outstanding company borrowings possibly result termination commitment lend funds company terms conditions include maximum debt total capital ratios crossdefault provisions material adverse change clauses ratio company’s debt total capital defined agreements exceed 60 end fiscal quarter december 31 2003 company’s calculated debt total capital ratio 52 agreements’ crossdefault provisions company material subsidiaries fail make payment various debt obligations excess 25 million lenders could require company accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds company however defaults indebtedness dominion cng material subsidiaries affiliates would affect lenders’ commitment company joint credit agreements although joint credit agreements contain material adverse change clauses participating lenders specific provisions cannot refuse advance funds company repurchase outstanding commercial paper december 31 2003 total outstanding commercial paper supported joint credit facilities 14 billion company’s borrowings 717 million weighted average interest rate 117 december 31 2002 total outstanding commercial paper supported previous credit agreements 12 billion company’s borrowings 443 million weighted average interest rate 167 commercial paper borrowings used primarily fund working capital requirements may vary significantly course year depending upon timing amount cash requirements satisfied cash provided operations december 31 2003 total outstanding letters credit supported threeyear facility 85 million 62 million issued behalf unregulated subsidiary company 23 million issued behalf dominion subsidiaries december 31 2002 total outstanding letters credit supported threeyear facility 106 million issued behalf dominion subsidiaries common stock exchange reduction amounts payable dominion company recognized 21 million additional paidin capital 2003 issued 150 million common stock dominion 2002 borrowings parent 2003 dominion advanced 54 million net repayments certain unregulated subsidiaries company pursuant shortterm demand note dominion also advanced 220 million company pursuant longterm note interest charges incurred company related advances material see note 23 consolidated financial statements longterm debt 2003 company issued 11 billion longterm debt using proceeds general corporate purposes including repayment debt portion bonds company called redemption december 2003 debt issued 2003 consisted n 400 million 2003 series 475 senior notes due 2013 n 230 million 2003 series b 450 senior notes due 2010 n 200 million 2003 series c 525 senior notes due 2015 n 225 million callable puttable enhanced securities 410 due 2038 2003 company repaid following longterm debt n 160 million mediumterm notes various series n 150 million 1998a 715 senior notes n 150 million 1999a 670 senior notes n 100 million 1993a 725 mortgage bonds n 200 million 1993b 6625 mortgage bonds n 189 million 1993d 750 mortgage bonds n 200 million 1993g 675 mortgage bonds amounts available shelf registrations march 1 2004 company 670 million available capacity currently effective shelf registrations sec would permit company issue debt preferred securities meet future capital requirements credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities management believes current credit ratings company provide sufficient access capital markets however disruptions banking capital markets specifically related company may affect company’s ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing company’s credit ratings credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings company affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies “event risk” applicable credit ratings company february 2 2004 follow generally downgrade company’s credit rating would restrict ability raise shortterm longterm financing long credit rating remains “investment grade” would increase cost borrowing company working closely standard poor’s moody’s objective maintaining company’s current credit ratings recent steps improve agencies’ view company’s financial position include reduction planned capital spending related borrowings discussed risk factors cautionary statements may affect future results order maintain current ratings company may find necessary modify business plans changes may adversely affect growth debt covenants part borrowing funds issuing debt shortterm longterm preferred securities company must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock dominion including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique company typical covenants include n timely payment principal interest n information requirements including submitting financial reports filed sec lenders n performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantial assets n compliance collateral minimums requirements related mortgage bonds n limitations liens company monitors covenants regular basis order ensure events default occur december 31 2003 events default company’s covenants cash used investing activities 2003 2002 2001 company’s investing activities resulted net cash outflows 11 billion 857 million 733 million respectively significant investing activities 2003 included 986 million construction expansion generation facilities including environmental upgrades construction improvements electric transmission distribution assets 97 million nuclear fuel expenditures generationrelated projects totaled approximately 511 million included environmental upgrades nuclear reactor head replacement expenditures routine capital improvements company spent approximately 84 million 350 million transmission distributionrelated projects respectively reflecting routine capital improvements expenditures associated new connections general information technology projects totaled 41 million investing activities also included 342 million purchases securities 256 million sales securities related investments held company’s nuclear decommissioning trusts future cash payments contractual obligations planned capital expenditures company party numerous contracts arrangements obligating company make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing expected cash payments may result contracts company party december 31 2003 purchase obligations liabilities amounts largely estimated based contract terms including fixed minimum expected quantities purchased fixed marketbased prices actual cash payments based actual quantities purchased prices paid likely differ amounts presented 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 fuel used utility operations recoverable rate recovery mechanisms 3 represents summation settlement amounts contracts due company physical financial transactions among company counterparties liquidated terminated 4 represents expected cash payments adjusted inflation estimated costs perform asset retirement activities company’s planned capital expenditures 2004 expected total approximately 830 million 2005 planned capital expenditures expected range 700 million 900 million included company’s total planned capital expenditures following capacity based available generation capacity current estimates growth customer demand company likely need additional baseload generation future however company currently definite plans build new baseload generating units nearterm part company’s ongoing generation supply strategy company continues evaluate development new baseload plants meet customer demand additional generation needs future 2006 additional capacity energy requirements met market purchases plant equipment company’s annual capital expenditures plant equipment 2004 expected total approximately follows n generation nuclear fuel 415 million n transmission 105 million n distribution 310 million expenditures primarily provide customer growth reliability initiatives routine replacements response clean air act requirements company expects spend approximately 72 million mid2004 complete installation nitrogen oxide nox reduction equipment affected facilities 350 million period 2004 2008 future installations sulfur dioxide so2 emission control equipment see environmental matters future issues matters additional discussion clean air act matters future issues matters status deregulation virginia electric utility restructuring act virginia restructuring act enacted 1999 established plan restructure electric utility industry virginia restructuring act addressed among things capped base rates participation regional transmission organization rto retail choice recovery stranded costs company made retail choice available virginia regulated electric customers january 1 2003 base rates virginia restructuring act generation portion company’s virginia jurisdictional operations longer subject costbased rate regulation company’s base rates excluding fuel costs certain allowable adjustments remain capped july 2007 unless modified terminated sooner virginia restructuring act recovery generationrelated costs continue capped rates applicable wires charge assessed customers opting alternative suppliers additionally virginia restructuring act provides end capped rate period default service provided company based competitive market prices electric generation services january 2004 legislation supported offices governor attorney general virginia submitted virginia general assembly would extend capped base rates three onehalf years december 31 2010 bill supported company approved virginia senate late january 2004 addition extending capped rates bill would n lock company’s fuel factor earlier july 1 2007 termination capped rates virginia commission order n provide onetime adjustment company’s fuel factor effective july 12007 december 31 2010 adjustment previously incurred overrecovery underrecovery fuel costs thus would eliminate deferred fuel accounting n end wires charges earlier july 1 2007 termination capped rates consistent virginia restructuring act’s original timetable bills introduced virginia house delegate would repeal virginia restructuring act suspend virginia restructuring act suspend customer choice reimpose “cost service” rate making legislation calling suspension virginia restructuring act’s key provisions return costofservice regulatory methodology defeated house committee early february measures deferred 2005 house committee legislative process concluded assessment made concerning future developments rto virginia restructuring act requires company join rto subject virginia commission approval ferc requires public utility owns operates transmission facilities make certain filings respect rto formation relies voluntary formation rtos advance energy policies joining rto company would transfer functional control transmission assets thirdparty rto september 2002 company pjm interconnection llc pjm entered pjm south implementation agree ment agreement provides subject regulatory approval certain provisions company become member pjm transfer functional control electric transmission facilities pjm inclusion new pjm south region integrate control area pjm energy markets agreement also allocates costs implementation agreement among parties june 2003 company made filing required virginia restructuring act requesting authorization virginia commission become member pjm november 1 2004 september 2003 virginia commission issued order directing company provide additional information concerning application hearings company’s application scheduled begin october 2004 company intends file ferc north carolina commission approval join pjm future company incurred continue incur integration operating costs associated joining rto company deferred certain costs future recovery giving consideration seeking regulatory approval defer balance costs recovery stranded costs stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market december 31 2003 company’s exposure potentially stranded costs included longterm purchased power contracts could ultimately determined market generating plants could possibly become uneconomical deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements company believes capped electric retail rates applicable wires charges provide opportunity recover portion potentially stranded costs depending market prices electricity factors recovery company’s potentially stranded costs remains subject numerous risks even cappedrate environment include among others exposure longterm power purchase commitment losses future environmental compliance requirements changes tax laws nuclear decommissioning costs inflation increased capital costs recovery certain items enactment deregulation legislation 1999 caused discontinuance sfas 71 company’s virginia jurisdictional utility generationrelated operations also caused company review utility generation assets impairment longterm power purchase contracts potential losses time significant assumptions considered review included possible future market prices fuel electricity load growth generating unit availability future capacity additions company’s market capital expenditures including related environmental improvements decommissioning activities based analyses recognition plant impairments contract losses appropriate time response future events resulting development competitive market structure virginia expiration termination capped rates wires charges company may reevaluate utility generation assets impairment longterm power purchase contracts potential losses assumptions future market prices electricity represent critical factor affects results evaluations since 1999 market prices electricity fluctuated significantly continue subject volatility review future would highly dependent assumptions considered appropriate time could possibly result recognition plant impairment contract losses would material company’s results operations financial position january 2004 commission electric utility restructuring adopted resolution related monitoring stranded costs changes cost structurewhile virginia restructuring act define specific generationrelated costs recovered provide generationrelated cash flows combination capped rates wires charges billed customers july 1 2007 unless terminated earlier pursuant virginia restructuring act transition period generationrelated cash flows provided virginia restructuring act intended compensate company continuing provide generation services allow company incur costs restructure operations transition period result transition period company may increase earnings extent management reduce operating costs utility generationrelated operations conversely risks affecting recovery company’s stranded costs discussed may also adversely impact cost structure transition period accordingly company could realize negative economic impact adverse event addition managing cost generationrelated operations company may also seek opportunities sell available electric energy capacity customers beyond electric utility service territory using cash flows operations transition period company may alter cost structure choose make additional investment business capped rates derived rates established part 1998 virginia rate settlement provide specific recovery particular generationrelated expenditures except certain regulatory assets extent company manages operations reduce overall operating costs levels included capped rates company’s earnings may increase since enactment virginia restructuring act company reviewing cost structure identify opportunities reduce annual operating expenses generationrelated operations example reduction future fixed capacity payments resulting termination certain longterm power pur chase agreements 2001 2003 expected increase annual aftertax earnings approximately 48 million transition period also 2002 2001 company revised estimated useful lives electric generation assets changes estimates based upon expected lifeextensions nuclear plants new engineering studies assets result changes annual aftertax earnings increase approximately 67 million transition period result lower depreciation expense assets ferc standard market design proposal 2002 ferc issued proposed rules would establish standardized transmission service wholesale electric market design entities participating wholesale electric markets ferc proposed exercise jurisdiction transmission component bundled retail transactions modify existing electric transmission tariff include single tariff service applicable transmission customers provide standard market design wholesale electric markets ferc also proposed transmission owners yet joined rto must contract separate entity independent transmission provider operate transmission facilities ferc scheduled number technical conferences meetings interested parties indicated market design timing rule subject change april 2003 ferc issued discussion document addressing several issues raised state regulatory commissions market participants ferc’s proposed standard market design document proposes certain changes standard market design work states market participants develop reasonable timetables moving forward formation rtos ferc also stated would use standard market design rulemaking overturn prior rto orders overlap uncertain impact matters may company’s efforts join pjm design wholesale electric markets environmental matters company subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia commission period ending june 30 2007 excess level currently included virginia jurisdictional electric retail rates company’s results operations decrease date recovery regulated rates may sought environmental costs related regulated electric transmission distribution operations environmental protection monitoring expenditures company incurred approximately 100 million 117 million 109 million expenses including depreciation 2003 2002 2001 respectively connection environmental protection monitoring activities expects expenses approximately 105 million 2004 addition capital expenditures related environmental controls 197 million 269 million 197 million 2003 2002 2001 respectively amount estimated 2004 expenditures 90 million clean air act compliance clean air act requires company reduce emissions so2 nox gaseous byproducts fossil fuel combustion clean air act’s so2 nox reduction programs include n issuance limited number so2 emission allowances allowance permits emission one ton so2 atmosphere allowances may transacted third party n issuance limited number nox emission allowances comply nox emission requirements applicable ozone season months may september allowance permits emission one ton nox atmosphere implementation projects comply so2 nox limitations ongoing influenced changes regulatory environment availability allowances various state federal control programs emission control technology response requirements company expects make following capital expenditures affected generating facilities n 350 million period 2004 2008 so2 emission control equipment n 72 million 2004 2005 nox reduction equipment total costs expected 625 million approximately 553 million incurred december 31 2003 majority cost estimates also included capital cost expenditure estimate contemplated consent decree described relation notice violation received company 2000 environmental protection agency epa related proceedings company us department justice epa states virginia west virginia connecticut new jersey new york agreed settlement april 2003 form proposed consent decree virginia federal district court entered final consent decree october 2003 resolving underlying actions settlement company paid 5 million civil penalty agreed fund 14 million environmental projects committed improve air quality consent decree estimated involve expenditures 12 billion company already incurred certain capital expenditures environmental improvements coalfired stations virginia west virginia committed additional measures current financial plans capital budget satisfy requirements consent decree december 31 2003 company recognized provision funding environmental projects substantially recorded 2000 future environmental regulations december 2003 epa announced plans propose additional regulations addressing pollution transport electric generating units well regulation mercury nickel emissions regulatory actions addition revised regulations expected issued 2004 address regional haze could require additional reductions emissions company’s fossil fuelfired generating facilities new emission reduction requirements imposed additional significant expenditures may required authority clean water act epa announced publication new regulations governing utilities employ cooling water intake structure flow levels exceed minimum threshold announced epa’s rule presents several control options company evaluating facility information bremo chesapeake chesterfield mt storm north anna possum point surry yorktown power stations company cannot predict future impact operations time us congress considering various legislative proposals would require generating facilities comply stringent air emissions standards emission reduction requirements consideration would phased variety periods 16 years new proposals adopted additional significant expenditures may required 1997 united states signed international protocol limit manmade greenhouse emissions united nations framework convention climate change however protocol become binding unless approved us senate currently bush administration indicated pursue ratification protocol set voluntary goal reducing nation’s greenhouse gas emission intensity 18 next 10 years several legislative proposals include provisions seeking impose mandatory reductions greenhouse gas emissions consideration united states congress cost compliance protocol mandatory greenhouse gas reduction obligations could significant given highly uncertain outcome timing future action us federal government issue company cannot predict financial impact future climate change actions operations time nuclear relicensing company filed applications 20year lifeextensions north anna surry units may 2001 nrc completed review applications company received renewed operating licenses units march 2003 nuclear insurance priceanderson act expired august 2002 operating nuclear reactors continue covered law would channel cap claims nuclear accident occur priceanderson act renewed three times since 1957 congress currently holding hearings reauthorize legislation expiration priceanderson act impact existing nuclear license holders risk factors cautionary statements may affect future results factors may cause actual results differ materially indicated forwardlooking statement include weather conditions governmental regulations cost environmental compliance inherent risk operation nuclear facilities fluctuations energyrelated commodities prices effect could company’s earnings liquidity position underlying value assets trading counterparty credit risk capital market conditions including price risk due marketable securities held investments trusts benefit plans fluctuations interest rates changes rating agency requirements ratings changes accounting standards collective bargaining agreements labor negotiations risks operating businesses regulated industries becoming deregulated transfer control electric transmission facilities regional transmission organization political economic conditions including inflation deflation specific risk factors follows company’s operations weather sensitive company’s results operations affected changes weather conditions directly influence demand electricity affect price energy commodities addition severe weather including hurricanes winter storms droughts destructive causing outages production delays property damage require company incur additional expenses company subject complex governmental regulation could adversely affect operations company’s operations subject extensive regulation require numerous permits approvals certificates federal state local governmental agencies company must also comply environmental legislation associated regulations management believes necessary approvals obtained company’s existing operations business conducted accordance applicable laws however new laws regulations revision reinterpretation existing laws regulations may require company incur additional expenses costs environmental compliance liabilities litigation could exceed company’s estimates compliance federal state local environmental laws regulations may result increased capital operating costs including remediation containment expenses monitoring obligations addition company may responsible party environmental cleanup site identified regulatory body management cannot predict certainty amount timing future expenditures related environmental matters difficulty estimating cleanup compliance costs possibility changes made current environmental laws regulations also uncertainty quantifying liabilities environmental laws impose joint several liability potentially responsible parties company exposed costrecovery shortfalls capped base rates effect virginia mid2007 regulated electric utility virginia restructuring act generation portion company’s electric utility operations open competition resulting uncertainty virginia restructuring act company’s base rates excluding generally fuel costs certain allowable adjustments remain unchanged july 2007 unless modified terminated consistent virginia restructuring act although virginia restructuring act allows recovery certain generationrelated costs capped rates period company remains exposed numerous risks costrecovery shortfalls include exposure potentially stranded costs future environmental compliance requirements tax law changes costs related hurricanes weather events inflation increased capital costs addition virginia restructuring act generation portion company’s electric utility operations open competition longer subject costbased regulation date competitive market slow develop difficult predict pace competitive environment evolve extent company face increased competition able operate profitably within competitive environment additional uncertainty arises several legislative proposals currently consideration 2004 virginia general assembly proposals range extending three half years period capped rates effect certain limitations changes fuel factor suspending customer choice returning costbased regulation see future issues mattersstatus deregulation virginia mda note 20 consolidated financial statements additional information inherent risks operation nuclear facilities risks include cost company’s ability maintain adequate reserves decommissioning plant maintenance costs threat terrorism spent nuclear fuel disposal costs exposure potential liabilities arising operation facilities company maintains decommissioning trusts external insurance coverage minimize financial exposure risks however possible costs arising claims could exceed amount insurance coverage use derivative instruments could result financial losses company uses derivative instruments including futures forwards options swaps manage commodity financial market risks addition company purchases sells commoditybased contracts natural gas electricity oil markets trading purposes future company could recognize financial losses contracts result volatility market values underlying commodities counterparty fails perform contract absence actively quoted market prices pricing information external sources valuation contracts involves management’s judgment use estimates result changes underlying assumptions use alternative valuation methods could affect reported fair value contracts additional information concerning derivatives commoditybased trading contracts see item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion energy’s results operations general financial condition virginia power’s results operations mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data virginia power meets conditions file reduced disclosure format therefore omitted certain sections mda contents mda consists following information • forwardlooking statements • accounting mattersdominion energy • dominion energy • results operations • segment results operations • virginia power • results operations • liquidity capital resourcesdominion energy • future issues mattersdominion energy forwardlooking statements report contains statements concerning companies’ expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words companies make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited • unusual weather conditions effect energy sales customers energy commodity prices • extreme weather events natural disasters including limited hurricanes high winds severe storms earthquakes flooding climate changes water temperatures availability cause outages property damage facilities • impact extraordinary external events current pandemic health event resulting covid19 collateral consequences including extended disruption economic activity markets • federal state local legislative regulatory developments including changes interpretations federal state tax laws regulations • risks operating businesses regulated industries subject changing regulatory structures • changes regulated electric rates collected companies regulated gas distribution transportation storage rates collected dominion energy • changes rules rtos isos companies join andor participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models • risks associated virginia power’s membership participation pjm including risks related obligations created default participants • risks associated entities dominion energy shares ownership third parties including risks result lack sole decision making authority disputes may arise dominion energy third party participants difficulties exiting arrangements • changes future levels domestic international natural gas production supply consumption • impacts dominion energy’s noncontrolling interest cove point fluctuations future volumes lng imports exports us countries worldwide demand purchases prices related natural gas lng • timing receipt regulatory approvals necessary planned construction growth projects compliance conditions associated regulatory approvals • inability complete planned construction conversion growth projects outcomes within terms time frames initially anticipated including result increased public involvement intervention litigation projects • changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs substances extensive permitting requirements regulation additional substances • cost environmental compliance including costs related climate change • changes implementation enforcement practices regulators relating environmental standards litigation exposure remedial activities • difficulty anticipating mitigation requirements associated environmental regulatory approvals related appeals • unplanned outages facilities companies ownership interest • impact operational hazards including adverse developments respect pipeline plant safety integrity equipment loss malfunction failure operator error catastrophic events • risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities • changes operating maintenance construction costs • domestic terrorism threats companies’ physical intangible assets well threats cybersecurity • additional competition industries companies operate including electric markets dominion energy’s nonregulated generation facilities operate potential competition development deployment alternative energy sources selfgeneration distributed generation technologies availability market alternatives large commercial industrial customers • competition development construction ownership certain electric transmission facilities companies’ service territory connection order 1000 • changes technology particularly respect new developing alternative sources generation smart grid technologies • changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes supplies natural gas delivered dominion energy’s pipeline system failure maintain replace customer contracts favorable terms changes customer growth usage patterns including result energy conservation programs availability energy efficient devices use distributed generation methods • receipt approvals timing closing dates acquisitions divestitures • impacts acquisitions divestitures transfers assets joint ventures retirements assets based asset portfolio reviews • expected timing likelihood completion qpipe transaction including ability obtain requisite regulatory approvals terms conditions regulatory approvals • adverse outcomes litigation matters regulatory proceedings including matters acquired scana combination • counterparty credit performance risk • fluctuations value investments held nuclear decommissioning trusts companies benefit plan trusts dominion energy • fluctuations energyrelated commodity prices effect could dominion energy’s earnings companies’ liquidity position underlying value assets • fluctuations interest rates • changes rating agency requirements credit ratings effect availability cost capital • global capital market conditions including availability credit ability obtain financing reasonable terms • political economic conditions including inflation deflation • employee workforce factors including collective bargaining agreements labor negotiations union employees • changes financial regulatory accounting principles policies imposed governing bodies additionally risks could cause actual results differ predicted results set forth item 1a risk factors companies’ forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results companies undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion energy identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion energy discussed development selection disclosure policies audit committee board directors accounting regulated operations accounting dominion energy’s regulated electric gas operations differs accounting nonregulated operations dominion energy required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred dominion energy evaluates whether recovery regulatory assets future rates probable well whether regulatory liability due customers probable makes various assumptions analyses generally based • orders issued regulatory commissions legislation judicial actions • past experience • discussions applicable regulatory authorities legal counsel • forecasted earnings • considerations around likelihood impacts events unusual weather conditions extreme weather events natural disasters unplanned outages facilities recovery regulatory asset determined less probable written period assessment made regulatory liability considered probable recorded period assessment made reversed earnings longer probable connection evaluation virginia power’s earnings 2021 triennial review 2020 virginia power established regulatory liability benefits expected provided virginia retail electric customers use ccro accordance gtsa see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion energy recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred sufficient information becomes available determine fair value generally capitalized part cost related longlived assets absence quoted market prices dominion energy estimates fair value aros using present value techniques makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation creditadjusted risk free rates future may significant dominion energy revises assumptions used calculate fair value existing aros adjusts carrying amount aro liability related longlived asset assets service assets ceased expected cease operations dominion energy adjusts carrying amount aro liability changes either recognized income regulatory asset dominion energy’s aros include significant balance related future decommissioning nonregulated utility nuclear facilities nuclear decommissioning aros reported dominion energy virginia dominion energy south carolina contracted assets december 31 2020 dominion energy’s nuclear decommissioning aros totaled 19 billion following discusses critical assumptions inherent determining fair value aros associated dominion energy’s nuclear decommissioning obligations dominion energy obtains thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results cash flows include estimates timing decommissioning regulated nuclear units factors probability nrc approval license extensions addition dominion energy’s cost estimates include cost escalation rates applied base year costs dominion energy determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws associated regulations involves uncertainty since tax authorities may interpret laws differently ultimate resolution clarification income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2020 dominion energy 167 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion energy evaluates quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets dominion energy establishes valuation allowance morelikelythannot portion deferred tax asset realized december 31 2020 dominion energy established 155 million valuation allowances accounting derivative contracts financial instruments fair value dominion energy uses derivative contracts physical financial forwards futures swaps options ftrs manage commodity interest rate risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value majority investments held dominion energy’s nuclear decommissioning rabbi trusts pension postretirement funds also subject fair value accounting see notes 6 22 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services dominion energy considers whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available dominion energy believes observable pricing information indicative fair value judgment required develop estimates fair value cases dominion energy must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions dominion energy maximizes use observable inputs minimizes use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2020 dominion energy’s consolidated balance sheets include 74 billion presented within goodwill majority balance relates scana combination discussed note 3 consolidated financial statements dominion energy questar combination 2016 acquisition former cng 2000 connection dominion energy entering agreements sale substantially gas transmission storage business bhe associated goodwill 16 billion reclassified assets held sale consolidated balance sheets 2020 14 billion amount written completion gts transaction april year dominion energy tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount addition third quarter 2020 dominion energy performed impairment tests immediately realignment operating segments 2020 annual test interim tests result recognition goodwill impairment general dominion energy estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion energy’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion energy’s estimates future cash flows could result future impairment goodwill although dominion energy consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset equity method investment impairment testing impairment testing individual group longlived assets including intangible assets definite lives equity method investments required circumstances indicate assets may impaired longlived asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount equity method investment’s carrying amount exceeds fair value decline value deemed otherthantemporary impairment recognized extent fair value less carrying amount performing impairment test longlived assets equity method investments involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets case longlived assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operations longlived assets equity method investments selection appropriate discount rate determining whether longlived asset group impaired management groups assets lowest level identifiable cash flows although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset underlying assets equity method investees including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions 2020 dominion energy determined impairment contracted nonregulated solar assets partnerships outside core electric service territories see notes 6 10 consolidated financial statements discussion impairment related dominion energy’s nonwhollyowned nonregulated solar facilities employee benefit plans dominion energy sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations mortality rates anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion energy’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates critical assumptions dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine longterm historic returns well historic risk premiums various asset classes • expected future risk premiums asset classes’ volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major capital market assumptions • investment allocation plan assets strategic target asset allocation dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments private equity investments strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line targets future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion energy calculated pension cost using expected longterm rate return plan assets assumption ranged 700 860 2020 700 865 2019 875 2018 2021 expected longterm rate return pension cost assumption ranged 700 845 dominion energy’s plans held december 31 2020 dominion energy calculated postretirement benefit cost using expected longterm rate return plan assets assumption 850 2020 2019 2018 2021 expected longterm rate return postretirement benefit cost assumption 845 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost ranged 277 363 pension plans 307 352 postretirement benefit plans 2020 ranged 357 443 pension plans 405 441 postretirement benefit plans 2019 ranged 380 381 pension plans 376 postretirement benefit plans 2018 dominion energy selected discount rate ranging 273 295 pension plans 269 280 postretirement benefit plans determining december 31 2020 projected benefit obligations dominion energy establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion energy’s healthcare cost trend rate assumption december 31 2020 625 expected gradually decrease 500 20252026 continue rate years thereafter see note 22 consolidated financial statements additional information dominion energy’s employee benefit plans new accounting standards see note 2 consolidated financial statements discussion new accounting standards dominion energy results operations presented summary dominion energy’s consolidated results overview 2020 vs 2019 net income attributable dominion energy decreased 18 billion primarily due charges presented discontinued operations associated cancellation atlantic coast pipeline project related portions supply header project decrease net investment earnings nuclear decommissioning trust funds increase charges associated planned early retirements certain electric generation facilities virginia impairment charge associated interests certain nonregulated solar generation facilities contract termination charge connection sale fowler ridge charge benefits expected provided retail electric customers virginia use ccro accordance gtsa charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 decreases net income partially offset absence charges refunds amounts previously collected retail electric customers desc nnd project certain regulatory assets property plant equipment acquired scana combination dominion energy committed forgo recovery planned early retirement certain virginia power automated meter reading infrastructure voluntary retirement program decrease charges associated litigation acquired scana combination 2019 vs 2018 net income attributable dominion energy decreased 45 primarily due charges refunds amounts previously collected retail electric customers desc nnd project litigation acquired scana combination voluntary retirement program planned early retirement certain virginia power electric generation facilities absence gains sales certain equity method investments decreases partially offset increase net investment earnings nuclear decommissioning trust funds operations acquired scana combination analysis consolidated operations presented selected amounts related dominion energy’s results operations analysis dominion energy’s results operations follows 2020 vs 2019 operating revenue decreased 2 primarily reflecting • 700 million decrease fuel cost component included utility rates result net decrease commodity costs associated sales electric utility retail customers 651 million gas utility customers 49 million • 625 million decrease result contribution semi wrangler december 2019 • 121 million decrease sales electric utility retail customers decrease cooling degree days cooling season 76 million net decrease heating degree days heating season 45 million • 73 million decrease due unfavorable pricing 36 million lower volumes 37 million millstone including effects millstone 2019 power purchase agreements • 71 million decrease sales desc electric retail customers capital cost rider • 58 million decrease sales electric utility retail customers associated usage factors impacted covid19 • 45 million decrease due absence various contracts virginia power • 34 million decrease sales electric retail customers associated economic usage factors decreases partially offset • absence 10 billion charge refunds amounts previously collected retail electric customers desc nnd project • 387 million increase virginia power riders • 64 million increase offsystem pjm sales • 45 million increase sales electric retail customers due customer growth electric fuel energyrelated purchases decreased 22 primarily due decreased fuel costs associated electric utility retail customers 681 million offset operating revenue impact net income partially offset pjm offsystem sales 64 million absence various contracts virginia power 34 million purchased electric capacity decreased 40 primarily due decrease expense related annual pjm capacity performance market effective june 2019 51 million virginia power contract termination nonutility generator 13 million partially offset increase expense associated sales desc electric utility retail customers 30 million offset operating revenue impact net income increase expense related annual pjm capacity performance market effective june 2020 15 million purchased gas decreased 43 primarily due contribution semi wrangler december 2019 579 million decrease net commodity costs gas utilities 49 million offset operating revenue impact net income operations maintenance decreased 3 primarily reflecting • decrease merger integrationrelated costs associated scana combination 364 million including absence charge related voluntary retirement program 251 million • 49 million decrease salaries wages benefits • 32 million decrease due contribution semi wrangler decreases partially offset • 144 million increase certain virginia power expenditures primarily recovered state ferc rates impact net income • absence benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 113 million • 56 million increase outside services • 41 million increase related effects covid19 primarily associated enhanced safety measures depreciation depletion amortization increased 2 primarily due various projects placed service 102 million partially offset absence depreciation certain electric generation facilities committed retired early 58 million decrease reflecting expected approval nuclear plant life extensions nrc 31 million impairment assets charges increased 38 primarily due • 665 million charge associated certain nonregulated solar generation facilities • increase charges associated planned early retirements certain electric generation facilities virginia 402 million • 221 million contract termination charge connection sale fowler ridge • charge benefits expected provided retail electric customers virginia use ccro accordance gtsa 130 million • charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 127 million • increase dismantling costs associated certain virginia power electric generation facilities 54 million increases partially offset • decrease charges associated litigation acquired scana combination 551 million • absence 160 million charge related virginia power’s planned early retirement certain automated meter reading infrastructure • absence 135 million charge related virginia power’s contract termination nonutility generator • decrease charges property plant equipment acquired scana combination dominion energy committed forgo recovery 103 million • absence 62 million charge related abandonment project virginia power electric generating facility • absence 26 million charge abandonment certain property plant equipment gains sales assets decreased 60 primarily due decrease gains sale nonregulated retail energy marketing assets income decreased 10 primarily reflecting decrease net investment earnings nuclear decommissioning trust funds 217 million increase charitable commitments 65 million primarily social justice charges associated litigation acquired scana combination 25 million partially offset absence charge related voluntary retirement program 111 million increase equity method earnings cove point following closing gts transaction 40 million increase nonservice components pension postretirement employee benefit plan credits 33 million interest related charges decreased 7 primarily reflecting unrealized gains associated freestanding derivatives 84 million lower interest expense early redemptions certain securities 2019 2020 41 million reductions commercial paper borrowings 34 million increases afudc regulated construction projects 28 million partially offset increased borrowings response covid19 42 million charges associated early redemption certain securities first quarter 2020 25 million income tax expense decreased 60 primarily due reduction consolidated state deferred income taxes associated gas transmission storage operations 45 million absence charge certain income taxrelated regulatory assets acquired scana combination dominion energy committed forgo recovery 194 million partially offset income tax expense primarily associated impairment nonregulated solar generating assets held partnerships attributable noncontrolling interest 55 million lower current year benefit finalizing changes tax status certain subsidiaries connection dominion energy gas restructuring 24 million net income discontinued operations including noncontrolling interests decreased 26 billion primarily due charges associated cancellation atlantic coast pipeline project related portions supply header project noncontrolling interests decreased 167 million primarily due impairments associated certain nonregulated solar generation facilities 267 million partially offset sale 25 noncontrolling limited partnership interest cove point brookfield december 2019 97 million 2019 vs 2018 operating revenue increased 29 primarily reflecting • 31 billion increase operations acquired scana combination including 10 billion charge refunds amounts previously collected retail electric customers desc nnd project • 348 million increase virginia power riders • absence 215 million charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers • 57 million increase due favorable pricing millstone including effects millstone 2019 power purchase agreements increases partially offset • 456 million decrease absence certain nonregulated generation facilities sold 2018 • 83 million decrease fuel cost component included utility rates result net decrease commodity costs associated sales virginia power utility customers • 45 million decrease sales virginia power retail customers lower heating degree days heating season partially offset 25 million increase higher cooling degree days cooling season electric fuel energyrelated purchases increased 7 primarily due 576 million increase operations acquired scana combination partially offset decrease fuel costs due absence certain nonregulated generation facilities 2018 245 million decreased fuel costs associated virginia power utility customers 83 million offset operating revenue impact net income decrease virginia power fuel costs due expiration energy supply contract 40 million purchased electric capacity decreased 28 primarily due decrease expense related annual pjm capacity performance market effective june 2019 63 million virginia power contract termination nonutility generator 37 million partially offset increase expense operations acquired scana combination 49 million annual pjm capacity performance market effective june 2018 26 million purchased gas increased 956 million primarily due increase operations acquired scana combination operations maintenance increased 36 primarily reflecting • 735 million increase operations acquired scana combination • increase merger integrationrelated costs associated scana combination 427 million including charge related voluntary retirement program 251 million • 116 million increase certain virginia power transmission generationrelated expenditures expenses primarily recovered state ferc rates impact net income increases partially offset • 113 million benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 • absence 81 million charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 • 43 million decrease absence certain nonregulated generation facilities sold 2018 depreciation depletion amortization increased 38 primarily due property plant equipment acquired scana combination 559 million including amortization nnd project costs 127 million increase various growth projects placed service 140 million absence benefit retroactive application depreciation rates regulated nuclear plants comply virginia commission requirements 31 million partially offset planned early retirement certain virginia power electric generation facilities automated meter reading infrastructure 40 million sale certain nonregulated electric generation facilities 2018 37 million taxes increased 52 primarily due scana combination 258 million increase property tax charges growth projects placed service 56 million charge related voluntary retirement program 21 million impairment assets charges increased 15 billion primarily due • charges associated litigation acquired scana combination 641 million • 346 million charge related early retirement certain virginia power electric generation facilities • 160 million charge related virginia power’s planned early retirement certain automated meter reading infrastructure • 135 million charge related virginia power’s contract termination nonutility generator • 105 million charge property plant equipment acquired scana combination dominion energy committed forgo recovery • 62 million charge related abandonment project virginia power electric generating facility • abandonment certain property plant equipment 26 million gains sales assets decreased 43 primarily due absence sale fairless manchester 210 million partially offset increase gains sales nonregulated retail energy marketing assets 82 million income decreased 8 primarily reflecting absence equity method earnings gain sale dominion energy’s 50 limited partnership interest blue racer 603 million charge related voluntary retirement program 111 million absence gain sale dominion energy’s 25 limited partnership interest catalyst old river hydroelectric limited partnership 87 million decreases partially offset increase net investment earnings nuclear decommissioning trust funds 720 million interest related charges increased 16 primarily due debt acquired scana combination net debt redeemed 2019 314 million partially offset absence charges associated early redemption certain debt securities 2018 69 million reduced interest longterm debt due net debt repayments 2018 2019 57 million income tax expense decreased 60 primarily due lower pretax income 383 million impacts changes tax status certain subsidiaries connection dominion energy gas restructuring 48 million higher investment tax credits 39 million absence 2017 tax reform act impacts 46 million partially offset charge certain income taxrelated regulatory assets acquired scana combination dominion energy committed forgo recovery 194 million absence state legislative change 20 million net income discontinued operations including noncontrolling interests increased 58 primarily due operations liquefaction facility entire year absence charges impairment certain gathering processing assets disallowance fercregulated plant noncontrolling interests decreased 82 primarily due acquisition public interest dominion energy midstream january 2019 outlook dominion energy’s 2021 net income expected increase per share basis compared 2020 primarily following • absence charges associated cancellation atlantic coast pipeline project related portions supply header project • absence charges associated impairment interests certain nonregulated solar generation facilities early retirement certain electric generation facilities contract termination connection sale fowler ridge • absence charges expected ccro customer arrears forgiveness virginia utility customers • reduction merger integration related costs associated scana combination • reduction charges associated litigation acquired scana combination • construction operation growth projects electric utility gas distribution operations • share accretion result repurchases common stock completed 2020 • decrease planned outage days millstone increases expected partially offset following • absence operations sold bhe part gts transaction qpipe transaction • increase electric capacity expenses virginia power • increase operations maintenance expenses segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss september 2020 dominion energy updated operating segments following july 2020 agreement sell substantially gas transmission storage operations bhe historical information presented herein recast reflect current segment presentation presented summary contributions dominion energy’s operating segments net income loss attributable dominion energy dominion energy virginia presented operating statistics related dominion energy virginia’s operations presented aftertax basis key factors impacting dominion energy virginia’s net income contribution 2020 vs 2019 vs 2018 gas distribution presented selected operating statistics related gas distribution’s operations 1 includes psnc effective january 2019 presented aftertax basis key factors impacting gas distribution’s net income contribution 2020 vs 2019 vs 2018 dominion energy south carolina presented selected operating statistics related dominion energy south carolina’s operations presented aftertax basis key factors impacting dominion energy south carolina’s net income contribution 2020 vs 2019 vs 2018 contracted assets presented selected operating statistics related contracted asset’s operations presented aftertax basis key factors impacting contracted asset’s net income contribution 2020 vs 2019 1 includes earnings associated 50 noncontrolling interest cove point 2019 vs 2018 1 includes earnings associated 50 noncontrolling interest cove point corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion energy’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources see note 26 consolidated financial statements discussion items detail corporate also includes specific items attributable corporate segment 2020 primarily included 22 billion aftertax loss associated discontinued operations including results operations entities included gts qpipe transactions well charges associated cancellation atlantic coast pipeline project 82 million aftertax charges merger integrationrelated costs associated scana combination 78 million aftertax benefit derivative marktomarket changes 69 million tax benefit associated gts transaction 2019 primarily included 521 million aftertax earnings results operations entities included gts qpipe transactions 135 million aftertax transaction transition costs associated scana combination 2018 primarily included 390 million aftertax gains sales certain equity method investments 244 million aftertax earnings results operations entities included gts qpipe transactions 51 million aftertax charges associated early redemption certain debt securities 31 million aftertax transaction transition costs associated dominion energy questar combination scana combination virginia power results operations presented summary virginia power’s consolidated results overview 2020 vs 2019 net income decreased 11 primarily due increase charges related planned early retirements certain electric generation facilities charge benefits expected provided retail electric customers virginia use ccro accordance gtsa charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 absence benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 decreases partially offset absence charges related planned early retirement certain automated meter reading infrastructure voluntary retirement program contract termination nonutility generator 2019 vs 2018 net income decreased 10 primarily due charges associated planned early retirement certain electric generation facilities automated meter reading infrastructure voluntary retirement program contract termination nonutility generator decreases partially offset increases related higher rider equity returns revision future ash pond landfill closure costs result virginia legislation enacted march 2019 absence charges associated virginia legislation enacted march 2018 april 2018 analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2020 vs 2019 operating revenue decreased 4 primarily reflecting • 561 million decrease fuel cost component included utility rates result net decrease commodity costs associated sales electric utility retail customers • 100 million decrease sales retail customers decrease cooling degree days cooling season 33 million decrease heating degree days heating season 67 million • 66 million decrease sales electric retail customers associated economic usage factors • 45 million decrease due absence various contracts • 29 million decrease sales electric retail customers associated usage factors impacted covid19 partially offset • 387 million increase riders • 64 million increase offsystem pjm sales • 35 million increase sales electric retail customers due customer growth electric fuel energyrelated purchases decreased 25 primarily due decreased fuel costs associated electric utility retail customers 561 million offset operating revenue impact net income partially offset pjm offsystem sales 64 million absence various contracts 34 million purchased electric capacity decreased 57 million primarily due decrease expense related annual pjm capacity performance market effective june 2019 51 million contract termination nonutility generator 13 million partially offset increase expense related annual pjm capacity performance market effective june 2020 15 million operations maintenance increased 2 primarily reflecting • 144 million increase certain expenses primarily recovered state ferc rates impact net income • absence benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 113 million • 27 million increase outside services • 22 million increase related effects covid19 increases partially offset • absence charge related voluntary retirement program 190 million • 39 million decrease salaries wages benefits administrative costs • 38 million decrease outage costs • 26 million decrease storm damage service restoration costs depreciation amortization increased 2 primarily due various projects placed service 114 million partially offset absence depreciation certain electric generation facilities committed retired early 58 million decrease reflecting expected approval nuclear plant life extensions nrc 31 million impairment assets charges increased 44 primarily due • increase charges associated planned early retirements certain electric generation facilities 402 million • charge benefits expected provided retail electric customers virginia use ccro accordance gtsa 130 million • charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 127 million • increase dismantling costs associated certain electric generation facilities 54 million partially offset • absence charge related planned early retirement certain automated meter reading infrastructure 160 million • absence 135 million charge related contract termination nonutility generator • absence 62 million charge related abandonment project electric generating facility • absence 21 million charge disallowance stateregulated plant • absence 17 million charge related abandonment certain property plant equipment income decreased 18 primarily reflecting decrease net investment earnings nuclear decommissioning trust funds income tax expense decreased 13 primarily due lower pretax income 2019 vs 2018 operating revenue increased 6 primarily reflecting • 348 million increase riders • absence 215 million charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers partially offset • 83 million decrease fuel cost component included utility rates result net decrease commodity costs associated sales electric utility retail customers • 45 million decrease sales retail customers lower heating degree days heating season partially offset 25 million increase higher cooling degree days cooling season electric fuel energyrelated purchases decreased 6 primarily due decreased fuel costs associated electric utility retail customers 83 million offset operating revenue impact net income decrease virginia power fuel costs due expiration energy supply contract 40 million purchased electric capacity decreased 67 primarily due decrease expense related annual pjm capacity performance market effective june 2019 63 million contract termination nonutility generator 37 million partially offset annual pjm capacity performance market effective june 2018 26 million operations maintenance increased 4 primarily reflecting • 190 million charge related voluntary retirement program • 116 million increase certain transmission generationrelated expenses primarily recovered state ferc rates impact net income partially offset • 113 million benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 • absence 81 million charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 • 25 million decrease storm damage service restoration costs depreciation amortization increased 8 primarily due various projects placed service 92 million absence benefit retroactive application depreciation rates regulated nuclear plants comply virginia commission requirements 31 million partially offset absence depreciation certain electric generation facilities automated meter reading infrastructure retired early 40 million impairment assets charges increased 757 million primarily reflecting • 346 million charge related early retirement certain electric generation facilities • 160 million charge related planned early retirement certain automated meter reading infrastructure • 135 million charge related contract termination nonutility generator • 62 million charge related abandonment project electric generating facility income increased 76 million primarily reflecting increase net investment earnings nuclear decommissioning trust funds income tax expense decreased 12 primarily due lower pretax income 29 million absence 2017 tax reform act impacts 23 million partially offset lower investment tax credits 14 million liquidity capital resources dominion energy depends internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2020 dominion energy 53 billion unused capacity credit facility see additional discussion credit facilities shortterm debt summary dominion energy’s cash flows presented operating cash flows net cash provided dominion energys operating activities increased 23 million including approximately 707 million discontinued operations net cash provided continuing operations decreased primarily due litigation settlements related scana combination higher contributions dominion energy’s qualified pension plan payments related voluntary retirement plan contract termination connection sale fowler ridge partially offset absence contract termination payment nonutility generator net changes working capital items dominion energy believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares december 2020 dominion energy’s board directors established annual dividend rate 2021 252 per share common stock 33 decrease 2020 rate reduction annual dividend rate reflects absence income operations sold bhe part gts transaction qpipe transaction well revision dominion energy’s target payout ratio align industry peers dividends subject declaration board directors january 2021 dominion energy’s board directors declared dividends payable march 2021 63 cents per share common stock dominion energy’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion energy’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion energy’s credit exposure december 31 2020 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 61 total net credit exposure 2 five largest counterparty exposures combined category represented less 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 33 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 2 total net credit exposure investing cash flows net cash used dominion energy’s investing activities decreased 17 billion primarily due proceeds gts qpipe transactions partially offset increase plant construction property additions absence cash acquired scana combination acquisition investment pivotal lng inc additional 5 investment atlantic coast pipeline decrease proceeds sale assets equity method investments financing cash flows liquidity dominion energy relies capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings dominion energy’s ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances dominion energy currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 amended rules provide streamlined shelf registration process provide registrants timely access capital allows dominion energy use automatic shelf registration statements register offering securities exchange offers business combination transactions time dominion energy may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions tender offers otherwise net cash used dominion energys financing activities increased 16 billion primarily due repurchases common stock 2020 lower issuances common stock absence 2019 equity units series b preferred stock issuances absence proceeds sale 25 noncontrolling interest cove point partially offset higher issuances lower repayments longterm debt credit facilities shortterm debt dominion energy uses shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties connection commodity hedging activities dominion energy required provide collateral counterparties circumstances certain collateral arrangements dominion energy may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time dominion energy may vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates dominion energy issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion energy’s commercial paper letters credit outstanding well capacity available credit facility follows 1 weightedaverage interest rate outstanding commercial paper supported dominion energy’s credit facility 029 december 31 2020 2 credit facility matures march 2023 used borrowers credit facility support bank borrowings issuance commercial paper well support combined 20 billion letters credit dominion energy effective registration statement sec sale 30 billion variable denomination floating rate demand notes called dominion energy reliability investmentsm registration limits principal amount may outstanding one time 10 billion notes offered continuous basis bear interest floating rate per annum determined dominion energy reliability investment committee designee weekly basis notes stated maturity date nontransferable may redeemed whole part dominion energy investor’s option time december 31 2020 dominion energy’s consolidated balance sheets include 268 million presented within shortterm debt proceeds used general corporate purposes repay debt march 2020 dominion energy entered 900 million 364day revolving credit agreement bears interest variable rate december 31 2020 225 million outstanding agreement proceeds borrowings used provide general working capital general corporate purposes maximum allowed total debt total capital ratio agreement consistent allowed ratio dominion energy’s joint revolving credit facility march 2020 dominion energy borrowed 500 million 364day term loan credit agreement bore interest variable rate proceeds used provide general working capital general corporate purposes november 2020 dominion energy repaid outstanding balance full april 2020 dominion energy borrowed 625 million 364day term loan credit agreement bore interest variable rate proceeds used provide general working capital general corporate purposes june 2020 dominion energy repaid outstanding balance full longterm debt 2020 dominion energy issued following longterm public debt 2020 dominion energy also issued following longterm private debt • march 2020 psnc issued private placement 200 million 405 senior notes mature 2030 proceeds used general corporate purposes • june 2020 east ohio issued private placement 500 million 130 senior notes 500 million 200 senior notes 800 million 300 senior notes mature 2025 2030 2050 respectively east ohio used proceeds offering repay intercompany promissory notes dominion energy gas portion intercompany revolving credit agreement balance dominion energy 2020 dominion energy also remarketed following longterm debt • june 2020 virginia power remarketed one series taxexempt bonds aggregate outstanding principal 105 million new investors bonds bear interest coupon rate 120 may 2024 bear interest market rate determined time • september 2020 virginia power remarketed three series taxexempt bonds aggregate outstanding principal 322 million new investors one bonds bear interest coupon rate 045 april 2022 bear interest market rate determined time two bonds bear interest coupon rate 075 september 2025 bear interest market rate determined time 2020 dominion energy repaid repurchased redeemed 29 billion longterm debt including redemption premiums following longterm debt repaid repurchased redeemed stated maturity • february 2020 dominion energy redeemed remaining principal outstanding 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 purchases conducted compliance applicable rcc terminated february 2020 expenses related early redemption hybrids 10 million reflected within interest related charges consolidated statements income year ended december 31 2020 • march 2020 scana redeemed floating rate senior notes remaining principal balance 66 million plus accrued interest notes would otherwise matured june 2034 expenses related early redemption senior notes 7 million reflected within interest related charges consolidated statements income year ended december 31 2020 • march 2020 scana redeemed remaining principal outstanding 183 million 475 mediumterm notes 155 million 4125 mediumterm notes plus accrued interest makewhole premiums notes would otherwise matured may 2021 february 2022 respectively total expenses related early redemption mediumterm notes 14 million reflected within interest related charges consolidated statements income year ended december 31 2020 • april 2020 dominion energy purchased canceled 7 million 2579 junior subordinated notes scheduled mature july 2020 june 2020 dominion energy prepaid remaining balance 993 million addition 2020 dominion energy virginia power amended portfolios interest rate swaps extending mandatory termination dates resulting increase longterm debt see note 18 consolidated financial statements information february 2021 psnc entered agreement certain investors issue private placement march 2021 150 million 310 30year senior notes proceeds used repayment existing indebtedness general corporate purposes issuance common stock 2020 dominion energy issued approximately 67 million shares common stock valued 520 million litigation settlement various programs including dominion energy direct® dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans august 2020 dominion energy began purchasing common stock open market direct stock purchase plans january 2021 dominion energy began issuing new shares common stock direct stock purchase plans 2020 dominion energy received cash 159 million issuance 21 million shares dominion energy direct® employee savings plans september 2020 dominion energy issued 41 million shares common stock satisfy obligation settlement agreement santee cooper ratepayer case discussed note 20 consolidated financial statements shares immediately repurchased discussed august 2020 dominion energy entered sales agency agreements effect sales new atthemarket program sales agency agreements dominion energy may time offer sell shares common stock sales agents enter one forward sale agreements respect shares common stock sales dominion energy sales agents forward sellers pursuant forward sale agreement cannot exceed 10 billion aggregate dominion energy issued shares entered forward sale agreements new program repurchase common stock 2020 dominion energy repurchased 389 million shares dominion energy common stock 31 billion open market agreement accelerated share repurchase agreements private transaction discussed july 2020 contemplation dominion energy entering july 2020 agreement sell substantially gas transmission storage operations bhe board directors authorized repurchase 30 billion dominion energy’s common stock rescinded prior repurchase authorization approved february 2005 modified june 2007 dominion energy completed repurchases authorization december 2020 november 2020 board directors authorized repurchase 10 billion dominion energy’s common stock addition repurchase program authorized july 2020 repurchase program include specific timetable price volume targets may modified suspended terminated time shares may purchased open market privately negotiated transactions otherwise discretion management subject prevailing market conditions applicable securities laws factors august 2020 dominion energy began repurchasing shares open market agreement financial institution end 2020 dominion energy repurchased 109 million shares dominion energy common stock 857 million september 2020 dominion energy entered two prepaid accelerated share repurchase agreements made payments totaling 15 billion ultimate receipt 186 million shares dominion energy common stock december 2020 dominion energy entered another prepaid accelerated share repurchase agreement paid 400 million ultimate receipt 53 million shares dominion energy common stock september 2020 dominion energy repurchased 41 million shares dominion energy common stock private transaction 323 million see note 20 consolidated financial statements information credit ratings dominion energy’s credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities credit ratings dominion energy affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions credit ratings outlooks february 22 2021 follow credit rating recommendation buy sell hold securities evaluated independently rating ratings subject revision withdrawal time applicable rating organization debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion energy must enter enabling agreements contain customary covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion energy dominion energy required pay annual commitment fees maintain joint revolving credit facility addition credit agreement contains various terms conditions could affect dominion energy’s ability borrow facility include maximum debt total capital ratio crossdefault provisions december 31 2020 calculated total debt total capital ratio pursuant terms agreement follows 1 indebtedness defined bank agreements excludes certain junior subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets dominion energy material subsidiaries fails make payment various debt obligations excess 100 million lenders could require defaulting company borrower dominion energy’s credit facility accelerate repayment outstanding borrowings lenders could terminate commitments lend funds company credit facility addition defaulting company virginia power dominion energy’s obligations repay outstanding borrowing credit facility could also accelerated lenders’ commitments dominion energy could terminate term loan revolving credit agreements dominion energy entered first quarter 2020 maximum allowed total debt total capital ratio consistent ratio credit facility discussed dominion energy monitors compliance debt covenants regular basis order ensure events default occur december 31 2020 events default dominion energy’s debt covenants subsidiary dividend restrictions certain dominion energy’s subsidiaries may time subject certain restrictions imposed regulators financing arrangements ability pay dividends advance repay funds dominion energy december 31 2020 restrictions significant impact dominion energy’s ability pay dividends common stock meet cash obligations see note 21 consolidated financial statements description restrictions dominion energy’s ability pay dividends future cash payments contractual obligations planned capital expenditures contractual obligations dominion energy party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion energy party december 31 2020 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion energy’s current liabilities paid cash 2021 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt payments stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2020 outstanding principal instrument terms ending instrument’s stated maturity see note 18 consolidated financial statements reflect dominion energy’s ability defer stock purchase contract payments 2019 equity units initially form corporate units 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 includes capital operations maintenance commitments 5 excludes regulatory liabilities aros employee benefit plan obligations charitable commitments contractually fixed timing amount see notes 12 14 22 23 consolidated financial statements due uncertainty timing amounts ultimately paid 105 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 6 includes interest rate swap agreements planned capital expenditures dominion energy’s planned capital expenditures including contributions equity method investments expected total approximately 81 billion 74 billion 87 billion 2021 2022 2023 respectively dominion energy’s planned expenditures expected include construction expansion electric generation including renewable energy natural gas distribution construction improvements expansion electric transmission distribution assets purchases nuclear fuel maintenance dominion energy expects fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors see dominion energy virginia gas distribution dominion energy south carolina contracted assets properties item 1 business discussion dominion energy’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion energy’s board directors late 2020 subject continuing review adjustment actual capital expenditures may vary estimates dominion energy may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements corporate office leasing arrangement december 2019 dominion energy signed agreement lessor amended may 2020 construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 465 million fund estimated project costs dominion energy ultimately proceeds project completion project expected completed september 2024 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 61 million december 31 2020 project terminated certain events dominion energy could required pay 100 funded amount lease term commence construction substantially complete facility able occupied end december 2027 end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 83 project costs difference project costs sale proceeds dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements dominion energy expects recognize rightofuse asset corresponding finance lease liability commencement lease term dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense offshore wind vessel leasing arrangement december 2020 dominion energy signed agreement lessor complete construction lease jones act compliant offshore wind installation vessel designed handle current turbine technologies well next generation turbines lessor providing equity obtained financing commitments debt investors totaling 550 million fund estimated project costs project expected completed end 2023 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 187 million december 31 2020 project terminated certain events default dominion energy could required pay 100 funded amount initial lease term commence construction substantially complete vessel delivered mature november 2027 end initial lease term dominion energy extend term lease additional term subject approval participants current market terms ii purchase property amount equal outstanding project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors outstanding project costs dominion energy may required make payment lessor difference outstanding project costs sale proceeds dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements dominion energy expects recognize rightofuse asset corresponding finance lease liability commencement lease term dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense guarantees dominion energy primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others addition dominion energy provided guarantees support certain equity method investees including atlantic coast pipeline cove point see notes 9 23 consolidated financial statements additional information future issues matters see item 1 business notes 13 23 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion energy subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion energy incurred 238 million 260 million 198 million expenses including accretion depreciation 2020 2019 2018 respectively connection environmental protection monitoring activities dominion energy expects expenses approximately 234 million 231 million 2021 2022 respectively addition capital expenditures related environmental controls 58 million 134 million 104 million 2020 2019 2018 respectively dominion energy expects expenditures approximately 63 million 81 million 2021 2022 respectively future environmental regulations climate change federal government several states dominion energy operates announced commitment achieving carbon reduction goals february 2021 us rejoined paris agreement establishes universal framework addressing ghg emissions states may also enact legislation relating climate change matters reduction ghg emissions renewable energy portfolio standards similar vcea extent legislation enacted federal state level restrictive vcea andor dominion energy’s commitment achieving net zero emissions 2050 compliance legislation could material impact dominion energy’s financial condition andor cash flows state actions related air ghg emissions august 2017 ozone transport commission released draft model rule control nox emissions natural gas pipeline compressor fuelfire prime movers states within ozone transport region including states dominion energy natural gas operations expected develop reasonably achievable control technology rules existing sources based ozone transport commission model rule states outside ozone transport commission may also consider model rules setting new reasonably achievable control technology standards several states dominion energy operates including virginia ohio developing announced plans develop statespecific regulations control ghg emissions including methane dominion energy cannot currently estimate potential financial statement impacts related matters could material impact financial condition andor cash flows october 2020 epa published proposal revise 2016 cross state air pollution rule update address interstate air quality impacts 2008 ozone national ambient air quality standards epa’s proposed rule affect 12 states including virginia west virginia proposes either issue new amend existing nox ozone season emission budgets epa proposing require implementation revised emission budgets beginning 2021 ozone season may 1 september 30 2021 revisions could necessitate companies install additional control technology certain facilities andor limit ability facilities run certain times dominion energy cannot currently estimate potential financial statement impacts related matters could material impact financial condition andor cash flows phmsa regulation recent reauthorization phmsa included new provisions historical records research maximumallowed operating pressure validation use automated remotecontrolled valves new replaced lines increased civil penalties evaluation expanding integrity management beyond highconsequence areas phmsa yet issued new rulemaking items doddfrank act cea amended title vii doddfrank act requires certain overthe counter derivatives swaps cleared derivatives clearing organization swap subject clearing requirement executed designated contract market swap execution facility nonfinancial entities use swaps hedge mitigate commercial risk may elect enduser exception cea’s clearing requirements dominion energy utilizes enduser exception respect swaps result changes rulemaking process dominion energy longer utilize enduser exception otherwise becomes subject mandatory clearing exchange trading margin requirements could subject higher costs due decreased market liquidity increased margin payments addition dominion energy’s swap dealer counterparties may attempt passthrough additional trading costs connection changes rulemaking process due evolving rulemaking process dominion energy currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows north anna virginia power considering construction third nuclear unit site located north anna virginia power decides build new unit would require combined construction permit operating license nrc approval virginia commission certain environmental permits approvals june 2017 nrc issued combined construction permit operating license virginia power yet committed building new nuclear unit north anna southeast energy exchange market february 2021 desc members southeast energy exchange market submitted southeast energy exchange market agreement ferc authorization agreement sets forth framework rules establishing maintaining new voluntary electronic trading platform designed enhance existing bilateral market southeast utilizing zerocharge transmission service transmission service turn voluntarily provided participating transmission service providers including desc matter pending covid19 dominion energy continues monitor global outbreak covid19 developments affecting workforce suppliers aspects business construction projects take additional precautions dominion energy believes warranted addition dominion energy continues review customer demand ability collect customer receivables result covid19 pandemic virginia legislation enacted november 2020 related moratorium utility disconnections resulting forgiveness certain past due accounts state legislatures utility commissions could impose similar measures could material impact dominion energy’s results operations financial position andor cash flows item 7a item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contains forwardlooking statements defined private securities litigation reform act 1995 including without limitation discussions expectations beliefs plans objectives future financial performance assumptions underlying concerning matters discussed document discussions including certain contingency matters respective cautionary statements discussed elsewhere report historical facts forwardlooking accordingly involve estimates projections goals forecasts assumptions uncertainties could cause actual results outcomes differ materially expressed forwardlooking statements business financial condition influenced number factors including political economic risks market demand energy inflation capital market conditions governmental policies legislative regulatory actions including ferc epa doe nrc sec virginia commission north carolina commission industry rate structure legal administrative proceedings important factors could cause actual results outcomes differ materially discussed forwardlooking statements include changes compliance environmental laws policies weather conditions catastrophic weatherrelated damage present prospective wholesale retail competition electric deregulation restructuring organization operations financing companys business separate generation transmission distribution competition new energy development opportunities pricing transportation commodities operation nuclear power facilities acquisition disposition assets facilities nuclear decommissioning costs exposure changes fair value commodity contracts counter party credit risk unanticipated changes operating expenses capital expenditures factors difficult predict contain uncertainties may materially affect actual results may beyond control see item 1 cautionary factors may affect future results additional discussion matter new factors emerge time possible predict factors assess impact factor company forwardlooking statement speaks date statement made undertake obligation update forwardlooking statement statements reflect events circumstances date statement made business segments manage operations manner requires disclosure two business segmentsenergy delivery energy segment includes portfolio generating facilities power purchase contracts trading marketing activities nuclear consulting services energy services activities delivery segment includes bulk power transmission distribution metering services customer service currently majority revenue provided bundled rate tariffs revenue allocated energy delivery segments internal reporting purposes discussion herein certain activities discussed liquidity capital resources currently managed segment level however specific references segments made appropriate discussion trends variations generally applies company whole liquidity capital resources internal sources liquidity cash flow operating activities provided approximately 11 billion years 2000 1999 1998 three years 1998 2000 cash flow operating activities dividend payments sufficient cover 90 percent capital nuclear fuel expenditures average approximately 73 percent total cash requirements cash requirements met timing amount cash flow operations generally satisfied proceeds sale securities shortterm borrowings external sources liquidity 2000 issued 220 million aggregate principal variablerate mediumterm notes maturing 2002 also entered swap agreement synthetically convert 200 million variable rate notes fixed rate debt swap agreement pay 727 fixed rate proceeds notes used retire outstanding debt preferred stock retired 376 million outstanding debt preferred stock 2000 also 2000 issued industrial development authority town louisa virginia 30 million aggregate principal amount tax exempt pollution control revenue bonds due september 2030 net proceeds bonds used finance qualifying expenditures made construction facilities north anna power station commercial paper program supported two credit facilities 300 million credit facility also participate credit facility supports combined commercial paper programs dominion company consolidated natural gas company cng facility established june 2000 175 billion matures may 2001 although access full amount 175 billion facility operate internal allocation may vary depending upon needs participating entities net borrowings commercial paper program 714 million december 31 2000 increase 336 million amounts outstanding december 31 1999 borrowings facilities used primarily fund working capital requirements may vary significantly course year depending upon timing amount cash requirements satisfied current cash provided operations addition commercial paper may also issue extendible commercial notes ecns meet working capital requirements program became effective july 2000 allow us issue 200 million aggregate outstanding principal ecns unsecured notes expected sold private placements ecns issue would stated maturity 390 days issuance may redeemed option within 90 days less issuance december 31 2000 available 162 billion remaining principal amount currently effective shelf registrations sec meet capital requirements february 2001 issued industrial development authority town louisa virginia 50 million aggregate principal amount tax exempt pollution control revenue bonds due september 2031 net proceeds bonds used finance qualifying expenditures made construction facilities north anna power station 2000 capital expenditures 2000 investing activities resulted net cash outflow 770 million activities included capital expenditures 652 million nuclear fuel expenditures 82 million generationrelated projects totaled approximately 307 million included construction four combustion turbines environmental upgrades routine capital improvements spent approximately 292 million transmission distributionrelated projects reflecting routine capital improvements expenditures associated new connections remaining capital expenditures 53 million included approximately 20 million continued expansion fiber optic network 33 million general information technology projects conveyed telecommunications subsidiary dominion august 2000 capital requirements capacitywe anticipate peak demand grow approximately 1 percent year 2003 expect complete construction two 160 mw combustion turbines caroline county virginia midyear 2001 anticipate spending estimated 115 million project approximately 98 million incurred december 31 2000 expect future additional capacity energy requirements met combination market purchases companyconstructed generation plant equipmentour generation construction nuclear fuel expenditures 2001 2002 2003 expected total 438 million 488 million 433 million respectively transmission distribution expenditures 2001 2002 2003 expected total 393 million 379 million 371 million respectively majority expenditures primarily address funding environmental projects customer growth well reliability initiatives routine replacements installing sulfur dioxide so2 emission control equipment two coalfired generating units expected completion date early 2002 total cost project estimated 123 million 76 million incurred december 31 2000 response clean air act requirements installing nitrogen oxide nox reduction equipment coalfired generating units estimated capital cost 542 million 66 million incurred december 31 2000 installations scheduled completion midyear 2004 also discontinuing use coal possum point station prince william county virginia next three years two coalfired units retired two coalfired units converted gas estimated capital cost 15 million significant costs incurred conversion december 31 2000 see environmental matters additional discussion clean air act matters maturitieswe require 241 million meet maturities securities 2001 expect fund capital requirements maturities cash flow operations combination sales securities shortterm borrowings results operations general section provides general discussion factors affect operating revenue income energy delivery segments discussion fluctuations certain expenses allocated separately segments operating revenue income total operating revenue income fiscal years 2000 1999 1998 allocated energy delivery segments follows regulated electric sales consists primarily sales retail customers service territory rates authorized virginia commission north carolina commission sales cooperatives municipalities wholesale rates authorized ferc also included regulated electric sales amounts received others use transmission system transport electric energy tariffs authorized ferc primary factors affecting regulated electric sales revenue fiscal years 2000 1999 customer growth changes rates revenue includes sales electricity beyond service territory sales natural gas revenue following factors contributed increase operating revenue income 2000 1999 1otherretail netthis category reflects actual revenue variances otherwise identified economic models used prepare revenue analysis items give rise types variances primarily relate residential commercial customer usage patterns contemplated economic assumptions models weather seasonal rate differences overall economy contribute customer usage patterns 2000 compared 1999 retail customer growthregulated electric sales revenue increased served average approximately 39000 retail customers 2000 weatherregulated electric sales revenue increased reflecting higher customer usage response colder fall winter weather offset somewhat lower customer usage resulting milder summer weather heating cooling degreedays follows fuel ratescurrently recover cost fuel used generating electricity fuel rates approved regulatory authorities increase fuel rate revenue reflects higher fuel rates approved first quarter 2000 regulated electric sales revenue increased primarily due increased wholesale sales cooperatives municipalities requirements contracts revenue electric transmission services change significantly revenue decreased reflecting lower net revenue associated electricity gas marketing trading activities decrease reflects lower offsystem electric sales resulting primarily expiration two major longterm power purchase contracts late 1999 compared 1998 retail customer growth regulated electric sales revenue increased served average approximately 39000 retail customers 1999 weatherweather typically significant impact regulated electric sales revenue however comparative periods weather significant impact base rate refund base rate reductionregulated electric sales revenue increased reflecting onetime base rate refund 150 million recorded 1998 part settlement resolve outstanding rate proceedings addition agreed twophased rate reduction 100 million effective march 1 1998 additional 50 million effective march 1 1999 two phased rate reduction reduced regulated electric sales 57 million result deregulation legislation virginia jurisdictional base rates remain unchanged july 2007 see note 6 consolidated financial statements fuel ratesthe increase fuel rate revenue reflects comparatively higher fuel rates result annual fuel case became effective december 1998 regulated electric sales revenue increased due increased revenue electric transmission services revenue increased reflecting higher net revenue associated electricity gas marketing trading activities increase net revenue associated electricity gas marketing trading activities primarily reflects changes composition net marktomarket gains portfolio commodity contracts expenses certain expenses allocated separately energy delivery segments changed follows compared respective prior years 2000 compared 1999 restructuring costsduring 2000 incurred restructuring costs 71 million connection implementation plan restructure operations dominion subsidiaries following dominions acquisition cng charges related primarily costs associated workforce reduction activities see restructuring costs note 5 consolidated financial statements information cumulative effect change accounting principleas result acquisition cng dominion adopted new companywide standard method calculating market related value plan assets pension plans market related value plan assets used determine expected return plan assets component net periodic pension cost cumulative effect accounting change january 1 2000 21 million net income taxes 11 million see note 3 consolidated financial statements 1999 compared 1998 impairment regulatory assetsthis charge 1998 reflected write regulatory assets result settlement virginia rate proceeding see note 6 consolidated financial statements interest expenseinterest expense decreased part due interest cost associated onetime base rate refund paid 1998 part settlement virginia rate proceeding see note 6 consolidated financial statements addition upon discontinuance sfas 71 began capitalizing interest accordance sfas 34 capitalization interest cost part generationrelated construction projects extraordinary itemthe passage legislation establishing detailed plan restructure electric utility industry virginia event required discontinuation sfas 71 generation operations generationrelated assets liabilities expected recovered costbased rates written 1999 resulting aftertax charge 255 million see note 6 consolidated financial statements energy segment net income energy segment increased 70 million 2000 47 million 1999 presented revenue expense items contributing comparative fluctuations segment results note certain 1999 1998 amounts reclassified conform 2000 classifications 2000 compared 1999 operating revenuesee general section discussion revenue consolidated basis fuel net increased primarily due higher overall production generating units increased costs fossil fuel increased energy purchases system energy output energy source average fuel cost shown fuel cost presented mills one tenth one cent per kilowatt hour 1excludesold dominion electric cooperatives odec 116 percent ownership interest north anna power station 2excludesodecs 50 percent ownership interest clover power station purchased power capacity net decreased reflecting expiration two major longterm power purchase contracts december 31 1999 operations maintenance increased reflecting primarily higher overall corporate administrative costs taxes decreased due accrual 2000 tax refund income includes accrual 2000 interest income received connection favorable resolution tax litigation 1999 compared 1998 operating revenuesee general section discussion revenue consolidated basis fuel net increased primarily due higher production generating units increased energy purchases see presentation system energy output energy source average fuel cost chart presented 2000 compared 1999 section operations maintenance increased primarily result increased maintenance activities performed planned outages fossil plants adjustments inventories related planned disposal identified obsolete excess materials supplies effect certain accounting policy changes 1999 resulted discontinuance sfas 71 including recognition losses retirement equipment related removal costs depreciation amortization primarily reflect amortization certain terminated construction projects 1998 costs projects completely amortized end first quarter 1999 taxes decreased primarily due changes provision taxes associated electricity gas marketing trading activities delivery segment net income delivery segment increased 49 million 2000 8 million 1999 presented revenue expense items contributing comparative fluctuations segment results note certain 1999 1998 amounts reclassified conform 2000 classifications 2000 compared 1999 compared 1998 operating revenuesee general section discussion revenue consolidated basis operations maintenance expenses higher 1999 compared fiscal years 2000 1998 result significant service restoration costs associated ice storm hurricane damage electric industry issues deregulation legislation virginia historically exclusive right provide electricity retail within assigned service territories virginia north carolina however 1998 1999 deregulation legislation enacted virginia established plans restructure virginias electric utility industry provided phasedin transition fully competitive retail electric market period january 1 2002 january 1 2004 connection implementation phasein retail electric competition commission staff recommended transition schedules virginias electric utilities company commission staffs plan recommended phasein retail choice made available customers january 1 2003 filed comments commission staffs recommended plan february 2001 deregulation legislation generation portion virginia jurisdictional operations longer subject costbased rate regulation beginning 2002 base rates remain unchanged july 2007 recovery generationrelated costs continue provided capped rates wires charge assessed customers opting alternate suppliers addition may petition virginia commission terminate capped rates january 1 2004 capped rates may terminated virginia commission finds effectively competitive market generation services exists within service territory discussed sections legislation also addressed divestiture retail access pilot program separation generation delivery operations regional transmission entities corporate relationships established task force work virginia commission phasein competition task forces specific assignments include monitoring possible underrecovery stranded costs incumbent utilities 200l general assembly approved bill containing several technical amendments deregulation legislation addition consistent intent earlier legislation 2001 general assembly clarified generation rates default service based competitive market prices north carolina 2000 study commission established north carolina general assembly explore future electric service north carolina developed proposal provide full retail competition north carolina january 1 2006 phasein beginning january 1 2005 50 percent power suppliers customer load recommendations part report given general assembly may 2000 short session legislation passed extended study commission 2006 added dominion north carolina powers ceo designee membership study commission continues meet review recommendations general assembly issues states generated discussion concerning retail competition federal united states congress may consider federal legislation near future authorizing requiring retail competition repealing 1935 act andor public utility regulatory policy act 1978 retail access pilot program transition retail competition 1998 virginia commission issued order instructing company aepvirginia virginias two largest investorowned utilities design file retail access pilot program 1998 1999 worked commission staff developing plans size scope program market price methodology 2000 virginia commission issued final order interim rules governing pilot programs january 2001 virginia commission established proceeding determine permanent rules retail access working group interested parties worked commission staff develop proposed rules filed commission staff march 2001 comments proposed rules filed april 2001 pilot program project current choice began september 2000 end december 2000 81000 customers volunteered pilot 20000 switched competitive service provider phase project current choice conducted central virginia 44000 residential small business customers volunteered participate small intermediatesized business portion phase currently fully subscribed stopped accepting enrollments october 2000 implemented phase ii project current choice northern virginia began accepting enrollments december 2000 13000 residential small business customers already switched competitive supplier northern virginia project current choice also includes separate plan nearly onehalf approximately 2000 large commercial industrial customers throughout service territory volunteered pilot program fiftyeight large customers volunteered selected lottery eligible participate switch competitive supplier far six large customers selected alternative supplier december 2000 filed application virginia commission increase wires charges retail access pilot program consistent proposed virginia fuel factor case effective january 1 2001 january 2001 virginia commission authorized company increase pilot program wires charges interim basis effective january 1 2001 incorporate revised fuel cost recovery filed comments proposed wires charge increases virginia commission january 2001 hearing matter scheduled april 2001 expect participation customers virginia service area project current choice material impact results operations separation electric generation delivery operations virginia deregulation legislation requires functional separation electric generation delivery utility operations january 1 2002 november 2000 filed virginia commission application approval functional separation plan provides following transfer generation assets separate legal entity dominion generation corporation transfer rights obligations nonutility purchase power contracts dominion generation corporation retention transmission distribution assets operations company known dominion virginia power collection nuclear decommissioning funding costs wires charges retail customers dominion virginia power behalf dominion generation corporation dominion virginia power responsible providing capped rate service july 1 2007 default service obligations dominion generation corporation supply dominion virginia power electric power capped rate period power purchase agreement ensure adequate capacity energy available meet companys capped rate service default supply obligations upon expiration capped rate period power purchases dominion virginia power dominion generation corporation prevailing market prices indexbased fuel cost recovery mechanism based forecasted generation fuel type projected fuel price indices january 1 2002 unbundled rates reflect separation deregulation generation wires charge effective january 1 2002 subject annual adjustment paid retail customers choosing alternative generation supplier capped rate period proposed internal controls prevent crosssubsidies regulated unregulated entities ensure regulated company give undue advantages unregulated affiliated generation companies planned reallocation dominion virginia power dominion generation corporation payment responsibility existing company debt manner determined investment banking assistance objective ratings outstanding debt remain unchanged october 2000 virginia commission issued final order promulgating regulations governing functional separation incumbent electric utilities generation transmission distribution services order adopted rules virginias existing electric utilities organize participate competitive energy supply market rules govern utilities generate transmit distribute electricity separate operations generating plants participate competitive market without raising anticompetitive concerns 2001 general assembly provided additional clarification order made amendments deregulation legislation provides termination expiration capped rate service generation price default service provided incumbent distribution utilities based competitive market prices virginia commission set hearing date october 2001 consider companys functional separation plan regional transmission entitiesregional transmission organizations deregulation legislation requires virginias incumbent electric utilities join establish regional transmission entities rte january 1 2001 seek authorization virginia commission transfer ownership operational control transmission facilities rtes july 2000 virginia commission issued regulations governing transfer ownership control electric transmission assets rte regulations establish 1 elements rte essential public interest applied virginia commission determining whether authorize transfer control electric transmission facilities rte 2 filing requirements entities seeking authorization transfer facilities 3 schedule filings october 2000 filed application virginia commission pursuant rte regulations seeking authorization transfer control electric transmission facilities alliance regional transmission organization alliance rto discussed alliance rto formed according ferc initiatives expect satisfy requirements establish rte virginia legislation 1999 ferc issued regulations order 2000 advance formation regional transmission organizations rto regulations require public utility owns operates controls electric transmission facilities interstate commerce make certain filings respect running participating rto company together aep consumers energy company detroit edison company first energy corporation behalf public utility operating company subsidiaries alliance companies filed ferc applications sections 205 203 federal power act approval proposed alliance rto ferc approved application subject certain conditions filing requirements 2000 alliance companies filed response complying fercs conditions filing requirements ferc approved aspects alliance rto january 2001 dayton power light company commonwealth edison company commonwealth edison company indiana illinois power company ameren ue ameren cips subsequently requested join alliance rto wholesale competition sell electricity wholesale market marketbased sales tariff authorized ferc agreed make wholesale power sales tariff loads located within service territory 2000 filed applications ferc make sales marketbased sales tariff loads within service territory participating retail access pilot program amend openaccess transmission tariff accommodate virginia retail access pilot program ferc accepted applications authorization granted ferc sales wholesale power loads located within service territory sales loads participating retail access pilot program costbased rates accepted ferc metering billing services july 2000 virginia commission issued order inviting comments regard retail electric metering billing services required statute virginia commission presented recommendation draft plan retail electric billing metering services virginia legislative transition task force december 2000 virginia commissions plan would provide customer choice billing services effective january 1 2002 subject one year delay determined necessary virginia commission plan also addressed costs related competitive billing services recoverable incumbent utilities authority virginia commission calculate costs determine appropriate method cost recovery addition approving virginia commissions plan retail electric billing services 2001 general assembly approved bill containing provision virginia commission shall implement provision competitive metering services licensed providers large industrial large commercial customers investorowned distributors january 1 2002 may approve services residential small business customers investorowned distributors january 1 2003 exposure potentially stranded costs significant potential impact transitioning regulated competitive environment stranded costs stranded costs incurred commitments made utilities costbased regulation may recovered competitive market recovery mechanism provided transition financial position utility could materially adversely affected december 31 2000 exposure potentially stranded costs comprised longterm power purchase contracts could ultimately determined market generating plants may become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements believe capped rates provided deregulation legislation present reasonable opportunity recover substantial portion potentially stranded costs absence capped rates march 31 1999 would otherwise exposed pretax basis estimated 32 billion potential losses related longterm power purchase commitments recovery potentially stranded costs subject numerous risks including exposures listed well future environmental compliance requirements changes tax laws decommissioning costs inflation increased capital costs among items see notes 6 8 19 20 consolidated financial statements restructuring contracts nonutility generating facilities reached agreement pending regulatory approvals terminate three longterm power purchase contracts expect transaction completed first quarter 2001 resulting onetime nonoperating charge approximately 135 million taxes transaction part ongoing program seeks achieve competitive cost structures power generation business nuclear relicensing june 2001 plan file applications nrc renew operating licenses surry north anna nuclear stations technical work required support license renewal application completed december 31 2000 renewal license extend plants working lives 20 years rate matters december 2000 filed application virginia commission increase virginia fuel factor 1339c per kwh 1613c per kwh estimated annual increase 158 million new rates went effect interim basis usage january 1 2001 pending hearing scheduled april 2001 july 2000 virginia commission issued order modify cogeneration small power production rates schedule 19 order sustained proposed method determine avoided costs agreed position system sales excluded calculation avoided costs cogeneration rate effective 2001 september 2000 filed revised schedule 19 required virginia commissions july 2000 order november 2000 virginia commission accepted filing revised schedule 19 tariff support dominions request approval north carolina commission acquisition cng dominion reached agreement public staff north carolina commission whereby agreed request increase north carolina retail electric base rates december 31 2005 except certain events would significant financial impact company events could include governmental action occurrence beyond control attributable fault negligence however fuel rates still subject change annual fuel cost adjustment proceedings regulatory matters june 2000 filed application virginia commission make number changes possum point power station designed provide environmental benefits proposed plan entails retirement two coal fired units conversion two coal fired units gas andor oil addition one combined cycle unit capable running gas oil unit owned thirdparty operated company operating lease virginia commission held hearing matter january 2001 see environmental matters discussion issue environmental matters subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations historically recovered costs customers utility rates extent environmental costs incurred june 30 2007 excess electric retail virginia jurisdictional rates amounts reflected results operations date may seek recovery environmental costs related transmission distribution operations regulated utility rates environmental protection monitoring expenditures incurred approximately 90 million 78 million 72 million including depreciation expenses 2000 1999 1998 respectively connection environmental protection monitoring activities expect expenses approximately 87 million 2001 capital expenditures related environmental controls approximately 207 million 74 million 22 million 2000 1999 1998 respectively amount estimated 2001 capital expenditures approximately 171 million includes certain expenditures clean air act improvements discussed clean air act compliance clean air act amended 1990 requires company reduce emissions so2 nox gaseous byproducts fossil fuel combustion clean air act also requires us obtain operating permits major emissionsemitting facilities permit applications submitted companys power stations clean air acts so2 reduction program based issuance limited number so2 emission allowances may used permit emit one ton so2 atmosphere may sold someone else epa administers program compliance plans reviewed periodically may include switching lower sulfur coal purchasing emission allowances installing so2 control equipment december 1998 initiated capital project install so2 control equipment two units mt storm power station estimated cost 123 million so2 controls expected operational january 2002 began complying clean air act phase nox limits eight units virginia 1997 three years earlier otherwise required result units subject stringent phase ii limits 2008 established plan comply phase ii limits remaining eight coalfired units virginia subject phase ii limits september 1998 epa adopted rule requiring 22 states including virginia west virginia north carolina reduce cap ozone season mayseptember nox emissions beginning may 2003 recent ruling us district court appeals dc circuit extended compliance date may 31 2004 however december 1999 epa issued finding support petitions filed several northeastern states seeking relief longrange pollutant transport utility large industrial sources essentially enforces nox emission caps beginning may 2003 12 22 states including virginia west virginia north carolina response requirements plan install nox reduction equipment coalfired generating facilities estimated capital cost approximately 542 million next several years whether costs actually incurred dependent outcome pending litigation rules implementation plans adopted states operate virginia department environmental quality deq issued new air permit imposes plantwide ozone season nox emission limit 015 lbmmbtu possum point power station beginning may 2003 part state implementation plan address ozone levels northern virginia classified serious ozone nonattainment area given age existing units possum point high probability additional control requirements future evaluated various options optimize ability continue operate units costeffective manner providing northern virginia area reliable source electricity based evaluation recently announced planned retirement 143 mw existing oilfired generation conversion 322 mw coalfired generation natural gas 6 fuel oil possum point additionally new cleaner 540 mw combined cycle gas unit constructed owned third party operated company operating lease arrangement filed approval virginia commission approval expected early 2001 evaluation planning future projects comply so2 nox reduction requirements ongoing influenced changes regulatory environment availability so2 allowances emission control technology 2000 received notice violation nov epa alleging failed obtain new source review permits clean air act prior undertaking specified construction projects mt storm power station west virginia also 2000 attorney general new york filed suit alleging similar violations clean air act mt storm power station also received notices attorneys general connecticut new jersey intentions file suit similar violations clean air act may result imposition substantial civil penalties injunctive relief believe obtained permits necessary connection generating facilities currently reached agreement principle federal government state new york concerning implementation certain additional environmental controls coalfired generating stations connection resolution various clean air act matters agreement principle includes payment 5 million civil penalty commitment 14 million major environmental projects virginia west virginia connecticut new jersey new york 12year 12 billion capital investment program environmental improvements companys coalfired generating stations virginia west virginia including so2 nox emissions controls discussed although reached agreement principle terms final binding settlement still negotiated see note 20 consolidated financial statements december 2000 epa issued decision would move forward developing regulations control emissions mercury coalfired electric generating units epa expects issue final ruling december 2004 implementationcompliance expected required 2007 depending upon level reduction required flexibility allowed comply reduction requirements regulations could require installation control technology reduce mercury emissions future global climate change 1993 united nations global warming treaty became effective objective treaty stabilization greenhouse gas concentrations level would prevent manmade emissions interfering climate system continuation effort limit manmade greenhouse emissions international protocol formulated december 1997 kyoto japan protocol calls united states reduce greenhouse emissions 7 percent 1990 baseline levels period 20082012 protocol signed united states constitute binding commitment unless submitted approved united states senate emission reductions magnitude included protocol adopted would likely result substantial financial impact companies consume produce fossil fuelderived electric power including company restructuring costs subsequent dominions acquisition cng dominion subsidiaries developed began implementation plan restructure operations combined companies restructuring activities include workforce reductions consolidation postmerger operations information technology systems 2000 recognized 71 million restructuring costs discussed restructuring plan total 174 employee positions identified elimination resulting 14 million employee severance related costs december 31 2000 total 168 positions eliminated 8 million severance benefits paid 2000 approximately 400 employees elected participate early retirement program resulting expense approximating 51 million restructuring costs also included 6 million related consolidation integration business operations administrative functions planned workforce reductions avoid future annualized operating costs approximately 34 million would otherwise incurred see note 5 consolidated financial statements recently issued accounting standards june 2000 financial accounting standards board fasb issued sfas 138 accounting certain derivative instruments certain hedging activities amends sfas 133 accounting derivative instruments hedging activities sfas 133 requires derivative instruments recorded balance sheet fair value effective january 1 2001 addition contracts currently held trading purposes recorded fair value determined certain contracts subject fair value accounting sfas 133 use substantial portion contracts connection production delivery energy customers various hedging strategies addition commodity contracts use interest rate swaps manage cost capital record onetime nonoperating aftertax charges net income approximately 1 million comprehensive income approximately 14 million first quarter 2001 initial adoption sfas 133 adjustments recognized january 1 2001 cumulative effect change accounting principle ongoing effects depend future market conditions hedging activities interpretations standard derivatives implementation group dig group sponsored fasb continues develop interpretive guidance dig yet resolved certain issues could ultimately impact application standard september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities revises standards accounting disclosure securitizations transfers financial assets extinguishments liabilities certain exceptions standard applied prospectively transfers servicing financial assets extinguishments liabilities occurring march 31 2001 expect adoption new standard material impact financial condition results operations market risk sensitive instruments risk management exposed market risk utilize financial instruments derivative financial instruments derivative commodity instruments market risks inherent instruments represented potential loss due adverse changes commodity prices equity security prices interest rates described interest rate risk generally related outstanding debt preferred stock trustissued securities exposed equity price risk primarily result equity securities held nuclear decommissioning trusts commodity price risk experienced power generation commodity marketing trading business due exposure market shifts prices received paid electricity natural gas using sensitivity analysis disclose quantitative information exposure commodity price interest rate risks sensitivity analysis estimates potential loss future earnings may result market risk sensitive instruments selected time period due hypothetical changes interest rates commodity prices tabular presentation methodology used disclose equity price risk commodity price risk part strategy market energy generation capacity manage related risks manage portfolio derivative commodity contracts held trading purposes contracts sensitive changes prices electricity natural gas employ established policies procedures manage risks associated price fluctuations use various commodity instruments futures swaps options reduce risk creating offsetting market positions addition seek use generation capacity needed serve customers service territory satisfy commitments sell energy one techniques commonly used measure risk commodity trading portfolio sensitivity analysis determines hypothetical change fair value portfolio would result assumed change market prices related commodities fair value portfolio function underlying commodity contract prices market prices represented derivative commodity contract swaps forward contracts options market value reflects best estimates considering overthe counter quotations time value volatility factors underlying commitments exchangetraded futures options marked market based closing exchange prices determined hypothetical loss calculating hypothetical fair value contract assuming 10 unfavorable change market prices related commodity comparing fair value contracts based market prices december 31 2000 1999 hypothetical 10 change commodity prices would resulted hypothetical loss approximately 3 million 5 million fair value commodity contracts december 31 2000 1999 respectively sensitivity analysis include price risks associated utility operations including underlying utility fuel requirements normal course business also face risks either nonfinancial nonquantifiable risks principally include credit risk reflected sensitivity analysis interest rate risk manage exposure interest rate risk maintaining portfolio fixed variablerate debt instruments addition participate interest rate sensitive derivatives interest rate swaps manage risk part risk management policies may participate similar types derivatives future sensitivity analysis estimates impact hypothetical change interest rates variablerate longterm shortterm financial instruments interest rate sensitive derivatives financial instruments outstanding december 31 2000 hypothetical 10 increase market interest rates would decrease annual earnings approximately 9 million similar hypothetical increase market interest rates determined december 31 1999 resulted decrease annual earnings 8 million equity price risk following table presents description marketable equity securities held december 31 2000 1999 accordance current accounting standards securities reported balance sheet fair value risk management policies commodity contracts sensitive changes prices electricity natural gas appropriate operating procedures place administered experienced management help ensure proper internal controls maintained addition established independent function monitor compliance price risk management policies subsidiaries trading activities also expose us credit risk credit risk represents potential loss would incur result nonperformance counterparties pursuant terms contractual obligations maintain credit policies respect counterparties management believes minimize overall credit risk policies include evaluation prospective counterpartys financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty also monitor financial condition existing counterparties ongoing basis considering system internal controls place credit reserve levels december 31 2000 believe unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance item 7a item 7 managements discussion analysis financial condition results operations liquidity capital resources cash flow operating activities accounted average 72 companys cash requirements past three years near completion 832 mw coalfired power station near clover virginia company entered 1995 period internal cash generation exceed construction expenditures internal generation cash 1994 1993 provided 88 84 respectively funds required companys capital requirements net cash provided operating activities increased 1071 million 1995 compared 1994 primarily result increased sales partially offset number factors resulting normal operations net cash provided operating activities decreased 46 million 1994 compared 1993 primarily result rate refund 1292 million 1994 partially offset number factors resulting normal operations cash financing activities follows company sold 200 million first refunding mortgage bonds annual stated interest rate 825 march 1995 proceeds used primarily pay portion mandatory debt maturities company sold 40 million mediumterm notes annual stated interest rate 635 june 1995 proceeds used meet portion companys capital requirements year company retired total 3123 million debt securities mandatory maturities 1995 company issued 135 million preferred securities subsidiary trust proceeds used redeem 450000 shares companys 720 dividend preferred stock 417319 shares 730 dividend preferred stock 400000 shares 745 dividend preferred stock total principal value 1267 million capital requirements may june 1995 company filed two shelf registration statements securities exchange commission one 500 million first refunding mortgage bonds 200 million mediumterm notes series f respectively combine provide company 700 million unused capital resources addition company preferred stock shelf registered securities exchange commission 100 million aggregate principal amount utilized company intends issue securities time meet capital requirements company established commercial paper program 300 million commercial paper may outstanding point time program supported 300 million revolving credit facility replaced intercompany credit agreement dominion resources inc proceeds sale commercial paper primarily used finance working capital operations december 31 1995 net borrowings commercial paper program 169 million cash used investing activities follows investing activities 1995 resulted net cash outflow 7771 million primarily due 5199 million construction expenditures 576 million nuclear fuel expenditures construction expenditures approximately 427 million spent new generating facilities 1417 million production projects 2868 million transmission distribution projects capital requirements company presently anticipates kilowatthour sales grow approximately 2 percent year 2010 capacity needed support growth provided combination companyconstructed generating units purchases nonutility generators utility generators options plays important role companys overall plan meet capacity needs companys construction nuclear fuel expenditures excluding afc 1996 1997 1998 expected aggregate 5693 million 5303 million 5308 million respectively clover unit 1 part twounit facility jointly owned odec began commercial operation october 1995 companys fifty percent ownership share completed cost 2896 million companys annual depreciation operations maintenance expenses units estimated 15 million construction continues clover unit 2 expected inservice date april 1996 companys share cost construction approximately 2251 million 14 million remains spent 1996 new base load generation expected needed end next decade 2000 2009 company need add peaking intermediate units meet anticipated demand company require 2596 million meet longterm debt maturities 1996 company presently estimates 1996 construction expenditures including nuclear fuel expenditures met cash flow operations capital requirements met combination sales securities shortterm borrowings results operations following discussion results operations years ended 1995 compared 1994 compared 1993 1995 compared 1994 balance available common stock decreased compared 1994 primarily result restructuring costs recognized 1995 without restructuring costs balance available common stock 1995 would higher 766 million operating revenues changed primarily due following detailed chart increase revenues primarily due weather ie increased heating cooling degree days experienced last six months 1995 increased customer growth increased sales resale 1995 company 44955 new connections system compared 46741 43014 1994 1993 respectively kilowatthour sales changed follows cooling heating degree days follows increase kilowatthour sales 1995 compared 1994 reflects increased customer growth weather experienced last six months 1995 partially offset milder weather experienced first six months 1995 increase kilowatthour sales 1994 compared 1993 reflects extreme weather experienced january 1994 partially offset lower sales second half 1994 due milder weather increase sales resale 1995 compared 1994 primarily due weather experienced utilities surrounding regions last six months 1995 increased marketing efforts company average fuel cost system energy output shown system energy output shown excludes odecs 116 percent ownership interest north anna power station excludes odecs 50 percent ownership interest clover power station restructuring part vision 2000 program see note p consolidated financial statements company recorded 1179 million restructuring charges 1995 restructuring charges included severance costs purchase power contract cancellation negotiated settlement costs capital project cancellation costs december 31 1995 material savings realized due recently implemented 1995 involuntary staffing reductions however company estimates staffing reductions result annual savings net outsourcing costs range 50 million 60 million company incur additional restructuring charges 1996 however amount restructuring charges yet incurred known time furthermore companys review operations completed amount savings ultimately realized cannot estimated time realized savings reflected lower construction expenditures well lower operation maintenance expenses operation maintenance decreased compared 1994 expenses 1994 included payroll voluntary separation costs employees elected terminate service company 1994 early retirement voluntary separation programs offset part recognition insurance policyholder distributions expenses 1995 reflected decrease payroll costs due reduced staffing levels weatherrelated overtime offset 1995 salary increases impact employees reassigned capital operation maintenance activities addition 1995 expenses include expenses associated north branch power station increased obsolete inventory costs increased accruals employee benefits increased nuclear outage costs interest charges interest longterm debt increased compared 1994 primarily result higher interest rates first refunding mortgage bonds pollution control notes interest charges increased 1995 primarily result reduction 106 million interest accrued prior years certain tax obligations 1994 compared 1993 operation expensesother increased compared 1993 primarily result recognition costs associated early retirement voluntary separation programs offered company 1994 income taxesoperating decreased compared 1993 primarily result decreased pretax book income interest chargesother decreased 1994 primarily result reduction 106 million interest accrued prior years certain tax obligations future issues utility rate regulation regulatory policy continues fundamental importance company financial performance cost purchased capacity constitutes large category cost incurred companys operations virginia commission authorized rates providing current recovery ongoing level capacity payments moreover virginia commission established reaffirmed deferral accounting intended ensure dollar recovery reasonably incurred capacity costs environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations company costs historically recovered ratemaking process however material costs incurred recovered rates companys results operations financial condition could adversely impacted environmental protection monitoring expenditures company incurred 683 million 673 million 722 million including depreciation 1995 1994 1993 respectively connection use environmental protection facilities expects expenses approximately 683 million 1996 addition capital expenditures limit monitor hazardous substances 234 million 473 million 944 million 1995 1994 1993 respectively amount estimated 1996 expenditures 245 million clean air act compliance clean air act amended 1990 requires company reduce emissions sulfur dioxide so2 nitrogen oxides beginning 1995 so2 reduction program based issuance limited number so2 emission allowances may used permit emit one ton so2 atmosphere may sold someone else program administered epa company installed so2 control equipment unit 3 mt storm power station so2 control equipment began operation october 31 1994 cost related equipment 147 million company completed compliance plan phase ii clean air act exception additional studies concerning phase ii nitrogen oxide nox controls plan involve switching lower sulfur coal purchase emission allowances additional nox so2 controls maximum flexibility leastcost compliance maintained annual studies capital expenditures clean air act compliance next 5 years projected approximately 61 million changes regulatory environment availability allowances emission control technology could substantially impact timing magnitude compliance expenditures electromagnetic fields possibility exposure electromagnetic fields emanating power lines household appliances electric sources may result adverse health effects subject increased public governmental media attention considerable amount scientific research conducted topic without definitive results research continuing resolve scientific uncertainties soon tell impact actions may companys financial condition nuclear operations 1995 companys four nuclear units operated combined capacity factor 854 reflecting world record 69 day refuelingsteam generator replacement outage north anna unit 2 46 day refueling10year inservice inspection outage surry unit 2 43 day refueling outage surry unit 1 nuclear refueling outages typically occur every 18 months last approximately 48 days nuclear units refueled company replaces power nuclear generation expensive sources reduction length outage result increased availability lowcost nuclear generation thereby lowering generation expenses three normal refueling outages currently scheduled 1996 companys goal reduce future refueling outages average 48 days 35 days nrc revised nuclear power plant license renewal rules issued 1991 company intends work industry groups license renewal programs apply renewal current 40year licenses 1999 addition improving nuclear unit productivity efficiency company completed engineering analyses evaluations support uprating capability units plant modifications completed north anna surry upgraded core improvement north anna power station resulted 42 increase gross electrical output units similar project uprating surry units 1 2 completed 1995 resulted 43 increase gross electrical output units information nuclear decommissioning see note c consolidated financial statements competition light existing potential threats opportunities brought increased competition wholesale retail markets electricity company undertaken costcutting measures maintain position lowcost producer electricity engaged reengineering efforts core business processes pursued strategic planning initiative called vision 2000 encourage innovative approaches serving traditional markets prepare appropriate methods service future markets furtherance initiatives company established separate business units nuclear operations fossil hydroelectric operations commercial operations well energy services business gained regulatory approval innovative pricing proposals industrial loads virginia north carolina entered energy partnership key industrial customer january 1996 acquired two divisions ac enercom atlanta georgia heartland development corporation madison wisconsin company formed nonregulated subsidiary ac enercom inc provide marketing program planning design customer engineering energy consulting services part companys vision 2000 initiatives company developed regulatorylegislative strategy intended establish orderly transition competitive environment company supported number legislative proposals 1996 session virginia general assembly aimed achieving greater flexibility virginia commission company proposals supported company passed amended form houses general assembly passage governor recommended amendment one proposals considered passed houses remaining proposals await action governor legislation bullet allow virginia commission approve 1 alternative forms regulation including limited price regulation ranges authorized returns categories services price indexing may serve transition marketbased electric utility industry 2 economic development rates packages incentive rates services customized meet individual customer needs bullet facilitate regulated utilitys ability enter joint ventures partnerships bullet bring federal customer accounts served virginia limited jurisdiction virginia commission thus enabling virginia commission address stranded investment issues may arise due changes federal policy bullet clarify local referendum must held municipalization utility services occur services previously provided utility bullet allow virginia commission establish use condemnation proceeding amount stranded investment payment appropriate corporation possessing power eminent domain seeks permission condemn property another corporation possessing power eminent domain company continue affected developing competitive market wholesale power energy policy act 1992 participant wholesale market obtain ferc order provide transmission services certain conditions 1995 wholesale power group formed within company engage purchase sale wholesale electric power group already developed trading relationships beyond geographic limits companys retail service territory 1995 ferc issued notice proposed rulemaking nopr regarding openaccess transmission service nopr regarding realtime information networks standards conduct realtime information network would provide transmission users data concerning availability transmission service sametime basis company filed comments proceedings supporting fercs objective promote comparable openaccess transmission service however company urged ferc rethink suggestion functional unbundling insure continued reliability transmission system present competition retail customers limited arises primarily ability certain business customers relocate among utility service territories substitute energy sources electric power generate electricity energy policy act bans federal orders transmission service ultimate customers broader retail competition would allow customers choose among electric suppliers subject intense debate legislative regulatory competition develop would potential shift costs among customer classes create significant transitional costs potential competition also exists companys sales wholesale cooperative municipal customers however nearly service contracts multiyear notice provisions date company experienced material loss load revenues net income due competition customers company believes strong capability meet future competition city falls church virginia indicated intends pursue establishment municipal electric system response company petition commission ruled jurisdiction city must seek approval commission prior implementing plans condemn company facilities within city revenues retail sales within city falls church account less 2 companys total revenues result virginia power experience material loss revenues net income municipal electric system created city communicated company interest forming municipal electric system accordance sfas 71 accounting effects certain types regulation companys financial statements reflect assets costs based current costbased ratemaking regulations continued accounting sfas 71 requires following criteria met utilitys rates regulated services provided customers established subject approval independent thirdparty regulator b regulated rates designed recover specific costs providing regulated services products c view demand regulated services level competition direct indirect reasonable assume rates set levels recover utilitys costs charged collected customers criterion requires consideration anticipated changes levels demand competition recovery period capitalized costs utilitys operations portion operations cease meet criteria various reasons including change method regulation change competitive environment regulated services utility whose operations portion operations cease meet criteria discontinue application sfas 71 writeoff regulatory assets liabilities operations longer meet requirements sfas 71 companys operations currently satisfy sfas 71 criteria however events circumstances change criteria longer satisfied management believes material adverse effect companys results operations financial position may result recently issued accounting standards march 1995 financial accounting standards board issued statement financial accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed must adopted company january 1 1996 statement requires company review longlived assets impairment whenever events changes circumstances indicate carrying amount asset may recoverable requires rateregulated companies writeoff regulatory assets earnings whenever assets longer meet criteria recognition regulatory asset defined sfas 71 company operated continues operate regulated environment regulation companys rates intended recover cost providing service including opportunity earn return shareholders investment regulated environment companys longlived assets generally included rate base depreciation thereof included cost service long company continues operate within costbased regulation companys longlived assets provided companys regulated rates company would experience impairment writedowns assets held used providing electric service however service potential asset used utility operations impaired adverse event company would evaluate nature event whether seek specific rate recovery amount specific rate recovery permitted regulators company would recognize regulatory asset instead charging impairment writedown operations time company may decide dispose longlived utility assets previously used operations longer needed sfas 121 company determine fair value less cost sell assets extent amount less carrying amount asset company would recognize loss specific rate recovery permitted regulators company would recognize regulatory asset instead charging loss operations based companys current operating environment adoption sfas 121 expected material impact however discussed competition virginia commission established proceeding examine issue competition regulatory framework virginia addition ferc initiated proceedings address openaccess transmission policy future regulatory reform provide departure costbased regulation regulators electric utilities parties involved restructuring electric industry would face significant issues one issue concerned potential stranded investment stranded investment represents costs incurred commitments made utilities traditional costbased regulation based obligation serve supported implicit promise recover prudently incurred costs may reasonably expected recovered regulatory assets recognized sfas 71 unrecovered investment power plants commitments longterm purchased power contracts items may become stranded investment prices electric services based market rather cost providing service company expects continue operate regulation recover cost providing traditional electric service however form costbased rate regulation company operates may evolve future accommodate changes industry address issues recovery potential stranded investment time company management predict neither ultimate outcome regulatory reform initiatives electric utility industry impact changes would company except historical information contained herein matters discussed annual report form 10k forwardlooking statements involve risks uncertainties including limited regulatory economic competitive governmental technological factors affecting companys operations rates markets products services prices factors discussed herein companys filings securities exchange commission item 8 item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s virginia power’s results operations general financial condition mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data contents mda consists following information  forwardlooking statements  accounting matters  dominion  results operations  segment results operations  virginia power  results operations  segment results operations  selected informationenergy trading activities  liquidity capital resources  future issues matters forwardlooking statements report contains statements concerning dominion’s virginia power’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words dominion virginia power make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events natural disasters including hurricanes high winds severe storms earthquakes flooding changes water temperatures availability cause outages property damage facilities  federal state local legislative regulatory developments including changes federal state tax laws regulations  changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs emissions extensive permitting requirements regulation additional substances  cost environmental compliance including costs related climate change  risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities  unplanned outages facilities dominion ownership interest  fluctuations energyrelated commodity prices effect could dominion’s earnings domin ion’s virginia power’s liquidity position lying value assets  counterparty credit performance risk  capital market conditions including availability credit ability obtain financing reasonable terms  risks associated virginia power’s membership participation pjm including risks related obligations created default participants  fluctuations value investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion  fluctuations interest rates  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  impacts acquisitions divestitures transfers assets joint ventures mlp retirements assets based asset portfolio reviews  receipt approvals timing closing dates acquisitions divestitures  timing execution mlp strategy  changes rules rtos isos dominion virginia power participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models  political economic conditions including inflation deflation  domestic terrorism threats companies’ physical intangible assets well threats cybersecurity  changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes customer growth usage patterns including result energy conservation programs availability energy efficient devices use distributed generation methods  additional competition industries dominion operates including electric markets dominion’s merchant generation facilities operate competition development construction ownership certain electric transmission facilities virginia power’s service territory connection ferc order 1000  changes technology particularly respect new developing alternative sources generation smart grid technologies  changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion  changes operating maintenance construction costs  timing receipt regulatory approvals necessary planned construction expansion projects  inability complete planned construction conversion expansion projects outcomes within terms time frames initially anticipated  adverse outcomes litigation matters regulatory proceedings  impact operational hazards catastrophic events additionally risks could cause actual results differ predicted results set forth item 1a risk factors accounting matters critical accounting policies estimates dominion virginia power identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion virginia power discussed development selection disclosure policies audit committees boards directors virginia power’s board directors also serves audit committee accounting regulated operations accounting virginia power’s regulated electric dominion’s regulated gas operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs deferred regulatory assets otherwise would expensed nonregulated companies likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion virginia power recognize liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices companies estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant companies revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset assets service assets ceased operations adjust carrying amount aro liability changes recognized income companies accrete aro liability reflect passage time 2013 2012 2011 dominion recognized 86 million 77 million 84 million respectively accretion expects recognize 84 million 2014 2013 2012 2011 virginia power recognized 38 million 34 million 36 million respectively accretion expects recognize 39 million 2014 virginia power records accretion depreciation associated utility nuclear decommissioning aros adjustment regulatory liability nuclear decommissioning significant portion companies’ aros relates future decommissioning dominion’s merchant virginia power’s utility nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2013 dominion’s nuclear decommissioning aros totaled 14 billion representing approximately 86 total aros december 31 2013 virginia power’s nuclear decommissioning aros totaled 616 million representing approximately 89 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated companies’ nuclear decommissioning obligations companies obtain thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition companies’ cost estimates include cost escalation rates applied base year costs companies determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions december 2013 dominion virginia power recorded reduction 129 million 47 million credited income 52 million respectively nuclear decommissiong aros units due reduction estimated costs september 2012 dominion recorded increase 246 million nuclear decommissioning aros units 183 million charged income aro revision primarily driven management’s decision cease operations begin decommissioning kewaunee 2013 virginia power recorded increase 43 million nuclear decommissioning aros units aro revision driven increase estimated costs income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material management’s discussion analysis financial condition results operations continued given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2013 dominion 222 million virginia power 39 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power evaluate quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets companies establish valuation allowance morelikelythannot portion deferred tax asset realized december 31 2013 dominion established 69 million valuation allowances virginia power valuation allowances accounting derivative contracts instruments fair value dominion virginia power use derivative contracts futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s virginia power’s nuclear decommissioning dominion’s rabbi benefit plan trust funds also subject fair value accounting see notes 6 21 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing information indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2013 dominion reported 31 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2013 2012 2011 annual tests interim tests result recognition goodwill impairment general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operating longlived assets selection appropriate discount rate although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see note 6 consolidated financial statements discussion impairments related certain longlived assets employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination  expected inflation riskfree interest rate assumptions  historical return analysis determine long term historic returns well historic risk premiums various asset classes  expected future risk premiums asset volatilities correlations  forecasts independent investment advisor  forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices  investment allocation plan assets strategic target asset allocation dominion’s pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future asset liability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion develops assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 850 2013 2012 2011 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 775 2013 2012 2011 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost ranged 440 480 2013 550 2012 590 2011 dominion selected discount rates ranging 520 530 500 510 determining december 31 2013 projected pension postretirement benefit obligations respectively dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2013 700 expected gradually decrease 460 2062 continue rate years thereafter following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2013 025 decrease discount rate would increase dominion’s projected pension benefit obligation 181 million accumulated postretirement benefit obligation 37 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 140 million see note 21 consolidated financial statements additional information revenue recognitionunbilled revenue virginia power recognizes records revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amount electric energy delivered customers yet billed estimated recorded management’s discussion analysis financial condition results operations continued unbilled revenue estimate reversed following month actual revenue recorded based meter readings virginia power’s customer receivables included 395 million 348 million accrued unbilled revenue december 31 2013 2012 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes customer usage patterns factors basis estimates unbilled revenues could significant effect calculation therefore virginia power’s results operations financial condition dominion results operations presented summary dominion’s consolidated results overview vs 2012 net income attributable dominion increased 14 billion primarily due absence impairment charges recorded 2012 related discontinued operations brayton point kincaid management’s decision cease operations begin decommissioning kewaunee 2013 2012 vs 2011 net income attributable dominion decreased 79 unfavorable drivers include impairment charges related discontinued operations brayton point kincaid management’s decision cease operations begin decommissioning kewaunee 2013 favorable drivers include absence impairment charge related certain utility coalfired power stations absence restoration costs associated damage caused hurricane irene recorded 2011 analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2013 vs 2012 net revenue decreased 1 primarily reflecting  162 million decrease producer services primarily related unfavorable price changes economic hedging positions partially offset higher physical margins associated natural gas aggregation marketing trading activities  111 million decrease retail energy marketing activities primarily due impact lower margins electric sales due higher purchased power costs  98 million decrease merchant generation operations primarily due lower generation output 133 million largely due may 2013 closure kewaunee partially offset higher realized prices 35 million decreases partially offset  161 million increase electric utility operations primarily reflecting  increase sales retail customers primarily due increase heating degree days 112 million  increase rate adjustment clauses 92 million partially offset  decrease ancillary revenues received pjm 12 million primarily due decrease net operating reserve credits  144 million increase regulated natural gas transmission operations primarily related appalachian gateway project placed service september 2012 44 million increase gathering storage services 38 million ngl activities primarily related increase extraction fractionation volumes 19 million northeast expansion project placed service november 2012 16 million operations maintenance decreased 20 primarily reflecting  589 million decrease related kewaunee largely due absence charges recorded 2012 following management’s decision cease operations begin decommissioning 2013  123 million decrease certain electric transmissionrelated expenditures expenses recovered ferc rates  54 million decrease storm damage service restoration costs primarily due absence damage caused late june summer storms 2012  42 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs expenses recovered rates impact net income  increased gains sales assets blue racer 32 million decreases partially offset  65 million increase primarily related impairment charges certain natural gas infrastructure assets  46 million increase resulting impacts 2013 biennial review order  35 million increase due absence adjustments recorded 2012 connection 2012 north carolina rate case  34 million increase pjm operating reserves reactive service charges  26 million charge related expected shutdown certain coalfired generating units income increased 19 primarily due higher realized gains including investment income nuclear decommissioning trust funds 40 million gain sale dominion’s 50 equity method investment elwood 35 million partially offset decrease equity component afudc 15 million decrease earnings equity method investments 11 million income tax expense increased 10 primarily reflecting higher pretax income 2013 169 million partially offset increase renewable energy investment tax credits 46 million lower effective rate state income taxes 45 million loss discontinued operations primarily reflects sale brayton point kincaid 2013 2012 vs net revenue increased 21 million primarily reflecting  184 million increase electric utility operations primarily reflecting  impact rate adjustment clauses 138 million  absence charge recorded 2011 based 2011 biennial review order refund revenues customers 81 million  decrease net capacity expenses 31 million partially offset  impact 58 million decrease sales retail customers primarily due decrease cooling heating degree days 184 million partially offset increase sales due effect favorable economic conditions customer usage factors 126 million  57 million increase retail energy marketing activities primarily due price risk management activities  6 million increase regulated natural gas transmission operations primarily due new transportation assets placed service increases partially offset  144 million decrease regulated natural gas distribution operations primarily reflecting decreased rider revenue 117 million related low income assistance programs  91 million decrease merchant generation operations primarily reflecting decrease realized prices 147 million partially offset increased generation 56 million operations maintenance decreased 3 primarily reflecting  absence impairment charge recorded 2011 related certain utility coalfired generating units 228 million  117 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs expenses recovered rates impact net income  absence restoration costs recorded 2011 associated damages caused hurricane irene 96 million  89 million decrease attributable increased deferrals construction activities related regulated operations  72 million decrease due gains sale assets blue racer decreases partially offset  415 million impairment charge due management’s decision cease operations begin decommissioning kewaunee 2013  104 million increase salaries wages benefits depreciation depletion amortization increased 11 primarily due property additions income increased 25 primarily due higher realized gains including investment income nuclear decommissioning trust funds loss discontinued operations primarily reflects losses associated brayton point kincaid sold 2013 outlook dominion’s strategy continue focusing regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide earnings per share growth growing dividend maintain stable credit profile dominion expects 80 90 future earnings primary operating segments come regulated longterm contracted businesses 2014 dominion expected experience increase net income per share basis compared 2013 dominion’s anticipated 2014 results reflect following significant factors  return normal weather electric utility operations  growth weathernormalized electric utility sales approximately 15 resulting recovering economy rising energy demand management’s discussion analysis financial condition results operations continued  construction operation growth projects electric utility operations associated rate adjustment clause revenue  construction operation growth projects gas transmission distribution  lower effective tax rate driven primarily renewable energy investment tax credits partially offset  increase depreciation depletion amortization  higher operating maintenance expenses  higher interest expenses driven new debt issuances  decrease due decision exit nonregulated electric retail energy marketing business however proposed virginia legislation nuclear offshore wind facilities signed law dominion would expect experience decrease net income per share basis 2014 compared 2013 see note 13 consolidated financial statements additional information january 2 2013 us federal legislation enacted provides extension 50 bonus depreciation allowance qualifying capital expenditures incurred 2013 discussed note 5 consolidated financial statements dominion expects bonus depreciation provisions reduce income taxes otherwise payable resulting cash savings 2014 approximately 300 million segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion 1 amounts recast reflect nonregulated retail energy marketing operations dominion generation segment dvp presented operating statistics related dvp’s operations 1 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2013 vs 2012 1 excludes restoration costs associated damage caused severe storms 2012 reflected corporate segment 2012 vs 2011 1 excludes restoration costs associated damage caused severe storms 2012 2011 reflected corporate segment dominion generation presented operating statistics related dominion generation’s operations 1 excludes 76 million 128 million 173 million mwh 2013 2012 2011 respectively related kewaunee brayton point kincaid state line salem dominion’s equity method investment elwood 2 thirteenmonth average presented aftertax basis key factors impacting dominion generation’s net income contribution 2013 vs 2012 vs 2011 dominion energy presented selected operating statistics related dominion energy’s operations 1 thirteenmonth average presented aftertax basis key factors impacting dominion energy’s net income contribution 2013 vs 2012 1 excludes charges incurred 2013 associated ongoing exit natural gas trading certain energy marketing activities reflected corporate segment 2 primarily reflects full year appalachian gateway project service 3 includes 15 million increase gains sale assets 2012 vs 2011 1 primarily reflects placing appalachian gateway project service corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 consolidated financial statements discussion items detail management’s discussion analysis financial condition results operations continued virginia power results operations presented summary virginia power’s consolidated results overview vs 2012 net income increased 8 primarily due increase rate adjustment clause revenue impact favorable weather utility operations absence restoration costs associated damage caused late june 2012 summer storms 2012 vs 2011 net income increased 28 favorable drivers include absence impairment charge related certain coalfired power stations recorded 2011 impact rate adjustment clauses absence restoration costs associated damage caused hurricane irene recorded 2011 unfavorable drivers include impact less favorable weather restoration costs associated damage caused severe storms analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2013 vs 2012 net revenue increased 4 primarily reflecting  increase sales retail customers primarily due increase heating degree days 112 million  increase rate adjustment clauses 92 million partially offset  decrease ancillary revenues received pjm 12 million primarily due decrease net operating reserve credits operations maintenance decreased 1 primarily reflecting  123 million decrease certain electric transmissionrelated expenditures expenses recovered ferc rates  54 million decrease storm damage service restoration costs primarily due absence damage caused late june summer storms 2012 decreases partially offset  46 million increase resulting impacts 2013 biennial review order  35 million increase due absence adjustments recorded 2012 connection 2012 north carolina rate case  34 million increase pjm operating reserves reactive service charges  26 million charge related expected shutdown certain coalfired generating units  22 million increase salaries wages benefits 2012 vs 2011 net revenue increased 4 primarily reflecting  impact rate adjustment clauses 138 million  absence charge recorded 2011 based 2011 biennial review order refund revenues customers 81 million  decrease net capacity expenses 31 million partially offset  impact 58 million decrease sales retail customers primarily due decrease cooling heating degree days 184 million partially offset increase sales due effect favorable economic conditions customer usage factors 126 million operations maintenance decreased 16 primarily reflecting  absence impairment charge recorded 2011 related certain coalfired generating units 228 million  absence restoration costs recorded 2011 associated damage caused hurricane irene 96 million partially offset  64 million increase storm damage service restoration costs primarily due damage caused severe storms 2012 interest related charges increased 16 primarily due absence recognition hedging gains income 2011 deferred regulatory liabilities result 2011 biennial review order income tax expense increased 21 primarily reflecting higher pretax income 2012 outlook virginia power expects provide growth net income 2014 virginia power’s anticipated 2014 results reflect following significant factors  return normal weather  growth weathernormalized electric sales approximately 15 resulting recovering economy rising energy demand  construction operation growth projects associated rate adjustment clause revenue partially offset  increase depreciation amortization  higher operations maintenance expenses  higher interest expenses driven new debt issuances however proposed virginia legislation nuclear offshore wind facilities signed law virginia power would expect experience decrease net income 2014 compared 2013 see note 13 consolidated financial statements additional information january 2 2013 us federal legislation enacted provides extension 50 bonus depreciation allowance qualifying capital expenditures incurred 2013 discussed note 5 consolidated financial statements virginia power expects bonus depreciation provisions reduce income taxes otherwise payable resulting cash savings 2014 approximately 285 million segment results operations presented summary contributions virginia power’s operating segments net income dvp presented operating statistics related virginia power’s dvp segment 1 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2013 vs 2012 1 excludes restoration costs associated damage caused severe storms 2012 reflected corporate segment 2012 vs 2011 1 excludes restoration costs associated damage caused severe storms 2012 2011 reflected corporate segment dominion generation presented operating statistics related virginia power’s dominion generation segment presented aftertax basis key factors impacting dominion generation’s net income contribution 2013 vs 2012 management’s discussion analysis financial condition results operations continued 2012 vs 2011 corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate primarily includes specific items attributable virginia power’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 consolidated financial statements discussion items selected informationenergy trading activities dominion engages energy trading marketing hedging activities complement businesses facilitate price risk management activities part operations dominion enters contracts purchases sales energyrelated commodities including electricity natural gas energyrelated products settlements contracts may require physical delivery underlying commodity cash settlement dominion also enters contracts objective benefiting changes prices example entering contract purchase commodity dominion typically enters sales contract combination sales contracts quantities delivery settlement terms identical similar purchase contract purchase sales contracts settled either physical delivery underlying commodity net cash settlement dominion may receive net cash margin realized gain may pay net cash margin realized loss dominion continually monitors contract positions considering location timing delivery settlement energy commodity relation market price activity summary changes unrealized gains losses recognized dominion’s energyrelated derivative instruments held trading purposes follows balance net unrealized gains losses recognized dominion’s energyrelated derivative instruments held trading purposes december 31 2013 summarized following table based approach used determine fair value 1 values represent observable unadjusted quoted prices traded instruments active markets 2 values inputs observable directly indirectly instrument qualify level 1 3 values significant amount inputs observable instrument liquidity capital resources dominion virginia power depend internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2013 dominion 16 billion unused capacity credit facilities including 407 million unused capacity joint credit facilities available virginia power see additional discussion credit facilities shortterm debt summary dominion’s cash flows presented summary virginia power’s cash flows presented operating cash flows 2013 net cash provided dominion’s operating activities decreased 704 million primarily due lower deferred fuel cost recoveries virginia jurisdiction higher net margin collateral requirements lower margins retail energy marketing activities merchant generation operations decrease partially offset lower rate refund payments higher margins regulated natural gas transmission operations 2013 net cash provided virginia power’s operating activities decreased 377 million primarily due lower deferred fuel cost recoveries virginia jurisdiction higher income tax payments net changes working capital items partially offset lower rate refund payments impact favorable weather dominion believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares 2013 dominion’s board directors affirmed dividend policy set december 2012 target payout ratio 6570 established annual dividend rate 2014 240 per share common stock 67 increase 2013 rate january 2014 dominion’s board directors declared dividends payable march 20 2014 60 cents per share common stock declarations dividends subject board directors approval virginia power believes operations provide stable source cash flow contribute planned levels capital expenditures provide dividends dominion companies’ operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2013 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 20 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 15 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 14 total net credit exposure virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers considered material december 31 2013 investing cash flows 2013 net cash used dominion’s investing activities decreased 382 million primarily due proceeds sale brayton point kincaid equity method investment elwood lower restricted cash reimbursements purpose funding certain qualifying construction projects 2013 net cash used virginia power’s investing activities increased 319 million primarily due higher capital expenditures financing cash flows liquidity dominion virginia power rely capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings companies’ ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances case virginia power approval virginia commission companies currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows companies use automatic shelf registration statements register offering securities exchange offers business combination transactions management’s discussion analysis financial condition results operations continued 2013 net cash provided dominion’s financing activities 93 million compared net cash used financing activities 151 million 2012 primarily reflecting higher net debt issuances partially offset acquisition juniper noncontrolling interest fairless higher common dividend payments see note 15 consolidated financial statements information 2013 net cash provided virginia power’s financing activities 260 million compared net cash used financing activities 425 million 2012 primarily reflecting higher net debt issuances credit facilities shortterm debt dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties connection commodity hedging activities companies required provide collateral counterparties circumstances certain collateral arrangements companies may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time companies vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates companies issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 effective september 2013 maturity date extended september 2017 september 2018 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 effective september 2013 maturity date 400 million 500 million committed capacity extended september 2017 september 2018 also effective september 2013 maturity date remaining 100 million extended september 2016 september 2018 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rate outstanding commercial paper supported dominion’s credit facilities 033 december 31 2013 virginia power virginia power’s shortterm financing supported two joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion follows 1 effective september 2013 maturity date extended september 2017 september 2018 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year 2 effective september 2013 maturity date 400 million 500 million committed capacity extended september 2017 september 2018 also effective september 2013 maturity date remaining 100 million extended september 2016 september 2018 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rate outstanding commercial paper supported credit facilities 033 december 31 2013 addition credit facility commitments mentioned virginia power also 120 million credit facility effective september 2013 maturity date extended september 2017 september 2018 december 31 2013 facility supports approximately 119 million certain variable rate taxexempt financings virginia power shortterm notes november december 2012 dominion issued 250 million 150 million respectively private placement shortterm notes matured repaid november 2013 bore interest variable rate proceeds used general corporate purposes november 2013 dominion issued 400 million private placement shortterm notes mature november 2014 bear interest variable rate proceeds used general corporate purposes longterm debt 2013 dominion virginia power issued following longterm debt march 2013 virginia power redeemed 50 million 25 ida town louisa virginia solid waste sewage disposal revenue bonds series 2001a would otherwise matured march 2031 february 2014 virginia power provided notice redeem 10 million 25 30 million 25 ida town louisa virginia solid waste sewage disposal revenue bonds series 1997a 2000a would otherwise mature april 2022 september 2030 respectively bonds redeemed april 1 2014 amount principal outstanding plus accrued interest december 31 2013 bonds included securities due within one year virginia power’s consolidated balance sheets connection sale kincaid may 2013 kincaid redeemed 733 senior secured bonds due june 2020 outstanding principal amount approximately 145 million bonds redeemed approximately 185 million including makewhole premium accrued interest connection sale brayton point brayton point provided notice defeasance three series mdfa taxexempt bonds totaling approximately 257 million outstanding principal amount would otherwise matured 2036 2042 june 2013 brayton point delivered approximately 284 million fund irrevocable trust purpose paying maturing principal interest due including earliest redemption dates bonds 2016 2019 bonds longer included dominion’s consolidated balance sheet june 2013 brayton point obtained bondholder consent entered supplement loan trust agreement approximately 75 million variable rate mdfa solid waste disposal revenue bonds series 2010b due 2041 supplement associated assignment agreement changed sole obligor bonds brayton point dominion bonds continue included dominion’s consolidated balance sheet dominion gas issued 12 billion principal amount unsecured senior notes private placement october 2013 primary financing entity dominion’s regulated natural gas businesses dominion gas used proceeds offering acquire intercompany longterm notes dominion repay portion intercompany revolving credit agreement balances dominion 2013 dominion virginia power repaid repurchased 15 billion 470 million respectively longterm debt notes payable issuance common stock equity securities dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2012 dominion began issuing new common shares direct stock purchase plans january 2014 dominion began purchasing common stock open market plans 2013 dominion issued approximately 54 million shares common stock various programs dominion received cash proceeds 279 million issuance 47 million shares dominion direct employee savings plans january 2012 dominion filed new sec shelf registration sale debt equity securities including ability sell common stock market program dominion entered four separate sales agency agreements effect sales program however exception issuing approximately 317 million equity employee savings plans direct stock purchase dividend reinvestment plans converted securities employee director benefit plans dominion issue common stock 2013 june 2013 dominion issued equity units initially form corporate units corporate unit consists stock purchase contract 120 interest rsn issued dominion stock purchase contracts obligate holders purchase shares dominion common stock future settlement date see note 17 consolidated financial statements description common stock issued dominion 2013 virginia power issue shares common stock dominion repurchase common stock dominion repurchase shares 2013 plan repurchase shares 2014 except shares tendered employees satisfy tax withholding obligations vested restricted stock purchases common stock open market 2014 direct stock purchase plans count stock repurchase authorization borrowings parent virginia power ability borrow funds dominion shortterm longterm borrowing arrangements virginia power’s shortterm demand note borrowings dominion 97 million december 31 2013 longterm borrowings dominion december 31 2013 december 31 2013 virginia power’s nonregulated subsidiaries borrowings dominion money pool credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold management’s discussion analysis financial condition results operations continued securities dominion virginia power believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion virginia power may affect ability access funding sources cause increase return required investors companies’ credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion virginia power affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions october 2013 standard poor’s affirmed dominion’s corporate credit rating lowered rating dominion’s senior unsecured debt securities bbb reflect greater structural subordination dominion due new debt dominion gas dominion cannot predict certainty potential impact lowered rating could cost borrowing credit ratings february 24 2014 follow february 24 2014 fitch moody’s standard poor’s maintained stable outlook respective ratings dominion virginia power downgrade individual company’s credit rating would necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade could result increase cost borrowing dominion virginia power work closely fitch moody’s standard poor’s objective maintaining current credit ratings companies may find necessary modify business plans maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion virginia power must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion virginia power typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec information changes dominion’s virginia power’s credit ratings lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens dominion virginia power required pay annual commitment fees maintain credit facilities addition credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2013 calculated total debt total capital ratio pursuant terms agreements follows 1 indebtedness defined bank agreements excludes junior subordinated remarketable subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets provisions apply separately dominion virginia power dominion virginia power either company’s material subsidiaries fails make payment various debt obligations excess 100 million lenders could require company accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds company accordingly default dominion affect lenders’ commitment virginia power however default virginia power would affect lenders’ commitment dominion joint credit agreements dominion executed rccs connection issuance following hybrid securities  june 2006 hybrids  september 2006 hybrids  june 2009 hybrids see note 17 consolidated financial statements terms rccs december 31 2013 termination dates covered debt rccs associated dominion’s hybrids follows 1 automatically extended set forth rcc additional quarterly periods extent maturity date extended dominion virginia power monitor debt covenants regular basis order ensure events default occur december 31 2013 events default changes dominion’s virginia power’s debt covenants virginia power mortgage supplement substantially virginia power’s property subject lien indenture mortgage securing first refunding mortgage bonds july 2012 virginia power entered supplement indenture order amend various terms conditions incorporate certain new provisions supplement reduces virginia power’s overall compliance responsibilities associated indenture limiting maximum principal amount bonds may outstanding indenture 10 million unless otherwise provided supplement modifying eliminating altogether certain compliance requirements bonds outstanding supplement also provides virginia power flexibility determine certain newly recently acquired properties pledged collateral indenture bonds outstanding december 31 2013 however leaving indenture open virginia power expects retain flexibility issue mortgage bonds future dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2013 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s virginia power’s ability pay dividends receive dividends subsidiaries december 31 2013 see note 17 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes equity units initially form corporate units information incorporated herein reference future cash payments contractual obligations planned capital expenditures contractual obligations dominion virginia power party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion virginia power parties december 31 2013 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s virginia power’s current liabilities paid cash 2014 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt payments related stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2013 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements reflect dominion’s ability defer interest stock purchase contract payments junior subordinated notes rsns equity units initially form corporate units 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 represents summation settlement amounts contracts due dominion physical financial transactions among counterparties dominion liquidated terminated 6 includes capital operations maintenance commitments 7 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid management’s discussion analysis financial condition results operations continued 160 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 8 includes interest rate swap agreements 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt interest calculated using applicable interest rate forward interest rate curve december 31 2013 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 includes capital operations maintenance commitments 6 excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 28 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements planned capital expenditures dominion’s planned capital expenditures expected total approximately 56 billion 46 billion 42 billion 2014 2015 2016 respectively dominion’s expenditures expected include construction expansion electric generation natural gas transmission distribution storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel planned construction cove point liquefaction project maryland virginia power’s planned capital expenditures expected total approximately 30 billion 25 billion 23 billion 2014 2015 2016 respectively virginia power’s expenditures expected include construction expansion electric generation facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel dominion virginia power expect fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators respective company’s board directors based available generation capacity current estimates growth customer demand virginia power need additional generation future see dvp dominion generation dominion energyproperties item 1 business discussion dominion’s virginia power’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion’s board directors late 2013 subject continuing review adjustment actual capital expenditures may vary estimates companies may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others see note 22 consolidated financial statements additional information incorporated herein reference future issues matters see item 1 business notes 13 22 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred approximately 182 million 189 million 184 million expenses including depreciation 2013 2012 2011 respectively connection environmental protection monitoring activities expects expenses approximately 174 million 182 million 2014 2015 respectively addition capital expenditures related environmental controls 64 million 213 million 403 million 2013 2012 2011 respectively expenditures expected approximately 107 million 83 million 2014 2015 respectively virginia power incurred approximately 150 million 120 million 129 million expenses including depreciation 2013 2012 2011 respectively connection environmental protection monitoring activities expects expenses approximately 146 million 155 million 2014 2015 respectively addition capital expenditures related environmental controls 44 million 34 million 77 million 2013 2012 2011 respectively expenditures expected approximately 89 million 71 million 2014 2015 respectively future environmental regulations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum delegated states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements december 2012 epa issued final rule set stringent annual air quality standard fine particulate matter epa expected complete final air quality designations december 2014 states 2020 meet revised standard extent revised particulate matter standard impact dominion uncertain time expected material epa finalized rules establishing new 1hour naaqs no2 new 1hour naaqs so2 could require additional nox so2 controls certain areas companies operate states developed implementation plans standards impact dominion’s virginia power’s facilities emit nox so2 uncertain january 2010 epa also proposed new stringent naaqs ozone planned finalize rule 2011 september 2011 epa announced delay 2011 2014 rulemaking therefore nox controls may required rulemaking also delayed interim epa proceeding implementation current ozone standard made final attainmentnonattainment designations may 2012 several dominion electric generating facilities located areas impacted standard states developed implementation plans new nox so2 ozone standards possible determine impact dominion’s virginia power’s facilities emit nox so2 companies cannot currently predict certainty whether extent new rules ultimately require additional controls however significant expenditures required could adversely affect dominion’s results operations dominion’s virginia power’s cash flows june 2005 epa finalized amendments regional haze rule also known clean air visibility rule requires states implement best available retrofit technology requirements sources address impacts visual air quality regional haze state implementation plans allows alternative options epa process completing rulemakings regional haze state implementation plans although dominion virginia power anticipate emission reductions achieved compliance caarequired programs generally address rule additional emission reduction requirements may imposed companies’ facilities water cwa comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply applicable aspects cwa programs operating facilities july 2004 epa published regulations cwa section 316b govern existing utilities employ cooling water intake structure flow levels exceeding minimum threshold april 2008 us supreme court granted industry request review question whether section 316b authorizes epa compare costs benefits determining best technology available minimizing “adverse environmental impact” cooling water intake structures us supreme court ruled april 2009 epa authority consider costs versus environmental benefits selecting best technology available reducing impacts cooling water intakes power stations currently unknown epa interpret ruling ongoing rulemaking activity addressing cooling water intakes well states implement decision april 2011 epa published proposed rule related section 316b federal register agreed publish final rule later july 27 2012 epa delayed final rule five separate occasions recently announced final rule issued later april 2014 rule proposed form seeks establish uniform national standard impingement forgoes creation single technology standard entrainment instead epa proposes delegate entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination nine facilityspecific factors including social costbenefit test proposed rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd proposal dominion 16 facilities may subject proposed regulations finalized proposed dominion anticipates install impingement control technologies many stations oncethrough cooling systems dominion virginia power cannot estimate need potential entrainment controls proposed rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies however impacts proposed rule may material companies’ results operations financial condition andor cash flows june 2013 epa issued proposed rule revise effluent limitations guidelines steam electric power generating category proposed rule establishes updated standards wastewater discharges coal oil gas nuclear steam generating stations affected facilities could required convert wet dry coal ash management improve existing wastewater treatment systems andor install new wastewater treatment technologies order meet new discharge limits epa subject consent decree requiring take final action proposed rule may 22 2014 dominion virginia power currently cannot predict certainty direct indirect financial impact operations rule management’s discussion analysis financial condition results operations continued revisions believes expenditures comply new requirements could material solid hazardous waste june 2010 epa proposed federal regulations rcra management coal combustion byproducts generated power plants epa considering two possible options regulation coal combustion byproducts fall rcra first proposal epa would classify byproducts special wastes subject regulation subtitle c hazardous waste provisions rcra destined disposal landfills surface impoundments second proposal epa would regulate coal combustion byproducts subtitle rcra section nonhazardous wastes companies cannot currently predict outcome matter regulation either option affect dominion’s virginia power’s onsite disposal facilities coal combustion byproduct management practices potentially require material investments climate change legislation regulation regions states dominion virginia power operate already adopted may adopt ghg emission reduction programs new contemplated regulations may affect capital costs create significant permitting delays new modified facilities emit ghgs december 2009 governors 11 northeast midatlantic states including connecticut maryland massachusetts new york pennsylvania rhode island rggi states plus pennsylvania signed memorandum understanding committing states toward developing low carbon fuel standard reduce ghg emissions vehicles memorandum understanding established process develop regional framework 2011 examine economic impacts low carbon fuel standard program although economic studies policy options examined 2011 definitive framework yet established doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets doddfrank act includes provisions require certain overthecounter derivatives swaps centrally cleared executed exchange approved trading platform nonfinancial entities use swaps hedge mitigate commercial risk often referred end users choose exempt hedging transactions clearing exchange trading requirements final rules overthecounter derivativerelated provisions doddfrank act continue established ongoing rulemaking process applicable regulators including rules regarding margin requirements noncleared swaps result rulemaking process dominion’s virginia power’s derivative activities exempted clearing exchange trading margin requirements companies could subject higher costs including higher margin requirements derivative activities addition implementation compliance swaps provisions doddfrank act companies’ counterparties could result increased costs related companies’ derivative activities due ongoing rulemaking process companies currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows cove point dominion pursuing liquefaction project cove point would enable facility liquefy domesticallyproduced natural gas export lng project expected cost approximately 34 billion 38 billion exclusive financing costs subject environmental review ferc final ferc maryland commission approval cove point facility authorized export rate 770 million cubic feet natural gas per day period 20 years 2011 cove point requested authorization doe export lng countries free trade agreement requiring trade natural gas us well countries free trade agreement october 2011 cove point received authorization doe export lng free trade agreement countries september 2013 doe conditionally authorized dominion export lng cove point nonfree trade agreement countries april 2013 cove point filed ferc permission build liquefaction facilities related export natural gas also april 2013 cove point filed application maryland commission cpcn authorize construction electric generating station needed power proposed liquefaction equipment april 2013 dominion announced fully subscribed capacity project signed 20year terminal service agreements pacific summit energy llc us affiliate japanese trading company sumitomo corporation gail global usa lng llc us affiliate gail india ltd contracted half capacity dominion also announced awarded engineering procurement construction contract new liquefaction facilities ihikiewit cove point joint venture ihi ec international corporation kiewit energy company following completion frontend engineering design work following receipt regulatory approvals construction liquefaction facilities could begin 2014 inservice date late 2017 cove point historically operated lng import facility various longterm import contracts since 2010 dominion renegotiated certain existing lng import contracts manner result significant reduction pipeline storage capacity utilization associated anticipated revenues period 2017 2028 amendments created opportunity dominion explore cove point liquefaction project assuming becomes operational extend economic life cove point contribute dominion’s overall growth plan total renegotiations reduced expected annual revenues importrelated contracts approximately 150 million annually 2017 2028 partially offset approximately 50 million additional revenues years 2013 2017 dominion party agreement sierra club restricting activities portions cove point property may 2012 response claims sierra club cove point filed complaint declaratory judgment confirm right construct project january 2013 maryland circuit court issued declaratory judgment confirming cove point’s right build liquefaction facilities february 2013 sierra club filed notice appeal maryland court special appeals march 2013 cove point filed petition maryland court appeals highest appellate court maryland requesting court appeals take appeal directly thus bypassing intermediate appellate court april 2013 maryland court appeals denied petition appeal remains maryland court special appeals january 2014 oral arguments held maryland court special appeals case pending dominion believes agreement sierra club permits locate construct operate liquefaction plant cove point facility undergrounding legislation proposed would provide recovery costs subject approval virginia commission virginia power move approximately 4000 miles electric distribution lines underground program designed reduce restoration outage time annual investment cap approximately 175 million expected implemented next decade electric transmission system security plan next 5 10 years virginia power plans increase transmission substation physical security invest new system operations center virginia power expects invest 300 million 500 million time strengthen electrical system better protect critical equipment enhance spare equipment process create multiple levels security solar facilities dominion plans expand fleet contracted solar facilities next 24 months approximately 250 mw dominion currently active discussions multiple parties facilities expected placed service 2014 2015 item 7a item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contains forwardlooking statements defined private securities litigation reform act 1995 including without limitation discussions expectations beliefs plans objectives future financial performance assumptions underlying concerning matters discussed document discussions including certain contingency matters respective cautionary statements discussed elsewhere report historical facts forwardlooking accordingly involve estimates projections goals forecasts assumptions uncertainties could cause actual results outcomes differ materially expressed forwardlooking statements important factors could cause actual results outcomes differ materially discussed forwardlooking statements include current governmental policies regulatory actions including ferc epa doe nrc virginia commission north carolina commission industry rate structure operation nuclear power facilities acquisition disposal assets facilities operation storage facilities recovery cost purchased power nuclear decommissioning costs present prospective wholesale retail competition business profitability virginia power also influenced economic geographic factors including political economic risks changes compliance environmental laws policies weather conditions catastrophic weatherrelated damage competition retail wholesale customers pricing transportation commodities market demand energy inflation capital market conditions unanticipated changes operating expenses capital expenditures competition new energy development opportunities legal administrative proceedings factors difficult predict contain uncertainties may materially affect actual results may beyond control virginia power new factors emerge time possible management predict factors assess impact factor business company forwardlooking statement speaks date statement made virginia power undertakes obligation update forwardlooking statement statements reflect events circumstances date statement made liquidity capital resources operating activities continue strong source cash flow providing 1091 million 1997 compared 1115 million 1996 decrease 24 million 2 percent previous year attributable normal business fluctuations past three years cash flow operating activities average covered 134 percent total construction requirements provided 81 percent total cash requirements remaining cash needs met generally proceeds sale securities shortterm borrowings financing activities represented net outflow cash recent years strong cash flow operations absence major construction programs reduced companys reliance debt financing cash used financing activities follows taken advantage declining interest rates issuing new debt lower rates higherrate debt matured example 1997 3113 million companys longterm debt securities matured average effective rate 808 percent partial replacement maturing debt issued 270 million longterm debt securities year average effective rate 684 percent currently three shelf registration statements effective securities exchange commission obtain additional debt capital 400 million junior subordinated debentures 375 million debt securities including first refunding mortgage bonds senior notes senior subordinated notes filed february 1998 200 million mediumterm notes series f remaining principal amount debt issued registrations totals 915 million additional capital resource 100 million preferred stock also registered securities exchange commission company commercial paper program supported two credit facilities totaling 500 million proceeds sale commercial paper primarily used provide working capital net borrowings program 2262 million december 31 1997 investing activities 1997 resulted net cash outflow 5461 million primarily due 3970 million construction expenditures 848 million nuclear fuel expenditures construction expenditures included approximately 2524 million transmission distribution projects 521 million production projects 497 million information technology projects 428 million projects cash used investing activities follows capital requirements capacity company anticipates kilowatthour sales grow approximately 236 percent year 2000 continue pursue capacity acquisition plans meet anticipated load growth maintain high degree service reliability additional capacity may purchased others built company build capacity lower overall cost longterm purchase agreements hoosier 400 mw aep 500 mw expire december 31 1999 presently anticipate adding peaking capacity beginning year 2000 meet future load growth fixed assets companys construction nuclear fuel expenditures excluding afc 1998 1999 2000 expected total 5881 million 4762 million 3951 million respectively company presently estimates 1998 construction nuclear fuel expenditures met cash flow operations longterm debt company require 3335 million meet maturities longterm debt 1998 expect meet cash flow operations issuance replacement debt securities capital requirements met combination sales securities shortterm borrowings customer service company adopted plan improve customer service requiring investment excess 100 million plan includes installing automated electric meters metropolitan inaccessible rural urban locations installing new work management system making technological changes enhance companys ability handle customer calls power outages installing mobile data dispatch technology companys service fleet accompanied digitized mapping service territory initiating local regional distribution line improvement projects expenditures 1997 projects approximately 23 million future expenditures expected approximately 68 million 1998 15 million 1999 anticipate funding projects cash flow operations results operations following discussion results operations years ended 1997 compared 1996 compared 1995 1997 compared 1996 revenue changed prior year primarily due following electric service revenue consists sales retail customers service territory rates authorized virginia north carolina commissions sales cooperatives municipalities wholesale rates authorized ferc primary factors affecting revenue 1997 customer growth weather fuel rates customer growth 50899 new customer connections system 1997 largest number new connections year since 1990 effect increasing sales 558 million 1997 1996 weather mild weather 1997 caused customers use less electricity heating cooling reduced revenue approximately 1111 million previous year heating cooling degree days follows fuel rates increase fuel rate revenues primarily attributable higher fuel rates went effect december 1 1996 increasing recovery fuel costs approximately 482 million regulatory commissions jurisdiction company allow us charge customers cost fuel used generating electricity revenue includes sales electricity beyond service territory natural gas nuclear consulting services energy management services revenue growth power marketing natural gas sales revenue primarily due success marketing electricity natural gas beyond service territory company began pursuing new lines business 1996 expect revenue nontraditional business activities continue grow near future kilowatthour sales changed follows decrease retail kilowatthour sales 1997 compared 1996 reflects impact weather traditional electricity service business despite continued customer growth increase wholesale kilowatthour sales primarily due companys power marketing efforts fuel net increased compared 1996 primarily due cost power marketing natural gas sales reflects increased purchases energy wholesale power suppliers purchases natural gas system energy output energy source average fuel cost shown fuel cost presented mills one tenth one cent per kilowatt hour excludes odecs 116 percent ownership interest north anna power station excludes odecs 50 percent ownership interest clover power station operations maintenance increased compared 1996 result costs associated growth sales companys energy services business unit higher costs offset partially reduction expenses attributable companys strategic initiatives expenses 1996 include high storm damage costs resulting destructive summer storms including hurricane fran depreciation amortization increased compared 1996 due recognition additional depreciation nuclear decommissioning expense reflect adjustments companys filing currently pending virginia commission higher depreciation expense related clover unit 2 began operations march 1996 see future issues utility rate regulation additional information current rate proceedings restructuring expenses decreased compared 1996 company nears completion vision 2000 strategic initiative charges restructuring primarily include employee severance costs restructure agreements purchase power third parties necessary negotiate settlement termination contracts costs company estimates staffing reductions result annual savings range 80 million 90 million however savings offset salary increases outsourcing costs increased payroll costs associated staffing growth opportunities see also note consolidated financial statements accelerated cost recovery represents reserve potential adjustments regulatory assets increasingly competitive environment company concluded appropriate utilize available cost reductions generated vision 2000 program accelerate writeoff unamortized regulatory assets potentially stranded costs see future issues competition 1996 compared 1995 electric service revenues decreased compared 1995 due effect mild weather companys summer retail rates designed reflect normal weather conditions revenues also affected reduced sales old dominion electric cooperative odec due completion clover units 1 2 odec owns fifty percent interest revenues increased compared 1995 due growth power marketing energy services business organized distinct business unit 1996 fuel net increased compared 1995 primarily result increased energy purchases associated power marketing sales offset part higher recovery fuel expenses subject deferral accounting 1995 operations maintenance decreased slightly compared 1995 primarily result reduction expenses attributable companys strategic initiatives offset partly high storm damage costs incurred 1996 destructive summer storms including hurricane fran depreciation amortization increased compared 1995 primarily result greater nuclear decommissioning expense depreciation related clover units 1 2 placed service october 1995 march 1996 respectively restructuring decreased compared 1995 implementation phase vision 2000 initiative continued restructuring charges 1996 included severance costs restructure settle certain contracts purchase power costs addition 1995 restructuring costs included onetime charges cancel specific capital projects adjustments inventory certain real estate reflect adoption changes business strategies processes accelerated cost recovery represents provision managements estimate reserve may ultimately used accelerate writeoff unamortized regulatory assets potentially stranded costs see future issues competition future issues competition electric industry general century structure electric industry virginia throughout united states relatively stable recently seen however federal state developments toward increased competition electric utilities required open transmission systems use potential wholesale competitors addition nonutility power producers compete electric utilities wholesale generation market federal level retail competition consideration states enacted legislation requiring retail competition today virginia power faces competition wholesale market currently general retail competition virginia powers principal service area extent competition permitted virginia powers ability sell power prices allow recover prudently incurred costs may issue see future issues competition exposure potentially stranded costs response competition virginia power successfully renegotiated long term contracts wholesale large federal government customers addition company obtained regulatory approval innovative pricing proposals large industrial customers rate concessions resulting contract negotiations innovative pricing proposals expected reduce companys 1998 revenue approximately 40 million date company experienced material loss load virginia power actively participating legislative regulatory processes relating industry restructuring company also responded trends toward competition cutting costs reengineering core business processes pursuing innovative approaches serving traditional markets future markets addition significant part companys strategy relies developing nontraditional businesses within companys business units subsidiaries designed provide growth future earnings including energy services offering electric energy capacity emerging wholesale market well natural gas energy related products services fossil hydro targeting process type industries chemical paper plastics petroleum become service provider instrumentation equipment nuclear services offering management operations services electric utilities commercial operations providing power distribution related services including transmission distribution engineering metering services gas water electric utilities telecommunications offering telecommunications services companys existing fiberoptic network companys nontraditional businesses face competition variety utility nonutility entities addition virginia power may time identify investigate opportunities expand markets strategic alliances partners whose strengths market position strategies complement company competition wholesale 1997 sales wholesale customers represented approximately 17 percent companys total revenues electric sales approximately 73 percent wholesale revenues resulted companys power marketing efforts july 1997 virginia power filed amendments existing rate tariffs ferc could make wholesale sales marketbased rates ferc order conditionally accepting company rates filing virginia power began making marketbased sales 1997 ferc set hearing june 1998 issue whether transmission constraints limiting transfer power companys service territory provide virginia power generation dominance localized markets ferc finds transmission constraints give virginia power generation dominance could revoke limit scope companys marketbased rate authority virginia power successfully negotiated new power supply arrangement largest wholesale customer new arrangement provides transition costbased rates marketbased rates subject ferc approval virginia power estimates reduced rates offset part revenues may earned agreement decrease income taxes approximately 38 million 2005 virginia power anticipates additional contract negotiations wholesale customers take place future competition retail currently virginia power exclusive right provide electricity retail within assigned service territories virginia north carolina result virginia power faces competition retail sales certain business customers move another utility service territory use energy sources instead electric power generate electricity however virginia north carolina considering implementing retail competition legislative initiatives virginia 1998 session virginia general assembly passed house bill 1172 hb1172 establish schedule virginias transition retail competition electric utility industry company actively supported hb1172 passed houses general assembly amended form awaits action governor hb1172 requires following establishment one independent system operators iso one regional power exchanges rpx virginia january 1 2001 deregulation generating facilities beginning january 1 2002 transition retail competition begin january 1 2002 retail competition begin january 1 2004 recovery reasonable net stranded costs appropriate consumer safeguards related stranded costs consideration stranded benefits hb1172 becomes law become effective july 1 1998 bill establishes timeline transition competition virginia detailed plan implement transition must developed future legislative regulatory action company unable time predict timing details federal us congress expected consider federal legislation near future authorizing requiring retail competition virginia power cannot predict definitive actions congress may take north carolina 1997 session north carolina general assembly created study commission future electric service north carolina interim report expected 1998 final recommendations made 1999 session north carolina general assembly competition regulatory initiatives virginia commission also actively interested industry restructuring competition shown following generic utilityspecific proceedings 1995 commission instituted ongoing generic investigation restructuring resulting number reports staff covering issues retail wheeling experiments status wholesale power markets november 1996 commission ordered virginia power file studies reports possible restructuring electric industry virginia commission also invited virginia power submit proposed alternative regulation plan filing twophase alternative regulatory plan arp filed march 1997 phase 1997 december 2002 virginia power proposed implementing freeze current base rates devoting portion earnings 115 returnonequity accelerate writeoff generationrelated regulatory assets mitigate costs associated payments power purchase contracts nonutility generators may market competition authorized virginia phase ii beyond december 31 2002 virginia power would seek commission approval stranded cost recovery retail competition implemented virginia transition cost charge mechanism stranded costs would recovered virginia power presented illustrative estimates stranded costs based hypothetical market prices part phase ii filing company filed arp commission consolidated consideration arp consideration companys 1995 annual information filing discussion 1995 annual information filing see future issues utility rate regulation november 1997 commission staff issued report general assembly calling cautious twophase fiveyear period address restructuring issues report acknowledged need direction virginia legislature concerning policy issues surrounding competition electric industry virginia power sought withdraw arp december 1997 concluded resolution cost recovery issues raised arp unlikely without general assembly action commission agreed company may withdraw support arp reserved right continue consideration arp well regulatory alternatives addition commission continue consider issues arising 1995 annual informational filing see future issues utility rate regulation competition sfas 71 virginia powers regulated rates designed recover prudently incurred costs providing service including opportunity earn reasonable return shareholders investment companys financial statements reflect assets costs costbased rate regulation accordance statement financial accounting standards 71 sfas 71 accounting effects certain types regulation sfas 71 provides certain expenses normally reflected income deferred balance sheet regulatory assets recognized related amounts included rates recovered customers continued accounting sfas 71 requires rates designed recover utilitys specific costs providing service continue established regulators presence increasing competition limits utilitys ability charge rates recover costs change method regulation effect could result discontinued applicability sfas 71 rateregulated companies required write regulatory assets earnings whenever assets longer meet criteria recognition defined sfas 71 addition sfas 121 accounting impairment longlived assets longlived assets disposed requires review longlived assets impairment whenever events changes circumstances indicate carrying amount asset may recoverable thus events changes circumstances cause discontinuance sfas 71 write regulatory assets may also require review utility plant assets possible impairment review indicates utility plant assets impaired carrying amount affected assets would written would result loss charged earnings unless recovery loss provided operations remain regulated virginia powers regulated operations currently satisfy sfas 71 criteria however events circumstances change criteria longer satisfied management believes material adverse effect companys results operations financial position may result form costbased rate regulation virginia power operates likely evolve result various legislative regulatory initiatives time management predict neither ultimate outcome regulatory reform electric utility industry impact changes would virginia power competition exposure potentially stranded costs traditional costbased regulation utilities generally obligation serve supported implicit promise opportunity recover prudently incurred costs significant potential adverse effect competition stranded costs stranded costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market companys potential exposure stranded costs comprised following longterm purchased power contracts may market see note q consolidated financial statements costs pertaining certain generating plants may become uneconomic deregulated environment regulatory assets items income tax benefits previously flowedthrough customers deferred losses reacquired debt costs see note f consolidated financial statements unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements see notes c n consolidated financial statements forecast potentially stranded costs extremely sensitive various assumptions made assumptions include timing extent customer choice market electric service estimates future competitive market prices sales load growth forecasts power stations future operating performance rate revenues permitted transition estimated costs utility operations time mitigation opportunities stranded cost recovery mechanisms factors certain combinations assumptions applied virginia power would produce little stranded costs scenarios virginia powers exposure potentially stranded costs could substantial virginia power assessed reasonableness various possible assumptions able settle particular combination thereof thus companys maximum exposure potentially stranded costs uncertain management believes recovery potentially stranded costs appropriate vigorously pursue recovery regulatory commissions jurisdiction operations however virginia power cannot predict extent costs recoverable customers also effort mitigate amount risk company continue implement cost reduction measures utility rate regulation march 1997 virginia commission issued order virginia powers base rates made interim subject refund march 1 1997 order result commission staffs report review virginia powers 1995 annual informational filing concluded virginia powers present rates would cause virginia power earn excess authorized return equity staff found purposes establishing rates prospectively rate reduction 956 million including onetime adjustment 297 million virginia powers deferred capacity balance december 31 1996 may necessary order realign rates authorized level virginia power filed arp march 1997 based 1996 financial information subsequently commission consolidated proceeding concerned 1995 annual informational filing proceeding includes arp proposed company december 1997 virginia power sought withdraw arp concluded resolution cost recovery issues raised arp unlikely without general assembly action commission agreed company may withdraw support arp reserved right continue consideration arp well regulatory alternatives addition commission continue consider issues arising 1995 annual informational filing commissions staff scheduled file testimony march 24 1998 virginia powers rebuttal filed april 27 1998 reply testimony filed may 11 1998 public hearing scheduled commence may 19 1998 virginia powers previous filings proceeding support maintaining companys rates current levels however opposing parties made filings recommending rate reductions excess 200 million time management cannot predict ultimate outcome proceeding impact companys results operations cash flows financial position utility operations company strives operate generating facilities accordance prudent utility industry practices conformity applicable statutes rules regulations like electric utilities companys generating facilities subject unanticipated extended outages repairs replacements modification equipment otherwise comply regulatory requirements outages may involve significant expenditures previously budgeted including replacement energy costs september 10 1997 nrc published proposed rule financial assurance requirements related nuclear decommissioning nrcs proposed rule implemented without clarification modification company may either prefund provide acceptable security portion nuclear decommissioning obligation see note c consolidated financial statements environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations company costs historically recovered customers utility rates however extent regulatory environment departs costbased rates companys results operations financial condition could adversely impacted environmental protection monitoring expenditures company incurred 704 million 711 million 683 million including depreciation 1997 1996 1995 respectively connection use environmental protection facilities expects expenses approximately 691 million 1998 addition capital expenditures limit monitor hazardous substances 246 million 224 million 234 million 1997 1996 1995 respectively amount estimated 1998 expenditures 100 million clean air act compliance clean air act amended 1990 requires company reduce emissions sulfur dioxide so2 nitrogen oxides nox clean air act also requires company obtain operating permits major emissions emitting facilities permit applications submitted companys power stations located north carolina west virginia applications companys power stations located virginia filed 1998 clean air acts so2 reduction program based issuance limited number so2 emission allowances may used permit emit one ton so2 atmosphere may sold someone else program administered epa companys compliance plans may include switching lower sulfur coal purchase emission allowances installation so2 control equipment maximum flexibility leastcost compliance maintained annual studies company began complying clean air act phase nox limits eight units virginia 1997 three years earlier otherwise required result units subject stringent phase ii limits 2008 furthermore order avoid necessity stringent regulations company made voluntary commitments 1996 cap nox emissions chesterfield yorktown power stations chesapeake energy center ozone season beginning 2000 1994 1997 company invested 160 million install upgrade so2 nox emission control equipment mt storm possum point power stations capital expenditures related clean air act compliance next five years projected approximately 40 million changes regulatory environment availability allowances emissions control technology could substantially impact timing magnitude compliance expenditures november 1997 epa proposed new requirements 22 states including north carolina virginia west virginia reduce cap emissions nox epa issue final rule september 1998 although proposal allows state determine achieve required reduction emissions caps calculated based emission limits utility boilers states virginia power operates choose impose limit major additional emission control equipment attendant significant capital operating costs could required global climate change 1993 united nations global warming treaty became effective objective treaty stabilization greenhouse gas concentrations level would prevent manmade emissions interfering climate system continuation effort limit manmade greenhouse emissions international protocol formulated december 10 1997 kyoto japan protocol calls united states reduce greenhouse emissions 7 percent 1990 baseline levels period 20082012 protocol constitute binding commitment unless submitted approved united states senate emission reductions magnitude included protocol adopted would likely result substantial financial impact companies consume produce fossil fuelderived electric power including virginia power recently issued accounting standards 1997 financial accounting standards board fasb issued statement financial accounting standards sfas 130 reporting comprehensive income sfas 131 disclosures segments enterprise related information statements effective fiscal years beginning december 15 1997 time company expect implementation standards material impact results operations financial position year 2000 compliance virginia power taking aggressive approach regarding computer issues associated onset new millenium specifically impact possible failure computer systems computerdriven equipment due rollover year 2000 year 2000 problem pervasive complex virtually every computer operation could affected way rollover twodigit year value 99 00 issue whether computer systems properly recognize datesensitive information year changes 2000 systems properly recognize information could generate erroneous data fail properly addressed year 2000 computer problem could result failures computer systems company computer systems third parties company transacts business failures companys third parties computer systems could material impact companys ability conduct business since january 1997 company organized formal year 2000 project team identify correct reprogram test systems year 2000 compliance time project team completed preliminary assessment based teams evaluation costs testing conversion system applications projected within range 30 million 50 million range function ongoing evaluation whether certain systems equipment corrected replaced dependent information yet obtained suppliers external sources maintenance modification costs expensed incurred costs new software hardware capitalized amortized assets useful life time virginia power actively pursuing solutions year 2000related computer problems order ensure foreseeable situations related company computer systems effectively addressed company cannot estimate predict potential adverse consequences could result third partys failure effectively address issue market rate sensitive instruments risk management virginia power subject market risk result use various financial instruments derivative commodity instruments interest rate risk generally associated companys outstanding debt preferred stock trustissued securities company also exposed interest rate risk well equity price risk result nuclear decommissioning trust investments debt equity securities companys wholesale power group involved trading activities use derivative commodity instruments however fair value instruments december 31 1997 material companys financial position also potential near term losses future earnings fair values cash flows resulting reasonably possible near term changes market prices instruments anticipated material companys results operations financial position cash flows following analysis include price risks associated nonfinancial assets liabilities utility operations including underlying fuel requirements interestrate risk virginia power uses fixed rate variable rate debt preferred securities sources capital following table presents financial instruments held issued company december 31 1997 sensitive interest rate changes way weighted average variable rates based implied forward rates derived appropriate annual spot rate observations december 31 1997 1 rates based average yield entire portfolio december 31 1997 2 interest rates taxexempt bonds based shortterm taxexempt market rates reset periods one 270 days length company option convert bonds fixed rate securities upon 40 days written notice see note h consolidated financial statements equity price risk following table presents description marketable equity securities held company december 31 1997 prescribed statement financial accounting standards 115 accounting certain investments debt equity securities reported balance sheet fair value item 8 item 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations mda discusses results operations general financial condition virginia electric power company mda read conjunction consolidated financial statements “company” used throughout mda depending context use may represent following legal entity virginia electric power company one virginia electric power company’s consolidated subsidiaries entirety virginia electric power company consolidated subsidiaries company whollyowned subsidiary dominion resources inc dominion contents mda consists following information • forwardlooking statements • introduction • accounting matters • results operations • segment results operations • selected informationenergy trading activities • sources uses cash • future issues matters • risk factors cautionary statements may affect future results forwardlooking statements report contains statements concerning company’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” similar words company makes forwardlooking statements full knowledge risks uncertainties exist may cause actual results materially different predicted results factors may cause actual results differ often presented forwardlooking statements additionally risks may cause actual results differ predicted results set forth risk factors cautionary statements may affect future results 2004 page 8 company bases forwardlooking statements management’s beliefs assumptions using information available time statements made company cautions reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often materially differ actual results company undertakes obligation update forwardlooking statement reflect developments occurring statement made introduction virginia electric power company virginia public service company whollyowned subsidiary dominion company regulated public utility generates transmits distributes electricity within area approximately 30000 squaremiles virginia northeastern north carolina serves approximately 23 million retail customer accounts including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 virginia’s total land area accounts 80 population company trading relationships beyond geographic limits retail service territory buys sells natural gas electricity energyrelated commodities company’s businesses managed three operating segments generation energy delivery contributions net income company’s operating segments determined based measure profit executive management believes represents segments’ core earnings result certain specific items attributable segments included profit measures evaluated executive management assessing segment performance allocating resources among segments specific items reported corporate segment generation includes company’s electric generation operations generation mix diversified includes coal nuclear gas oil hydro purchased power company’s strategy electric generation operations focuses serving customers virginia northeastern north carolina generation facilities located virginia west virginia north carolina utility generation operations represent generation segment’s source revenue cash flows operations sensitive external factors primarily weather fuel prices currently revenue utility operations largely reflects capped rates charged customers virginia majority utility customer base virginia’s current deregulation legislation electric base rates capped 2010 capped rates changes generation segment’s operating costs particularly respect fuel relative costs used establish capped rates impact company’s earnings company markets generation resources needed serve utility customers part management utility system resources generation segment generation segment reduced costs terminating certain longterm power purchase agreements variability expenses generation segment relates primarily cost fuel consumed labor benefits timing duration costs scheduled unscheduled outages result reorganization company’s clearinghouse operations clearinghouse generation’s 2004 2003 results reflect revenue expenses associated coal trading marketing activities performed clearinghouse previously reported energy segment energy includes regulated electric transmission system located virginia northeastern north carolina operations clearinghouse responsible energy trading exclusive marketing excess utility generation marketing risk management activities energy segment’s revenue cash flows derived regulated nonregulated operations revenue cash flows provided regulated electric transmission operations based primarily rates established federal energy regulatory commission ferc variability revenue cash flows provided business results fluctuation rates demand services primarily weather dependent variability expenses relates largely operating maintenance expenditures including decisions regarding use resources operations maintenance capitalrelated activities revenue cash flows energy segment’s clearinghouse business subject variability associated changes commodity prices associated physical financial commodity contracts certain hedging trading activities may require cash deposits satisfy margin requirements addition reported earnings segment reflect changes fair value certain derivatives values may change significantly period variability expenses nonregulated businesses relates largely labor benefits costs purchased commodities resale payments financiallysettled contracts fourth quarter 2004 company performed evaluation clearinghouse trading marketing operations resulted decision exit certain energy trading activities instead focus optimization company assets beginning 2005 revenue expenses clearinghouse’s optimization company assets reported part results business segments operating related assets order better reflect performance underlying assets result changes 2004 2003 results reflect revenue expenses associated coal trading marketing activities generation segment delivery includes company’s electric distribution system customer service operations electric distribution system serves residential commercial industrial governmental customers virginia northeastern north carolina revenue cash flows provided electric distribution operations based primarily rates established state regulatory authorities state law variability delivery segment’s revenue cash flows relates largely changes sales volumes primarily weather sensitive variability expenses results changes cost routine maintenance repairs including labor benefits 2004 page 9 well decisions regarding use resources operations maintenance capitalrelated activities corporate includes company’s corporate functions specific items attributable company’s operating segments reported corporate accounting matters critical accounting policies estimates company identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions management discussed development selection disclosure policies company’s audit committee accounting derivative contracts fair value company uses derivative contracts primarily forward purchases sales swaps options futures buy sell energyrelated commodities manage commodity financial market risks derivative contracts certain exceptions subject fair value accounting reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies fair value derivatives based actively quoted market prices available absence actively quoted market prices company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available company must estimate prices based available historical nearterm future price information use statistical methods options contracts optionlike characteristics pricing information available external sources company generally uses modified blackscholes model considers time value volatility underlying commodities relevant assumptions company uses option models contracts involve different commodities commodity locations contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics company estimates fair value using discounted cash flow approach pricing information available external sources judgment required develop estimates fair value individual contracts use different valuation models assumptions could material effect contract’s estimated fair value cash flow hedges forecasted transactions company must estimate future cash flows represented forecasted transactions well evaluate probability occurrence timing transactions changes conditions occurrence unforeseen events could require discontinuance hedge accounting could affect timing reclassification gains losses cash flow hedges accumulated comprehensive income loss aoci earnings use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves management’s judgment areas identifying circumstances indicating impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including selection appropriate discount rate although cash flow estimates used company would based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors expected use asset including future production sales levels expected fluctuations prices commodities sold consumed 2004 company test significant longlived assets asset groups impairment circumstances arose indicated impairment may exist asset retirement obligations company recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists asset retirement obligations aros recognized fair value incurred capitalized part cost related tangible longlived assets absence quoted market prices company estimates fair value aros using present value techniques company makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates aros currently reported company’s consolidated balance sheets measured period historically low interest rates impact measurements new aros using different rates future may significant company recognize new significant aros 2004 future company revises assumptions used calculate fair value existing aros company adjust carrying amount aro liability related longlived asset company records accretion expense increasing aro liability passage time 2004 2003 company recognized 42 million 38 million respectively accretion expense expects incur 45 million 2005 significant portion company’s aros relate future decommissioning nuclear facilities december 31 2004 nuclear decommissioning aros reported generation segment totaled 755 million representing approximately 97 company’s total aros based significance following discussion critical assumptions inherent 2004 page 10 determining fair value aros relates associated company’s nuclear decommissioning obligations company obtains thirdparty experts periodic sitespecific “base year” cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods nature highly uncertain may vary significantly actual results addition cost estimates dependent subjective factors including selection cost escalation rates company considers critical assumption company determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facilities weighted average cost escalation used company 328 use alternative rates would material liabilities recognized example company increased cost escalation rate 05 378 amount recognized december 31 2004 aros related nuclear decommissioning would 148 million higher accounting regulated operations company’s accounting regulated electric operations differs accounting nonregulated operations company required reflect effect rate regulation consolidated financial statements specifically company’s regulated operations record assets liabilities nonregulated companies would report accounting principles generally accepted united states america probable regulators allow recovery current costs future rates charged customers company defers costs otherwise would expensed nonregulated companies recognizes regulatory assets financial statements likewise company recognizes regulatory liabilities financial statements probable regulators allow customer credits future rates revenue collected customers expenditures yet incurred management evaluates whether recovery regulatory assets future regulated rates probable makes various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory assets determined less probable regulatory asset written expense recorded period assessment made management currently believes recovery regulatory assets probable see notes 2 11 consolidated financial statements income taxes judgment required developing company’s provision income taxes including determination deferred tax assets related valuation allowance company evaluates probability realizing deferred tax assets quarterly basis reviewing forecast future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies might affect ultimate realization deferred tax assets newly adopted accounting standards 2004 2003 company required adopt several new accounting standards requirements discussed notes 2 3 consolidated financial statements accounting standards adopted 2003 affect comparability company’s consolidated statements income following discussion presented provide understanding impacts standards comparability fin 46r adoption financial accounting standards board fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r december 31 2003 respect special purpose entities affected comparability company’s 2004 consolidated statement income prior years follows • company required consolidate variable interest lessor entity company financed leased new power generation project result consolidated balance sheet december 31 2003 reflects additional 364 million net property plant equipment deferred charges 370 million related debt 2004 company’s consolidated statement income reflects depreciation expense net property plant equipment interest expense debt associated variable interest lessor entity whereas prior years reflected rent expense operations maintenance expense lease payments entity • addition fin 46r company reports longterm debt junior subordinated notes held capital trust rather trust preferred securities issued trust result 2004 company reported interest expense junior subordinated notes rather preferred distribution expense trust preferred securities sfas 143 adopting statement financial accounting standards sfas 143 accounting asset retirement obligations january 1 2003 affected comparability company’s 2004 2003 consolidated statements income prior year follows • accretion aros nuclear decommissioning reported operations maintenance expense previously expenses associated provision nuclear decommissioning reported depreciation expense income loss • realized unrealized earnings trusts available funding decommissioning activities company’s nuclear plants recorded income loss aoci appropriate previously permitted regulatory authorities earnings along offsetting charge expense accretion decommissioning liability reported income loss 2004 page 11 eitf 023 0311 adoption emerging issues task force eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities related eitf issue 0311 reporting realized gains losses derivative instruments subject fasb statement 133 “held trading purposes” defined issue 023 changed timing recognition earnings certain clearinghouse energyrelated contracts well financial statement presentation gains losses associated energyrelated contracts consolidated statement income 2002 restated prior 2003 energy trading contracts including nonderivative contracts recorded fair value changes fair value settlements reported revenue net basis specifically adopting eitf 023 0311 affected comparability company’s 2004 2003 consolidated statements income prior year follows • derivative contracts held trading purposes involve physical delivery commodities unrealized gains losses settlements sales contracts presented revenue unrealized gains losses settlements purchase contracts reported expense • nonderivative energyrelated contracts previously subject fair value accounting prior accounting guidance recognized revenue expense gross basis time contract performance settlement termination results operations presented summary contributions company’s operating segments net income overview 2004 vs 2003 net income decreased 23 431 million compared 2003 primarily reflecting • slightly higher contribution utility generation operations primarily resulting combined effects following • favorable margins coal trading marketing activities • reduction capacity expenses due termination certain longterm power purchase agreements • increased revenue due favorable weather customer growth largely offset • elimination fuel deferral accounting virginia jurisdiction resulted recognition fuel expenses excess amounts recovered fixed fuel rates • net loss energy trading marketing activities resulting primarily effects • unfavorable price changes electric trading margins • transfer certain wholesale electric contracts dominion subsidiary 2003 • comparatively lower price volatility natural gas option positions • net losses associated settlement portfolio financial derivatives held economic hedges portion dominion’s 2004 natural gas production decrease net income also impacted following specific items recognized 2004 reported corporate segment • 112 million aftertax charge reflecting company’s valuation interest longterm power tolling contract subject planned divestiture first quarter 2005 result exit certain energy trading activities charge based company’s evaluation preliminary bids received third parties reflecting expected amount consideration would required third party assumption company’s interest contract • 43 million net aftertax charges resulting termination certain longterm power purchase agreements • 7 million aftertax charge related agreement settle class action lawsuit involving dispute company’s rights lease fiberoptic cable along portion electric transmission corridor partially offset • 11 million aftertax benefit adjust expenses accrued 2003 associated restoration activities related hurricane isabel addition decrease net income impacted specific items recognized 2003 reported corporate segment described 2004 page 12 2003 vs 2002 net income decreased 27 561 million compared 2002 primarily reflecting • lower contribution utility generation operations primarily due comparably milder weather recognition previously deferred fuel costs connection settlement virginia jurisdictional fuel rate case increased nuclear refueling outage expenses company’s nuclear generating units partially offset customer growth electric franchise service area reduction capacity expenses due termination certain longterm power purchase agreements • higher contribution clearinghouse operations associated increased margins settled contracts lower net losses associated settlement portfolio financial derivatives held economic hedges portion dominion’s 2003 natural gas production • higher contribution distribution operations primarily resulting customer growth electric franchise service area partially offset comparably milder weather increase pension postretirement benefit costs decrease net income also impacted following specific items recognized 2003 reported corporate segment • 122 million aftertax incremental restoration expenses associated hurricane isabel • 65 million aftertax charge resulting termination two longterm power purchase agreements • 12 million aftertax charges associated restructuring power sales contracts • 5 million aftertax severance costs associated workforce reductions • 21 million net aftertax loss cumulative effect changes accounting principles resulting adoption following new accounting standards • 139 million aftertax gainadoption sfas 143 • 101 million aftertax lossadoption sfas 133 implementation issue c20 interpretation meaning “not clearly closely related” paragraph 10b regarding contracts price adjustment feature • 55 million aftertax lossadoption eitf 023 • 4 million aftertax lossadoption fin 46r analysis consolidated operations presented selected amounts related company’s results operations analysis company’s results operations 2004 compared 2003 compared 2002 follows 2004 vs 2003 operating revenue regulated electric sales revenue increased 6 52 billion primarily reflecting • 231 million increase due impact comparatively higher fuel rate increased sales volumes rate increase resulted settlement fuel rate case december 2003 offset increase electric fuel energy purchases net expense • 49 million increase associated new customer connections • 24 million increase associated comparably favorable weather • 18 million increase due lost revenue 2003 result outages caused hurricane isabel nonregulated electric sales revenue decreased 420 negative 141 million reflecting decrease energy trading marketing activities resulting primarily • 122 million losses primarily resulting energy trading marketing activities reflecting decreased margins electric trading due unfavorable price movements 2004 page 13 • 142 million decline trading revenue due transfer certain wholesale electric contracts dominion subsidiary 2003 combined 42 million higher margins due unfavorable price changes 2003 transferred wholesale electric contracts partially offset • 58 million increase sale excess generation higher margins electric trading nonregulated gas sales revenue decreased 84 42 million reflecting decrease energy trading marketing activities resulting primarily • 130 million losses related certain natural gas contracts held connection management storage transportation agreements • 52 million net loss associated portfolio financial derivatives held economic hedges portion dominion’s 2004 natural gas production • 44 million loss comparatively lower price volatility natural gas option positions revenue increased 160 660 million primarily reflecting 384 million increase coal sales resulting higher coal prices increased sales volumes increase coal sales revenue largely offset increase cost coal purchased resale reported purchased energy commodities expense operating expenses items electric fuel energy purchases net expense increased 19 18 billion primarily reflecting • 408 million increase related utility generation operations resulting combined effects increase fixed fuel rate elimination fuel deferral accounting virginia jurisdiction resulted recognition fuel expenses excess amounts recovered fixed fuel rates increase also reflected higher generation volumes current year partially offset • 130 million decrease primarily associated transfer certain wholesale electric contracts dominion subsidiary 2003 purchased electric capacity expense decreased 9 550 million primarily resulting termination certain longterm power purchase agreements result purchase related nonutility generating facilities purchased energy commodities expense increased 174 518 million primarily reflecting increase cost coal purchased resale depreciation amortization expense increased 8 496 million due incremental expense resulting property additions including consolidation variable interest lessor entity result adopting fin 46r december 31 2003 income decreased 12 71 million primarily reflecting lower net realized gains including investment income associated nuclear decommissioning trust fund investments interest related charges decreased 16 254 million primarily due refinancing callable mortgage bonds lower cost unsecured debt december 2003 vs 2002 operating revenue regulated electric sales revenue increased less 1 49 billion primarily reflecting following • 54 million increase representing customer growth associated new customer connections • 42 million increase resulting fuel rate recoveries fuel rate recoveries generally offset comparable increase fuel expense materially affect net income increases partially offset • 103 million decrease associated milder weather • decreases sales revenue due hurricanerelated outages nonregulated gas sales revenue increased 561 263 million reflecting higher margins clearinghouse gas sales net applicable purchases due favorable changes fair value derivative contracts held trading purposes impact adopting eitf 023 increase included 54 million associated portfolio financial derivatives held economic hedges portion dominion’s 2003 natural gas production revenue increased 167 254 million reflecting • 52 million increase coal sales revenue • 115 million increase resulting change classification coal purchases revenue expense eitf 023 beginning 2003 operating expenses items electric fuel energy purchases net expense increased 15 billion primarily reflecting • 123 million increase associated nonregulated energy trading operations primarily resulting higher volumes purchased reclassification certain purchase contracts due implementation eitf 023 • 68 million increase related regulated operations including 42 million associated rate recoveries recognition 14 million previously deferred fuel costs recovered 2003 settlement virginia jurisdictional fuel rate case purchased electric capacity expense decreased 12 607 million reflecting scheduled rate reductions certain nonutility generation power purchase agreements 54 million lower purchases capacity utility operations 30 million resulting termination certain longterm power purchase agreements purchased gas expense 115 million representing cost supplies used serve nonregulated gas sales purchased energy commodities expense 189 million reflecting reclassification certain purchase contracts transportation storage coal due adoption eitf 023 operations maintenance expense rose 44 13 billion primarily reflecting impact following 2003 items • incremental restoration expenses associated hurricane isabel 197 million • cost terminating two longterm power purchase agreements used electric utility operations 105 million • charge associated restructuring certain electric sales contracts 21 million 2004 page 14 • accretion expense aros 38 million • expenses associated nuclear refueling outages 15 million depreciation amortization expense decreased 7 458 million primarily reflecting change presentation expenses associated aros taxes expense increased 14 173 million primarily due effect favorable resolution sales use tax issues 2002 benefits recognized 2003 income increased 153 81 million primarily reflecting net realized gains including investment income 34 million associated nuclear decommissioning trust fund investments cumulative effect changes accounting principlesduring 2003 company required adopt several new accounting standards resulting net aftertax loss 21 million included following • 139 million aftertax gain sfas 143 • 101 million aftertax loss sfas 133 implementation issue c20 • 55 million aftertax loss eitf 023 • 4 million aftertax loss fin 46r outlook company believes operating businesses provide stable growth net income 2005 following growth factors impact expected results • continued growth utility customers • reduced electric capacity expenses resulting termination longterm power purchase agreements growth factors 2005 impacted • higher expected virginia jurisdictional fuel expenses • increased interest expense based projections company estimates cash flows operations increase 2005 compared 2004 management believes increase provide sufficient cash flows maintain grow company’s current dividend dominion segment results operations generation includes company’s portfolio electric generating facilities power purchase agreements marketing excess generation resources coal trading marketing activities mmwhrs megawatt hours generation segment provides electricity primarily nuclear coal oil purchased power natural gas presented summary system’s energy output energy source 1 nuclear mix excludes old dominion electric cooperative’s odec 116 ownership interest north anna power station 2 coal mix excludes odec’s 50 ownership interest clover power station 3 includes natural gas used combustion turbines fueled gas presented aftertax basis key factors impacting generation segment’s operating results 2004 vs 2003 generation’s net income increased 1 million primarily reflecting following • higher fuel expenses due elimination fuel deferral accounting virginia jurisdiction resulted recognition fuel expenses excess amounts recovered fixed fuel rates increase fuel expenses also reflects higher generation volumes • reduced purchased power capacity expenses due termination certain longterm power purchase agreements connection purchase related nonutility generating facilities • higher contribution coal trading marketing primarily due higher coal prices increased sales volumes 2004 page 15 • increase regulated electric sales revenue due customer growth electric franchise service area primarily residential commercial customer connections • increase regulated electric sales revenue comparably favorable weather • lower interest expense due refinancing callable mortgage bonds lower cost unsecured debt december 2003 • increase regulated electric sales revenue due lost revenue 2003 associated outages related hurricane isabel • factors including impact economic conditions customer usage 2003 vs 2002 generation decrease 80 million net income primarily reflecting following • change allocation electric base rate revenue among generation energy delivery segments effective january 1 2003 • decrease regulated electric sales due comparably unfavorable weather • scheduled decreases capacity expenses certain longterm power purchase agreements • increase regulated electric sales due customer growth electric franchise service area primarily reflecting increase new residential customers • increased outage expenses reflecting refueling outages 2003 company’s nuclear generating units • recognition previously deferred fuel costs connection 2003 virginia rate settlement energy includes company’s electric transmission energy trading marketing operations presented aftertax basis key factors impacting energy segment’s operating results 2004 vs 2003 energy net loss 109 million 2004 compared net income 100 million 2003 primarily reflecting • net loss energy trading marketing activities resulting primarily effects unfavorable price changes electric trading margins transfer certain wholesale electric contracts dominion subsidiary 2003 comparatively lower price volatility natural gas option positions • decrease attributable unfavorable price movements associated portfolio financial derivatives held economic hedges portion dominion’s 2004 natural gas production • lower electric transmission revenue primarily due decreased wheeling revenue resulting lower contractual volumes unfavorable market conditions 2003 vs 2002 energy’s net income contribution increased 72 million primarily reflecting • lower net losses associated portfolio financial derivatives held clearinghouse held economic hedges behalf dominion connection price risk management portion future sales natural gas production • increase contribution energy trading marketing activities reflecting increased margins settled contracts partially offset decrease net marktomarket gains derivative contracts • increase electric transmission margins due customer growth factors partially offset impact unfavorable weather • change allocation electric base rate revenue among operating segments effective january 1 2003 2004 page 16 delivery includes company’s electric distribution system customer service operations presented aftertax basis key factors impacting delivery segment’s operating results 2004 vs 2003 delivery’s net income contribution increased 6 million reflecting • lower interest expense due primarily refinancing callable mortgage bonds lower cost unsecured debt december 2003 • higher reliability expenses primarily due increased tree trimming • increase regulated electric sales revenue due customer growth electric franchise service area primarily reflecting new residential customers • increase regulated electric sales revenue comparably favorable weather • factors including increase pension expense 2003 vs 2002 delivery’s net income contribution increased 27 million reflecting • change allocation electric base rate revenue among operating segments effective january 1 2003 • decrease regulated electric sales due comparably milder weather • increase regulated electric sales due customer growth electric franchise service area primarily reflecting new residential customers • factors including increase pension postretirement benefit costs corporate includes company’s corporate functions specific items presented corporate segment’s aftertax operating results company reported corporate segment operations maintenance expense following specific items attributable operating segments • 184 million 112 million aftertax charge related valuation company’s interest longterm power tolling contract generation • 71 million 43 million aftertax losses termination three longterm power purchase agreements generation • 12 million 7 million aftertax charge related agreement settle class action lawsuit involving dispute company’s rights lease fiberoptic cable along portion electric transmission corridor energy partially offset • 18 million 11 million aftertax benefit adjust expenses accrued 2003 associated restoration activities related hurricane isabel delivery company reported corporate segment operations maintenance expense following specific items attributable operating segments • 21 million net aftertax loss cumulative effect changes accounting principles resulting adoption following new accounting standards • 139 million aftertax gainadoption sfas 143 140 million aftertax gaingeneration 1 million aftertax lossdelivery 2004 page 17 • 101 million aftertax lossadoption statement 133 implementation issue c20 generation • 55 million aftertax lossadoption eitf 023 energy • 4 million aftertax lossadoption fin 46r generation • 197 million 122 million aftertax incremental restoration expenses associated hurricane isabel 119 million delivery 2 million energy 1 million generation • 105 million 65 million aftertax charge resulting termination two longterm power purchase agreements generation • 21 million 12 million aftertax charges associated restructuring power sales contracts generation • 8 million 5 million aftertax severance costs associated workforce reductions 5 million delivery 3 million generation selected informationenergy trading activities previously described company manages energy trading risk management activities clearinghouse company believes operations complement integrated energy businesses facilitate risk management activities part operations clearinghouse enters contracts purchases sales energyrelated commodities including coal natural gas oil 2003 prior periods company’s clearinghouse operations also included contracts purchases sales electricity connection dominion’s plan conduct nonutility wholesale electric marketing trading activities another dominion subsidiary company assigned certain wholesale electric contracts supplied generation resources involve activities outside service territory company continue market generation resources needed serve utility customers part management utility system resources generation segment rather clearinghouse operations settlement contract may require physical delivery underlying commodity cash settlement clearinghouse enters contracts objective benefiting changes prices example entering contract purchase commodity clearinghouse typically enters sales contract combination sales contracts quantities delivery settlement terms identical similar purchase contract purchase sales contracts settled either physical delivery underlying commodity net cash settlement clearinghouse may receive net cash margin realized gain may pay net cash margin realized loss clearinghouse management continually monitors contract positions considering location timing delivery settlement energy commodity relation market price activity seeking arbitrage opportunities fourth quarter 2004 company performed evaluation clearinghouse trading marketing operations resulted decision exit certain energy trading activities instead focus optimization company assets beginning 2005 revenue expenses clearinghouse’s optimization company assets reported part results business segments operating related assets summary changes unrealized gains losses recognized company’s energyrelated derivative instruments held trading purposes 2004 follows balance net unrealized gains losses recognized company’s energyrelated derivative instruments held trading purposes december 31 2004 summarized following table based approach used determine fair value contract settlement delivery dates 1 exchangetraded overthecounter contracts 2 values based prices overthecounter broker activity industry services applicable conventional option pricing models 3 values based company’s estimate future commodity prices information external sources available use internallydeveloped models reflecting option pricing theory discounted cash flow concepts etc sources uses cash company depends internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operating activities generally satisfied proceeds shortterm borrowings longterm cash needs met sales securities additional longterm financing december 31 2004 company cash equivalents 2 million 15 billion unused capacity credit facilities longterm financing needs amounts available debt equity offerings currently effective shelf registrations totaled 670 million february 1 2005 2004 page 18 operating cash flows presented company’s consolidated statements cash flows net cash flows operating activities 12 billion 2004 12 billion 2003 13 billion 2002 management believes operations provide stable source cash flow sufficient contribute planned levels capital expenditures maintain grow current dividends payable dominion company’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows including • costrecovery shortfalls due capped base fuel rates effect virginia utility generation business • unusual weather effect energy sales customers energy commodity prices • extreme weather events could disrupt cause catastrophic damage company’s electric distribution transmission systems • exposure unanticipated changes prices energy commodities purchased sold including effect derivative instruments may require use funds post margin deposits counterparties • effectiveness company’s risk management activities underlying assessment market conditions related factors including energy commodity prices basis liquidity volatility counterparty credit risk availability generation transmission capacity currency exchange rates interest rates • cost replacement electric energy event longerthanexpected unscheduled generation outages • contractual regulatory restrictions transfers funds among company dominion subsidiaries credit risk company’s exposure potential concentrations credit risk results primarily energy trading risk management activities presented summary company’s gross net credit exposure december 31 2004 activities company calculates gross credit exposure counterparty unrealized fair value derivative contracts plus outstanding receivables net payables netting agreements exist prior application collateral 1 designations investment grade based minimum credit ratings assigned moody’s investors service moody’s standard poor’s rating group division mcgrawhill companies inc standard poor’s five largest counterparty exposures combined category represented approximately 22 total gross credit exposure 2 five largest counterparty exposures combined category represented less 1 total gross credit exposure 3 five largest counterparty exposures combined category represented approximately 26 total gross credit exposure 4 five largest counterparty exposures combined category represented approximately 2 total gross credit exposure investing cash flows 2004 2003 2002 company’s investing activities resulted net cash outflows 876 million 11 billion 857 million respectively significant investing activities 2004 included 96 million nuclear fuel expenditures 761 million plant construction property additions detailed follows • 327 million generationrelated projects including environmental upgrades routine capital improvements • 122 million transmissionrelated projects reflecting construction improvements • 286 million distributionrelated projects reflecting routine capital improvements expenditures associated new connections • 26 million general information technology projects investing activities 2004 also included 277 million purchases securities 237 million sales securities related investments held company’s nuclear decommissioning trusts financing cash flows liquidity company relies access bank capital markets significant source funding capital requirements satisfied cash provided company’s operations discussed credit ratings company’s ability borrow funds issue securities return demanded investors affected company’s credit ratings addition raising external capital subject certain regulatory approvals including authorization virginia state corporation commission virginia commission 2004 2003 2002 net cash flows used financing activities 338 million 160 million 367 million respectively joint credit facilities shortterm debt company’s financial policy precludes issuing commercial paper excess supporting lines credit dominion consolidated natural gas company cng whollyowned subsidiary dominion company two threeyear revolving joint credit facilities allow aggregate borrowings 225 billion company required pay minimal annual commitment fees maintain joint credit facilities include 15 billion credit facility entered may 2004 terminates may 2007 750 million credit facility entered may 2002 terminates may 2005 expected 750 million credit facility renewed prior maturity credit facilities used working capital support combined commercial paper programs dominion cng company issuance 2004 page 19 letters credit 500 million 15 billion credit facility 200 million 750 million credit facility december 31 2004 capacity available two credit facilities 15 billion joint credit agreements contain various terms conditions could affect company’s ability borrow funds facilities accelerate repayment outstanding company borrowings possibly result termination commitment lend funds company terms conditions include maximum debt total capital ratios crossdefault provisions material adverse change clauses although joint credit agreements contain material adverse change clauses participating lenders specific provisions cannot refuse advance funds company repurchase outstanding commercial paper ratio company’s debt total capital defined agreements exceed 60 end fiscal quarter december 31 2004 company’s calculated debt total capital ratio 50 agreements’ crossdefault provisions company material subsidiaries fail make payment various debt obligations excess 25 million lenders could require company accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds company however defaults indebtedness dominion cng material subsidiaries affiliates would affect lenders’ commitment company joint credit agreements december 31 2004 total outstanding commercial paper supported joint credit facilities 573 million total 267 million company’s borrowings weighted average interest rate 235 commercial paper borrowings used primarily fund working capital requirements bridge longterm debt financing may vary significantly course year depending upon timing amount cash requirements satisfied cash provided operations december 31 2004 total outstanding letters credit supported joint credit facilities 183 million total 104 million issued behalf unregulated subsidiary company longterm debt august 2004 connection acquisition generating facility company assumed 109 million private placement bonds 25 million pollution control bonds november 2004 company exchanged 106 million 2004 series 725 senior notes due 2017 senior notes outstanding private placement bonds following scheduled principal payment 3 million senior notes financial terms private placement bonds registered securities addition november 2004 company assumed 79 million industrial development bonds issued pittsylvania county va part acquisition another nonutility generating facility 2004 company repaid 250 million 8 mortgage bonds due march 1 2004 75 million 72 senior notes due november 1 2004 common stock 2004 company issued 20115 shares common stock dominion cash consideration 500 million company used proceeds part pay 345 million affiliated shortterm demand note dominion 2004 2003 company recorded 11 million 21 million respectively additional paidin capital connection reduction amounts payable dominion borrowings parent december 31 2004 unregulated subsidiary company borrowed funds dominion totaling 645 million shortterm demand note december 31 2004 company outstanding borrowings dominion 220 million longterm note interest charges incurred company related borrowings 11 million 2004 interest charges incurred 2003 material amounts available shelf registrations february 1 2005 company approximately 670 million available capacity currently effective shelf registrations shelf registrations would permit company issue debt preferred securities meet future capital requirements credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities management believes current credit ratings company provide sufficient access capital markets however disruptions banking capital markets specifically related company may affect company’s ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing company’s credit ratings credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings company affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies “event risk” applicable credit ratings company february 1 2005 follow 2004 page 20 february 1 2005 standard poor’s maintains negative outlook ratings company generally downgrade company’s credit rating would restrict ability raise shortterm longterm financing long credit rating remains “investment grade” would increase cost borrowing company works closely standard poor’s moody’s objective maintaining company’s current credit ratings discussed risk factors cautionary statements may affect future results order maintain current ratings company may find necessary modify business plans changes may adversely affect growth debt covenants part borrowing funds issuing debt shortterm longterm preferred securities company must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock dominion including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique company typical covenants include • timely payment principal interest • information requirements including submitting financial reports filed securities exchange commission lenders • performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantial assets • compliance collateral minimums requirements related mortgage bonds • limitations liens company monitors covenants regular basis order ensure events default occur december 31 2004 events default company’s covenants future cash payments contractual obligations planned capital expenditures contractual obligations company party numerous contracts arrangements obligating company make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts company party december 31 2004 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable majority current liabilities paid cash 2005 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 reflect company’s ability defer distributions related junior subordinated notes payable affiliated trust 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 represents summation settlement amounts contracts due company physical financial transactions among company counterparties liquidated terminated 5 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 11 12 18 consolidated financial statements deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year planned capital expenditures company’s planned capital expenditures 2005 expected total approximately 870 million includes cost acquiring certain nonutility generating facilities february 2005 company completed termination longterm power purchase agreement acquisition related generating facility used pandarosemary lp nonutility generator provide electricity company see restructuring contract nonutility generator future issues matters 2006 planned capital expenditures expected approximately 900 million included company’s total planned capital expenditures following capacity based available generation capacity current estimates growth customer demand company likely need additional baseload generation future however company currently definite plans build new baseload generating units nearterm part company’s ongoing generation supply strategy company continues 2004 page 21 evaluate development new baseload plants meet customer demand additional generation needs future 2007 company continue meet additional capacity energy requirements market purchases plant equipment company’s annual capital expenditures plant equipment 2005 including environmental upgrades construction improvements expected total approximately follows • generation nuclear fuel 400 million includes cost acquiring certain nonutility generating facilities • transmission 120 million • distribution 350 million primarily provides customer growth reliability initiatives routine replacements future issues matters status deregulation virginia electric utility restructuring act virginia restructuring act enacted 1999 established plan restructure electric utility industry virginia restructuring act addressed among things capped base rates regional transmission organization rto participation retail choice recovery stranded costs functional separation utility’s electric generation electric transmission distribution operations retail choice available company’s virginia regulated electric customers since january 1 2003 company also separated generation distribution transmission functions creation divisions virginia codes conduct ensure virginia power’s generation divisions operate independently prevent crosssubsidies generation divisions since passage virginia restructuring act competitive environment developed virginia anticipated april 2004 governor virginia signed law amendments virginia restructuring act virginia fuel factor statute amendments extend capped base rates december 31 2010 unless modified terminated earlier virginia restructuring act addition extending capped rates amendments • lock company’s fuel factor provisions earlier july 1 2007 termination capped rates • provide onetime adjustment company’s fuel factor effective july 1 2007 december 31 2010 unless capped rates terminated earlier virginia restructuring act adjustment previously incurred overrecovery underrecovery thus eliminating deferred fuel accounting virginia jurisdiction • end wires charges earlier july 1 2007 termination capped rates consistent virginia restructuring act’s original timetable risk fuel factorrelated cost recovery shortfalls may also adversely impact company’s cost structure transition period company could realize negative economic impact adverse event conversely company may experience positive economic impact extent reduce fuel factorrelated costs electric utility generationrelated operations amendments virginia restructuring act also enacted respect minimum stay exemption program wires charges exemption program allowing development coalfired generating plant southwest virginia serving default service needs minimum stay exemption program large customers load 500 kw greater would exempt twelvemonth minimum stay obligation capped rates return supply service incumbent utility marketbased pricing switched supply service competitive service provider wires charge exemption program would allow large industrial commercial customers well aggregated customers rate classes avoid paying wires charges agreeing marketbased pricing upon return incumbent electric utility january 2005 company filed compliance plans programs rto september 2002 company pjm interconnection llc pjm entered agreement provides subject regulatory approval certain provisions company become member pjm transfer functional control electric transmission facilities pjm inclusion new pjm south region integrate control area pjm energy markets agreement also allocates costs implementation agreement among parties october 2004 ferc issued order conditionally approving company’s application join pjm order ferc determined company’s proposed transmission rate treatment must conform regional transmission rate design ii company must assess available evidence determine whether requested deferral expenditures related establishment operation rto recorded regulatory asset end virginia retail rate cap period separate order issued september 2004 ferc granted authority company affiliates market based rate authority charge market based rates sales electric energy capacity loads located within company’s service territory upon integration pjm company made filings virginia commission north carolina utilities commission north carolina commission requesting authorization become member pjm october 2004 company filed settlement agreement virginia commission resolving issues raised interested parties proceeding hearings held address remaining issues virginia commission approved company’s application join pjm november 2004 subject terms conditions settlement agreement north carolina commission evidentiary hearing held january 2005 company cannot predict outcome matter time 2004 page 22 north carolina rate matter connection north carolina commission’s approval cng acquisition company agreed request increase north carolina retail electric base rates 2006 except certain events would significant financial impact company’s utility operations fuel rates still subject change annual fuel cost adjustment proceedings however april 2004 north carolina commission commenced investigation company’s north carolina base rates subsequently ordered company file general rate case show cause north carolina base rates reduced rate case filed september 2004 february 2005 company reached tentative settlement parties case subject north carolina commission approval becoming effective recovery stranded costs stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market december 31 2004 company’s exposure potentially stranded costs included longterm power purchase contracts could ultimately determined market generating plants could possibly become uneconomical deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements company believes capped electric retail rates applicable wires charges provide opportunity recover portion potentially stranded costs depending market prices electricity factors recovery company’s potentially stranded costs remains subject numerous risks even cappedrate environment include among others exposure longterm power purchase commitment losses future environmental compliance requirements changes tax laws nuclear decommissioning costs inflation increased capital costs recovery certain items enactment deregulation legislation 1999 caused discontinuance sfas 71 accounting effects certain types regulation company’s virginia jurisdictional utility generationrelated operations also caused company review utility generation assets impairment longterm power purchase agreements potential losses time significant assumptions considered review included possible future market prices fuel electricity load growth generating unit availability future capacity additions company’s market capital expenditures including related environmental improvements decommissioning activities based analyses recognition plant impairments contract losses appropriate time response future events resulting development competitive market structure virginia expiration termination capped rates wires charges company may reevaluate utility generation assets impairment longterm power purchase agreements potential losses assumptions future market prices electricity represent critical factor affects results evaluations since 1999 market prices electricity fluctuated significantly continue subject volatility review future would highly dependent assumptions considered appropriate time could possibly result recognition plant impairment contract losses would material company’s results operations financial position changes cost structurein april 2004 governor virginia signed law amendments virginia restructuring act virginia fuel factor statute amendments extend capped base rates december 31 2010 unless capped rates terminated earlier virginia restructuring act generationrelated cash flows provided virginia restructuring act intended compensate company continuing provide generation services allow company incur costs restructure operations transition period result transition period company’s earnings may increase extent reduce operating costs utility generationrelated operations conversely risks affecting recovery company’s stranded costs discussed may also adversely impact cost structure transition period accordingly company could realize negative economic impact adverse event addition managing cost generationrelated operations company may also seek opportunities sell available electric energy capacity customers beyond electric utility service territory using cash flows operations transition period company may alter cost structure choose make additional investments business capped rates derived rates established part 1998 virginia rate settlement provide specific recovery particular generationrelated expenditures except certain regulatory assets extent company manages operations reduce overall operating costs levels included capped rates company’s earnings may increase since enactment virginia restructuring act company reviewing cost structure identify opportunities reduce annual operating expenses generationrelated operations period 2001 2004 company negotiated termination several longterm power purchase agreements expected reduce capacity payments 2005 179 million environmental matters company subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result 2004 page 23 increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2010 excess level currently included virginia jurisdictional electric retail rates company’s results operations decrease date recovery regulated rates may sought environmental costs related regulated electric transmission distribution operations recovery generation component rates dependent upon market price electricity environmental protection monitoring expenditures company incurred approximately 115 million 100 million 117 million expenses including depreciation 2004 2003 2002 respectively connection environmental protection monitoring activities expects expenses approximately 124 million 2005 136 million 2006 addition capital expenditures related environmental controls 84 million 197 million 214 million 2004 2003 2002 respectively expenditures expected approximately 28 million 2005 126 million 2006 clean air act compliance clean air act requires company reduce emissions sulfur dioxide so2 nitrogen oxide nox gaseous byproducts fossil fuel combustion clean air act’s so2 nox reduction programs include • issuance limited number so2 emission allowances allowance permits emission one ton so2 atmosphere allowances may transacted third party • nox emission limitations applicable ozone season months may september annual average basis implementation projects comply so2 nox limitations ongoing influenced changes regulatory environment availability allowances various state federal control programs emission control technology response requirements company estimates make capital expenditures affected generating facilities approximately 455 million period 2005 2009 so2 nox emission control equipment epa matters relation notice violation received company 2000 environmental protection agency epa company entered consent decree settlement 2003 committed improve air quality company already incurred certain capital expenditures environmental improvements coalfired stations virginia west virginia company continues commit additional measures current financial plans capital budget satisfy requirements consent decree future environmental regulations january 2004 epa proposed additional regulations addressing pollution transport electric generating units well regulation mercury nickel emissions regulatory actions addition revised regulations address regional haze expected finalized 2005 could require additional reductions emissions company’s fossil fuelfired generating facilities new emission reduction requirements imposed significant additional expenditures may required us congress considering various legislative proposals would require generating facilities comply stringent air emissions standards emission reduction requirements consideration would phased variety periods 15 years new proposals adopted additional significant expenditures may required 1997 united states signed international protocol limit manmade greenhouse emissions united nations framework convention climate change however protocol become binding unless approved us senate currently bush administration indicated pursue ratification protocol set voluntary goal reducing nation’s greenhouse gas emission intensity 18 next 10 years several legislative proposals include provisions seeking impose mandatory reductions greenhouse gas emissions consideration united states congress cost compliance protocol mandatory greenhouse gas reduction obligations could significant given highly uncertain outcome timing future action us federal government issue company cannot predict financial impact future climate change actions operations time nuclear insurance priceanderson act expired august 2002 operating nuclear reactors continue covered law would channel cap claims nuclear accident occur priceanderson act first enacted 1957 renewed three times since 1967 congress currently holding hearings reauthorize legislation matters restructuring contract nonutility generator february 2005 company paid 42 million cash assumed 62 million debt connection termination longterm power purchase agreement acquisition related generating facility used pandarosemary lp nonutility generator provide electricity company transaction part ongoing program seeks achieve competitive cost structures company’s utility generation business expected reduce annual capacity payments 18 million purchase price acquisition allocated assets liabilities acquired based estimated fair values date acquisition connection termination agreement company expects record aftertax charge approximately 46 million 2004 page 24 longterm power tolling contract fourth quarter 2004 company recorded 112 million aftertax charge related interest longterm power tolling contract 551 megawatt combined cycle facility located batesville mississippi company decided divest interest longterm power tolling contract connection dominion’s reconsideration scope certain activities clearinghouse including conducted behalf company’s business segments dominion’s ongoing strategy focus business activities within main maine region charge based company’s evaluation preliminary bids received third parties reflecting expected amount consideration would required third party assumption company’s interest contract first quarter 2005 risk factors cautionary statements may affect future results factors may cause actual results differ materially indicated forwardlooking statement include weather conditions governmental regulations cost environmental compliance inherent risk operation nuclear facilities fluctuations energyrelated commodities prices effect could company’s earnings liquidity position underlying value assets trading counterparty credit risk capital market conditions including price risk due marketable securities held investments trusts benefit plans fluctuations interest rates changes rating agency requirements ratings changes accounting standards collective bargaining agreements labor negotiations risks operating businesses regulated industries subject changing regulatory structures changes regulated electric rates recovered company transfer control electric transmission facilities regional transmission organization political economic conditions including inflation deflation specific risk factors follows company’s operations weather sensitive company’s results operations affected changes weather conditions directly influence demand electricity affect price energy commodities addition severe weather including hurricanes winter storms droughts destructive causing outages property damage require company incur additional expenses company subject complex government regulation could adversely affect operations company’s operations subject extensive federal state local regulation may require numerous permits approvals certificates various governmental agencies company must also comply environmental legislation associated regulations management believes necessary approvals obtained company’s existing operations business conducted accordance applicable laws however new laws regulations revision reinterpretation existing laws regulations may require company incur additional expenses costs environmental compliance liabilities litigation could exceed company’s estimates could adversely affect results operations compliance federal state local environmental laws regulations may result increased capital operating costs including remediation containment expenses monitoring obligations addition company may responsible party environmental cleanup site identified regulatory body management cannot predict certainty amount timing future expenditures related environmental matters difficulty estimating cleanup compliance costs possibility changes made current environmental laws regulations also uncertainty quantifying liabilities environmental laws impose joint several liability potentially responsible parties company exposed costrecovery shortfalls capped base rates amendments fuel factor statute effect virginia restructuring act amended april 2004 company’s base rates excluding generally fuel factor limited adjustment provisions certain allowable adjustments remain unchanged december 31 2010 unless modified terminated consistent virginia restructuring act although virginia restructuring act allows recovery certain generationrelated costs capped rates period company remains exposed numerous risks costrecovery shortfalls include exposure potentially stranded costs future environmental compliance requirements tax law changes costs related hurricanes weather events inflation cost obtaining replacement power unplanned plant outages increased capital costs addition 2004 amendments virginia fuel factor statute company’s current virginia fuel factor provisions lockedin earlier july 1 2007 termination capped rates order virginia commission amendments provide onetime adjustment company’s fuel factor effective july 1 2007 december 31 2010 adjustment previously incurred overrecovery underrecovery thus eliminating deferred fuel accounting result lockedin fuel factor uncertainty onetime adjustment company exposed fuel price risk includes exposure increased costs fuel including energy portion certain purchased power costs virginia restructuring act generation portion company’s electric utility operations open competition resulting uncertainty virginia restructuring act generation portion company’s electric utility operations virginia open competition longer subject costbased regulation date competitive market slow develop consequently difficult predict pace competitive environment evolve extent company face increased competition able operate profitably within competitive environment 2004 page 25 inherent risks operation nuclear facilities company operates nuclear facilities subject inherent risks include threat terrorist attack ability dispose spent nuclear fuel disposal subject complex federal state regulatory constraints risks also include cost company’s ability maintain adequate reserves decommissioning costs plant maintenance exposure potential liabilities arising operation facilities company maintains decommissioning trusts external insurance coverage manage financial exposure risks however possible costs arising claims could exceed amount insurance coverage use derivative instruments could result financial losses liquidity constraints company uses derivative instruments including futures forwards options swaps manage commodity financial market risks addition company purchases sells commodity based contracts natural gas electricity oil markets trading purposes future company could recognize financial losses contracts result volatility market values underlying commodities counterparty fails perform contract absence actively quoted market prices pricing information external sources valuation contracts involves management’s judgment use estimates result changes underlying assumptions use alternative valuation methods could affect reported fair value contracts additional information concerning derivatives commoditybased trading contracts see market rate sensitive instruments risk management item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s virginia power’s results operations general financial condition mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data contents mda consists following information  forwardlooking statements  accounting matters  dominion  results operations  segment results operations  selected informationenergy trading activities  virginia power  results operations  segment results operations  liquidity capital resources  future issues matters forwardlooking statements report contains statements concerning dominion’s virginia power’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “target” similar words dominion virginia power make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events including hurricanes high winds severe storms cause outages property damage facilities  federal state local legislative regulatory developments  changes federal state local environmental laws regulations including related climate change tightening emission discharge limits greenhouse gases emissions extensive permitting requirements regulation additional substances  cost environmental compliance including costs related climate change  risks associated operation nuclear facilities  unplanned outages companies’ generation facilities  fluctuations energyrelated commodity prices effect could dominion’s earnings domin ion’s virginia power’s liquidity position underlying value assets  counterparty credit risk  capital market conditions including availability credit ability obtain financing reasonable terms  risks associated virginia power’s membership participation pjm related obligations created default participants  price risk due investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion  fluctuations interest rates  changes federal state tax laws regulations  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  receipt approvals timing closing dates acquisitions divestitures  completion timing planned monetization dominion’s marcellus shale assets  changes rules rtos dominion virginia power participate including changes rate designs new evolving capacity models  political economic conditions including threat domestic terrorism inflation deflation  changes regulated electric rates collected virginia power including outcome base rate review initiated 2009  timing receipt regulatory approvals necessary planned construction expansion projects  inability complete planned construction projects within terms time frames initially anticipated  adverse outcomes litigation matters additionally risks could cause actual results differ predicted results set forth item 1a risk factors dominion virginia power’s forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results dominion virginia power undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion virginia power identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial con management’s discussion analysis financial condition results operations continued dition results operations different conditions using different assumptions dominion virginia power discussed development selection disclosure policies audit committee board directors virginia power’s board directors also serves audit committee accounting regulated operations accounting virginia power’s regulated electric dominion’s regulated gas operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs deferred regulatory assets otherwise would expensed nonregulated companies likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator discussed note 2 consolidated financial statements april 2007 virginia power reapplied accounting guidance costbased regulation virginia jurisdiction generation operations resulting 259 million 158 million aftertax extraordinary charge reclassification 195 million 119 million aftertax unrealized gains aoci related nuclear decommissioning trust funds established 454 million longterm regulatory liability amounts previously collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s nuclear generation stations excess related aro connection reapplication guidance virginia power prospectively changed certain accounting policies virginia jurisdiction generation operations used costofservice rateregulated entities extraordinary item previously discussed overall impact changes material virginia power’s results operations financial condition 2007 discussed note 14 consolidated financial statements february 2010 virginia power filed revised stipulation recommendation virginia commission could resolve pending rate proceedings virginia power’s 2009 results include charge 782 million 477 million aftertax representing best estimate probable outcome matter amount 700 million 427 million aftertax represents partial refund 2008 revenues amounts 82 million 50 million aftertax represents expected refund 2009 revenues collected customers result implementation base rate increase became effective interim basis september 1 2009 total 782 million pretax charge 523 million recorded operating revenue 129 million recorded electric fuel energyrelated purchases expense 130 million recorded operations maintenance expense virginia power’s consolidated statement income charge resulted 259 million decrease regulatory assets reflecting write 129 million previously deferred fuel costs 130 million previously deferred rto costs since recovery longer probable based proposed february 2010 stipulation well 473 million increase regulatory liabilities remainder recorded receivables payables virginia power’s consolidated balance sheet dominion’s 2009 results include additional charge 12 million 8 million aftertax recorded operations maintenance expense reflecting writeoff previously deferred rto costs since recovery longer probable based proposed february 2010 stipulation companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made 2006 dominion wrote 166 million regulatory assets result planned sale peoples hope equitable since recovery assets longer probable january 2008 dominion equitable announced termination agreement primarily due continued delays achieving final regulatory approvals dominion continued seek offers purchase utilities july 2008 entered agreement steelriver buyer sell peoples hope recognized benefit 47 million due reestablishment certain regulatory assets september 2009 dominion recorded reduction regulatory assets 22 million companies currently believe recovery regulatory assets probable see notes 13 14 consolidated financial statements asset retirement obligations dominion virginia power recognize liabilities expected cost retiring tangible longlived assets legal obligation exists aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices companies estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates aros currently reported consolidated balance sheets measured period historically low interest rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant companies revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset companies accrete aro liability reflect passage time 2009 2008 2007 dominion recognized 89 million 94 million 99 million respectively accretion expects incur 88 million 2010 2009 2008 2007 virginia power recognized 35 million 38 million 38 million respectively accretion expects incur 36 million 2010 upon reapplication accounting guidance costbased regulation virginia jurisdiction generation operations virginia power began recording accretion depreciation associated utility nuclear decommissioning aros formerly charged expense adjustment regulatory liability nuclear decommissioning trust funds previously discussed order match recognition ratemaking purposes significant portion companies’ aros relates future decommissioning nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2009 dominion’s nuclear decommissioning aros totaled 13 billion representing approximately 81 total aros december 31 2009 virginia power’s nuclear decommissioning aros totaled 587 million representing approximately 92 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated companies’ nuclear decommissioning obligations companies obtain thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition companies’ cost estimates include cost escalation rates applied base year costs selection cost escalation rates dependent subjective factors considered critical assumption companies determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility result updated decommissioning cost studies applicable escalation rates obtained 2009 dominion recorded decrease 309 million nuclear decommissioning aros units including 103 million 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service virginia power recorded decrease 119 million nuclear decommissioning aros units income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy likelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2009 dominion 291 million virginia power 121 million unrecognized tax benefits majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power evaluate quarterly probability realizing deferred tax assets reviewing forecast future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets companies establish valuation allowance morelikelythannot portion deferred tax asset realized december 31 2009 dominion established 62 million valuation allowances virginia power valuation allowances accounting derivative contracts instruments fair value dominion virginia power use derivative contracts futures swaps forwards options ftrs manage commodity financial market risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s virginia power’s nuclear decommissioning dominion’s rabbi benefit plan trust funds also subject fair value accounting see notes 7 22 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing information indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value management’s discussion analysis financial condition results operations continued use estimates goodwill impairment testing december 31 2009 dominion reported 34 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2009 2008 2007 annual tests result recognition goodwill impairment result 2007 disposition dominion’s nonappalachian ep operations goodwill allocated operations based relative fair values ep operations disposed appalachian portion retained impairment test performed goodwill allocated retained appalachian operations showed impairment also connection 2007 segment realignment goodwill allocated dominion’s three gas distribution subsidiaries tested impairment fourth quarter 2007 interim test result recognition goodwill impairment estimated fair values businesses exceeded respective carrying amounts december 2009 dominion made decision retain hope include dominion east ohio dominion’s gas distribution business within dominion energy segment goodwill allocated corporate segment dominion energy segment based relative fair values hope peoples remained heldforsale within dominion corporate segment dominion perform interim impairment test events occurred would morelikelythannot reduce reporting units’ fair values carrying values general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies dominion’s nonappalachian ep operations peoples hope certain dci operations negotiated sales prices used fair value tests conducted 2009 2008 2007 fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing selection appropriate discount rate although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed third quarter 2008 dominion tested so2 emissions allowances held consumption carrying amount 144 million result decline market value allowances resulting july 2008 dc appeals court decision vacating cair affected certain emission allowance surrender ratios based results dominion’s test including analysis recoverability undiscounted cash flows plant operations impairment charges recognized december 2008 court issued decision reinstate cair resulted increase market value so2 allowances result decline so2 allowance prices 2009 dominion updated fair value assessment excess allowances quarterly 2009 based result assessments dominion record impairment adjustments 2006 dominion tested dresden impairment concluded carrying amount well estimated cost complete recoverable based probability continued construction use time part dominion’s ongoing asset review improve return invested capital dominion began process exploring sale dresden second quarter 2007 nonbinding indicative bids received based evaluation bids dominion believed likely dresden would sold rather completed operated merchant fleet change intended use represented triggering event dominion evaluate whether could recover carrying amount investment dresden analysis indicated carrying amount dresden would recovered result second quarter 2007 dominion recognized 387 million 252 million tax impairment charge reduce dresden’s carrying amount estimated fair value connection planned sale dresden closed september 2007 employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination  historical return analysis determine expected future risk premiums asset volatilities correlations  forwardlooking return expectations derived yield longterm bonds price earnings ratios major stock market indices  expected inflation riskfree interest rate assumptions  investment allocation plan assets strategic target asset allocation dominion’s pension funds 34 us equity 12 nonus equity 22 fixed income 7 real estate 25 private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target dominion develops assumptions compared forecasts independent investment advisors ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 850 2009 2008 875 2007 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 775 2009 2008 800 2007 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost 660 2009 compared 660 650 respectively 2008 620 610 respectively 2007 dominion selected discount rate 660 determining december 31 2009 projected pension postretirement benefit obligations dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2009 80 expected gradually decrease 490 2060 continue rate years thereafter following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2009 025 decrease discount rate would increase dominion’s projected pension benefit obligation 126 million accumulated postretirement benefit obligation 45 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 191 million see note 22 consolidated financial statements additional information accounting gas oil operations dominion follows full cost method accounting gas oil ep activities prescribed sec full cost method direct costs property acquisition exploration development activities capitalized subsequently depleted using unitsofproduction method capitalized costs depletable base subject ceiling test prescribed sec dominion performs ceiling test quarterly recognizes asset impairments extent total capitalized costs exceed ceiling addition gains losses sale disposition gas oil properties recognized unless gain loss would significantly alter relationship capitalized costs proved reserves natural gas oil attributable cost pool dominion’s estimate proved reserves requires large degree judgment dependent factors historical data engineering estimates proved reserve quantities estimates amount timing future expenditures develop proved reserves estimates future production proved reserves dominion’s estimated proved reserves december 31 2009 based upon studies properties prepared staff engineers audited ryder scott company lp calculations prepared using standard geological engineering methods generally accepted petro management’s discussion analysis financial condition results operations continued leum industry accordance sec guidelines given volatility natural gas oil prices possible dominion’s estimate discounted future net cash flows proved natural gas oil reserves used calculate ceiling could materially change nearterm process estimate reserves imprecise estimates subject revision significant variance dominion’s estimates assumptions future revisions value proved reserves necessary related depletion expense calculation ceiling test would affected recognition natural gas oil property impairments could occur see notes 2 4 27 consolidated financial statements additional information revenue recognitionunbilled revenue virginia power recognizes records revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amounts electric energy delivered customers yet billed estimated recorded unbilled revenue estimate reversed following month actual revenue recorded based meter readings virginia power’s customer receivables included 355 million 341 million accrued unbilled revenue december 31 2009 2008 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes generation patterns customer usage patterns factors basis estimates unbilled revenues could significant effect calculation therefore virginia power’s results operations financial condition accounting standards policies 2009 2008 2007 dominion virginia power required adopt several new accounting standards discussed note 3 consolidated financial statements dominion results operations presented summary dominion’s consolidated results overview 2009 vs 2008 net income attributable dominion decreased 30 unfavorable drivers include impairment charge related carrying value dominion’s ep properties due declines gas oil prices first quarter 2009 charge connection proposed settlement virginia power’s 2009 rate case proceedings favorable drivers include higher margins dominion’s merchant generation operations higher contribution dominion’s gas transmission operations due completion cove point expansion project 2008 vs 2007 net income attributable dominion decreased 28 unfavorable drivers include absence 21 billion aftertax gain sale dominion’s us nonappalachian ep business absence ongoing earnings business due sale favorable drivers include absence following items incurred 2007  charges related sale majority ep operations  impairment charge related sale dresden  extraordinary charge connection reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations  charge connection termination longterm power sales agreement state line additional favorable drivers include reinstatement annual fuel rate adjustments virginia jurisdiction virginia power’s generation operations effective july 1 2007 higher contribution merchant generation operations reversal deferred tax liabilities associated planned sale peoples hope diluted eps decreased 316 includes 036 share accretion resulting repurchase shares 2007 proceeds received sale majority dominion’s ep operations analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2009 vs 2008 net revenue decreased 5 primarily reflecting  614 million decrease net revenue electric utility operations primarily due charge proposed settlement virginia power’s 2009 rate case proceedings  86 million decrease sales gas production ep operations primarily reflecting expiration vpp royalty interests  21 million decrease net gas revenue retail energy marketing operations primarily due lower prices 39 million partially offset higher volumes 18 million decreases partially offset  161 million increase merchant generation operations primarily reflecting lower fuel expenses due impact lower commodity prices 190 million higher sales volumes primarily fewer scheduled nuclear refueling outages higher demand natural gas generation 143 million partially offset lower sales prices 79 million increased fuel consumption 93 million certain fossil generation facilities  158 million increase related gas transmission operations largely due completion cove point expansion project  70 million increase net electric revenue retail energy marketing operations primarily attributable higher volumes 36 million acquisition retail energy marketing business september 2008 34 million operations maintenance expense increased 17 primarily reflecting combined effects  455 million ceiling test impairment charge related carrying value ep properties due declines natural gas oil prices  142 million writeoff previously deferred rto costs connection proposed settlement virginia power’s 2009 rate case proceedings  74 million increase salaries wages benefits largely due higher pension postretirement benefit costs  69 million increase reflecting absence net benefit recorded 2008 related reestablishment regulatory asset connection planned sale peoples hope 47 million 2009 charge due reduction regulatory asset 22 million partially offset  103 million downward revision nuclear decommissioning aro power station unit longer service  absence 59 million charge related impairment dci investment sold 2008  29 million decrease largely due deferral transmissionrelated expenditures collectible certain rate adjustment clauses dda increased 10 principally due higher depreciation property additions 100 million higher amortization due increased consumption emissions allowances 37 million partially offset decreased dda reflecting lower gas oil production 19 million decrease dda rates 28 million dominion’s ep properties income increased 239 million primarily due impact net realized gains including investment income merchant nuclear decommissioning trust funds 2009 compared net realized losses net investment income 2008 interest related charges increased 7 primarily due impact additional borrowings 34 million absence 23 million benefit related redemption virginia power’s callable puttable enhanced securities 2008 income tax expense decreased 30 primarily reflecting lower pretax income 2009 2008 vs 2007 net revenue increased 6 primarily reflecting  500 million increase merchant generation operations primarily reflecting higher realized sales prices nuclear fossil operations 500 million absence charge related termination longterm power sales agreement state line 2007 231 million partially offset lower overall sales volumes due outages certain fossil nuclear generating facilities 105 million increased fuel expenses primarily reflecting impact higher commodity prices 54 million increased fuel consumption 72 million certain fossil generation facilities  453 million increase net revenue electric utility operations resulting primarily reinstatement annual fuel rate adjustments effective july 1 2007 virginia jurisdiction virginia power’s generation operations deferred fuel accounting underrecoveries fuel costs management’s discussion analysis financial condition results operations continued  129 million increase sales gas production dominion’s remaining ep operations primarily due  70 million increase sales appalachian properties due higher prices 51 million increased production 19 million  increased production associated vpp royalty interests 59 million increases partially offset  656 million decrease due sale majority us ep operations 2007 reflecting absence 14 billion net revenue operations partially offset absence 541 million charge predominantly due discontinuance hedge accounting certain gas oil derivatives subsequent changes fair value derivatives 171 million charge primarily due termination vpp agreements connection sale operations maintenance expense decreased 21 primarily reflecting combined effects  443 million decrease reflecting sale majority us ep operations including absence charges incurred 2007 connection sale  absence 387 million impairment charge 2007 related sale dresden  absence 54 million litigationrelated charges 2007 gain sale us nonappalachian ep business primarily reflects absence gain 36 billion resulting completion sale dominion’s us nonappalachian ep business 2007 dda decreased 24 principally due decreased gas oil production resulting sale majority us ep operations 2007 partially offset increase rates production remaining ep operations property additions increase depreciation rates utility generation assets taxes decreased 10 primarily due lower severance property taxes resulting sale majority us ep operations 2007 income loss 58 million 2008 compared income 102 million 2007 primarily due higher otherthantemporary impairments nuclear decommissioning trust investments interest related charges decreased 28 resulting principally absence charges related early extinguishment outstanding debt associated dominion’s debt tender offer completed july 2007 lower interest rates variable rate debt income tax expense decreased 51 primarily due lower pretax income 2008 largely reflecting absence gain realized 2007 sale dominion’s us nonappalachian ep business extraordinary item reflects absence 158 million aftertax charge 2007 connection reapplication guidance accounting certain types regulation virginia jurisdiction virginia power’s generation operations outlook order deliver favorable returns investors dominion’s strategy focus regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide earnings per share growth growing dividend stable credit ratings 2010 dominion believes operating businesses provide stable growth net income per share basis including impact higher expected average shares outstanding dominion’s anticipated 2010 results reflect following significant factors  absence impairment charge 2009 related carrying value dominion’s ep properties due declines gas oil prices  absence charge 2009 connection proposed settlement virginia power’s 2009 rate case proceedings  benefit rate adjustment clauses associated recovery constructionrelated financing costs bear garden virginia city hybrid energy center  minimal exposure commodity prices reflecting hedges place due dominion’s commodities hedging program  favorable interest rates reflecting hedges place dominion’s virginia power’s planned debt issuances 2010  planned monetization dominion’s marcellus shale acreage proceeds used offset anticipated 2010 equity financing needs  implementation operations maintenance costcontainment measures  expected aftertax loss well aftertax expenses including transaction benefitrelated costs connection february 2010 sale peoples discussed note 4 consolidated financial statements final resolution virginia power’s 2009 rate case proceedings differs materially management’s expectations could adversely affect dominion’s results operations financial condition cash flows see forwardlooking statements additional factors could cause actual results differ materially predicted results segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion dvp presented operating statistics related dvp’s operations 1 cooling degree days units measuring extent average daily temperature greater 65 degrees calculated difference 65 degrees average temperature day 2 heating degree days units measuring extent average daily temperature less 65 degrees calculated difference 65 degrees average temperature day 3 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2009 vs 1 reflects incremental impact rate adjustment clause associated recovery transmissionrelated expenditures 2 primarily reflects impact unfavorable economic conditions customer usage factors 3 reflects decrease storm damage service restoration costs associated electric distribution operations resulting less severe weather 2009 2008 vs 2007 1 reflects increase storm damage service restoration costs resulting severe weather 2008 dominion generation presented operating statistics related dominion generation’s operations presented aftertax basis key factors impacting dominion generation’s net income contribution vs 2008 1 reflects incremental impact rate adjustment clause associated recovery constructionrelated financing costs virginia city hybrid energy center 2 primarily reflects lower sales wholesale customers well impact unfavorable economic conditions customer usage factors management’s discussion analysis financial condition results operations continued 2008 vs 2007 1 primarily reflects reapplication deferred fuel accounting effective july 1 2007 virginia jurisdiction virginia power’s generation operations 2 primarily reflects higher margins associated sales wholesale customers dominion energy presented operating statistics related dominion energy’s operations 1 thirteenmonth average 2 includes natural gas ngls oil production includes 23 bcfe 178 bcfe 155 bcfe 2009 2008 2007 respectively associated vpp royalty interests 3 inclusion volumes associated vpp royalty interests would resulted lifting costs 117 111 100 2009 2008 2007 respectively presented aftertax basis key factors impacting dominion energy’s net income contribution 2009 vs 2008 1 primarily reflects decrease volumes associated vpp royalty interests expired february 2009 2 reflects absence 2008 benefit resulting reduction deferred tax liabilities related enactment west virginia income tax rate reductions 2008 vs 2007 1 primarily reflects increase volumes associated vpp royalty interests included volumes weightedaverage prices associated hedges place dominion’s appalachian ep operations december 31 2009 applicable time period corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 27 consolidated financial statements discussion items sale us ep business sale dominion’s us nonappalachian ep business reflects 21 billion aftertax gain recognized 2007 sale partially offset charges related divestitures well charges associated early retirement debt proceeds sale 2008 amount reflects postclosing adjustments gain sale see note 4 consolidated financial statements discussion items peoples operations income peoples decreased 45 million 2009 compared 2008 increased 26 million 2008 compared 2007 primarily reflecting 47 million 28 million aftertax benefit 2008 reestablishment certain regulatory assets connection agreement sell subsidiaries steelriver buyer regulatory assets 166 million 104 million aftertax written 2006 connection previous sales agreement equitable see notes 4 6 consolidated financial statements discussion items corporate operations net expenses associated corporate operations 2009 increased 93 million compared 2008 primarily due absence following 2008 items  tax benefits due reversal deferred tax liabilities associated peoples hope partially offset  impairment charges related disposition certain dci investments net expenses associated corporate operations 2008 increased 27 million compared 2007 primarily reflecting decrease tax benefits higher interest expense absence interest income earned proceeds received sale dominion’s nonappalachian ep business 2007 decrease tax benefits primarily reflects net impact following items  decrease state tax benefits including impact massachusetts tax legislation enacted july 2008  absence tax benefits elimination valuation allowances federal state tax loss carryforwards 2007 partially offset  increase tax benefits due reversal deferred tax liabilities associated peoples hope 2008 increase net expenses partially offset impact lower impairment charges 2008 related disposition certain dci investments selected informationenergy trading activities dominion engages energy trading marketing hedging activities complement integrated energy businesses facilitate risk management activities part operations dominion enters contracts purchases sales energyrelated commodities including electricity natural gas energyrelated products settlements contracts may require physical delivery underlying commodity cash settlement dominion also enters contracts objective benefiting changes prices example entering contract purchase commodity dominion typically enters sales contract combination sales contracts quantities delivery settlement terms identical similar purchase contract purchase sales contracts settled either physical delivery underlying commodity net cash settlement dominion may receive net cash margin realized gain may pay net cash margin realized loss dominion continually monitors contract positions considering location timing delivery settlement energy commodity relation market price activity summary changes unrealized gains losses recognized dominion’s energyrelated derivative instruments held trading purposes follows balance net unrealized gains losses recognized dominion’s energyrelated derivative instruments held trading purposes december 31 2009 summarized following table based approach used determine fair value 1 values represent observable unadjusted quoted prices traded instruments active markets 2 values inputs observable directly indirectly instrument qualify level 1 3 values significant amount inputs observable instrument management’s discussion analysis financial condition results operations continued virginia power results operations presented summary virginia power’s consolidated results overview 2009 vs 2008 net income decreased 59 primarily due charge connection proposed settlement 2009 rate case proceedings increase outage costs related scheduled outages certain nuclear fossil generating facilities 2008 vs 2007 net income increased 93 primarily due reinstatement annual fuel rate adjustments virginia jurisdiction virginia power’s generation operations effective july 1 2007 deferred fuel accounting underrecoveries fuel costs absence extraordinary charge incurred 2007 connection reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2009 vs 2008 net revenue decreased 16 primarily due charge proposed settlement 2009 rate case proceedings operations maintenance expense increased 16 primarily reflecting  130 million writeoff previously deferred rto costs connection proposed settlement virginia power’s 2009 rate case proceedings  64 million increase outage costs related scheduled outages certain nuclear fossil generating facilities  43 million increase resulting higher salaries wages benefits largely due higher pension postretirement benefit costs general administrative costs  28 million decrease gains sale emissions allowances partially offset  29 million decrease largely due deferral transmissionrelated expenditures collectible certain rate adjustment clauses depreciation amortization expense increased 5 primarily due property additions income increased 52 million primarily due increase equity component afudc result construction expansion projects interest related charges increased 13 primarily due absence 23 million benefit related redemption virginia power’s callable puttable enhanced securities 2008 17 million impact largely due impact additional borrowings income tax expense decreased 71 reflecting lower pretax income 2009 2008 vs 2007 net revenue increased 13 primarily reflecting reinstatement annual fuel rate adjustments effective july 1 2007 virginia jurisdiction virginia power’s generation operations deferred fuel accounting underrecoveries fuel costs operations maintenance expense increased 1 primarily reflecting  69 million increase resulting higher salaries wages benefits expenses general administrative costs partially offset  58 million decrease outage costs resulting reduction scheduled outages certain electric generating facilities depreciation amortization expense increased 7 primarily due increase depreciation rates generation assets 36 million property additions 15 million partially offset 11 million decrease amortization expense primarily associated lower consumption emissions allowances interest related charges increased 2 primarily due 43 million impact additional borrowings partially offset 23 million benefit related redemption virginia power’s callable puttable enhanced securities due difference amount interest expense accrued amount interest expense paid lower interest rates variable rate debt 15 million income tax expense increased 35 reflecting higher pretax income 2008 extraordinary item reflects absence 158 million aftertax charge 2007 connection reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations outlook virginia power expects provide stable growth net income 2010 virginia power’s anticipated 2010 results reflect following significant factors  absence charge 2009 connection proposed settlement virginia power’s 2009 rate case proceedings  benefit rate adjustment clauses associated recovery constructionrelated financing costs bear garden virginia city hybrid energy center  favorable interest rates reflecting hedges place virginia power’s planned debt issuances 2010 final resolution virginia power’s 2009 rate case proceedings differs materially management’s expectations could adversely affect virginia power’s results operations financial condition cash flows see forwardlooking statements additional factors could cause actual results differ materially predicted results segment results operations presented summary contributions virginia power’s operating segments net income dvp presented operating statistics related virginia power’s dvp segment 1 includes electricity delivered retail choice program virginia jurisdictional electric customers 2 cooling degree days units measuring extent average daily temperature greater 65 degrees calculated difference 65 degrees average temperature day 3 heating degree days units measuring extent average daily temperature less 65 degrees calculated difference 65 degrees average temperature day 4 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2009 vs 1 reflects incremental impact rate adjustment clause associated recovery transmissionrelated expenditures 2 primarily reflects impact unfavorable economic conditions customer usage factors 3 reflects decrease storm damage service restoration costs associated electric distribution operations resulting less severe weather 2009 2008 vs 2007 1 reflects increase storm damage service restoration costs resulting severe weather 2008 management’s discussion analysis financial condition results operations continued dominion generation presented operating statistics related virginia power’s dominion generation segment presented aftertax basis key factors impacting dominion generation’s net income contribution 2009 vs 2008 1 reflects incremental impact rate adjustment clause associated recovery constructionrelated financing costs virginia city hybrid energy center 2 primarily reflects lower sales wholesale customers well impact unfavorable economic conditions customer usage factors 2008 vs 2007 1 primarily reflects reapplication deferred fuel accounting effective july 1 2007 virginia jurisdiction virginia power’s generation operations 2 primarily reflects higher margins associated wholesale customers corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate primarily includes specific items attributable virginia power’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 27 consolidated financial statements discussion items liquidity capital resources dominion virginia power depend internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2009 dominion 33 billion unused capacity credit facilities including 23 billion unused capacity joint credit facility available virginia power see additional discussion credit facilities shortterm debt summary dominion’s cash flows presented 1 2009 2008 2007 amounts include 2 million 5 million 4 million respectively cash classified held sale dominion’s consolidated balance sheets summary virginia power’s cash flows presented operating cash flows 2009 net cash provided dominion’s operating activities increased approximately 11 billion due higher deferred fuel gas cost recoveries higher margins merchant generation gas transmission operations favorable impact changes customer receivables result lower fuel gas prices increase partially offset cash outflows related collateral requirements higher income tax payments result higher estimated taxable income included projected taxable gain planned sale peoples hope expected close 2009 net cash provided virginia power’s operating activities increased 735 million primarily due higher deferred fuel cost recoveries virginia jurisdiction favorable change customer receivables partially offset higher income tax payments virginia power believes operations provide stable source cash flow contribute planned levels capital expenditures provide dividends dominion companies’ operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2009 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 36 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 12 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 2 total net credit exposure virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers presented summary virginia power’s gross credit exposure december 31 2009 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 58 total net credit exposure 2 two counterparty exposures combined category represented 18 total net credit exposure 3 two counterparty exposures combined category represented 21 total net credit exposure management’s discussion analysis financial condition results operations continued investing cash flows 2009 net cash used dominion’s investing activities increased 205 million primarily due increase capital expenditures related electric utility operations absence proceeds assignment natural gas drilling rights partially offset reduced investments distribution fowler ridge wind farm investment connection nonrecourse project financing proceeds received september 2009 net cash used virginia power’s investing activities increased 565 million primarily reflecting increase capital expenditures generation transmission construction projects including virginia city hybrid energy center financing cash flows liquidity dominion virginia power rely banks capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings companies’ ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec case virginia power approval virginia commission companies meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows companies use automatic shelf registration statements register offering securities business combination transactions 2009 net cash used dominion’s financing activities 112 million compared net cash provided financing activities 598 million 2008 change primarily due higher dividend payments lower net debt issuances result higher cash inflows operating activities partially offset increased proceeds common stock issuances 2009 net cash provided virginia power’s financing activities decreased 156 million primarily due lower net debt issuances result higher cash flow operations credit facilities shortterm debt dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financing bridge financing acquisitions applicable levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements commodities hedging program collateral requirements impacted commodity prices hedging levels dominion’s credit quality credit quality dominion’s counterparties virginia power’s shortterm financing supported fiveyear joint revolving credit facility participates dominion credit facility used working capital support combined commercial paper programs companies general corporate purposes dominion two facilities detailed following table commercial paper bank loans letters credit outstanding well capacity available credit facilities december 31 2009 follows 1 credit facility entered february 2006 terminates february 2011 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit december 31 2009 total outstanding commercial paper 442 million virginia power’s borrowings december 31 2009 total outstanding letters credit facility 153 million 104 million issued virginia power’s behalf 2 credit facility entered august 2005 terminates august 2010 facility used support bank borrowings issuance letters credit commercial paper 3 facility entered december 2005 terminates december 2010 credit facility used support commercial paper letter credit issuances addition credit facility commitments disclosed virginia power also fiveyear 120 million credit facility terminates february 2011 supports certain taxexempt financings dominion virginia power plan replace existing credit facilities second third quarter 2010 expect operate credit facilities ranging 30 35 billion companies expect reduction size credit facilities negatively impact ability fund operations connection commodity hedging activities companies required provide collateral counterparties circumstances certain collateral arrangements companies may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time companies vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates companies issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives february 2010 dominion completed sale peoples netted aftertax proceeds approximately 542 million used reduce debt longterm debt 2009 dominion virginia power issued following longterm debt 1 subject extensions later 2079 additionally may 2009 dominion’s brayton point power station borrowed 50 million connection massachusetts development finance agency solid waste disposal revenue refunding bonds series 2009 mature 2042 bear coupon rate 575 first ten years bear interest market rate determined time using remarketing process proceeds used refinance certain qualifying improvements brayton point may 2009 virginia power borrowed 40 million connection economic development authority county chesterfield pollution control refunding revenue bonds series 2009 mature 2023 bear coupon rate 50 proceeds used refund principal amount industrial development authority county chesterfield money market municipalstm pollution control revenue bonds series 1985 would otherwise matured october 2009 may 2009 virginia power borrowed 70 million connection economic development authority york county virginia pollution control refunding revenue bonds series 2009 mature 2033 bear initial coupon rate 405 first five years bear interest market rate determined time using remarketing process proceeds used refund principal amount industrial development authority york county virginia money market municipalstm pollution control revenue bonds series 1985 would otherwise matured july 2009 september 2009 virginia power borrowed 60 million connection 160 million industrial development authority wise county solid waste sewage disposal revenue bonds series 2009 mature 2040 bear interest initial period variable rate due unfavorable market conditions virginia power acquired 60 million bonds upon issuance september 2009 intention remarketing third party later time proceeds used finance qualifying facilities virginia city hybrid energy center december 31 2009 bonds remarketed thus eliminated consolidation along investment including amounts discussed 2009 dominion virginia power repaid 447 million 126 million respectively longterm debt notes payable issuance common stock january 2009 dominion entered sales agency agreements pursuant may offer time 400 million aggregate amount common stock sales common stock made means privately negotiated transactions new york stock exchange market prices transactions agreed upon company sales agents conformance applicable securities laws 2009 dominion issued 14 million shares common stock cash proceeds 456 million dominion issued 62 million shares atthemarket issuances sales agency agreements received cash proceeds 191 million net fees commissions paid 2 million following issuances dominion ability issue 207 million stock sales agency agreements dominion also issued 76000 shares common stock officers directors private placement program aggregate consideration approximately 2 million remainder shares issued cash proceeds received 2009 dominion direct® employee savings plans exercise employee stock options dominion anticipates need 400 million external common equity 2010 need met issuance common stock whole part proceeds 2010 planned monetization dominion’s marcellus shale acreage february 2010 dominion began purchasing common stock open market proceeds received dominion direct® employee savings plans rather issuing additional new common shares additionally february 2009 dominion issued approximately 16 million shares common stock existing holder senior notes privately negotiated transaction exchange approximately 56 million principal two series outstanding senior notes retired transaction exempt registration pursuant section 3a9 securities act commission remuneration paid connection exchange 2009 virginia power issued 31877 shares common stock dominion reflecting conversion 1 billion shortterm demand note borrowings dominion equity credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion virginia power believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion virginia power may affect ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion virginia power affected company’s financial profile mix management’s discussion analysis financial condition results operations continued regulated nonregulated businesses respective cash flows changes methodologies used rating agencies “event risk” applicable major acquisitions dispositions december 2009 fitch published report announced global crosssector change criteria rating hybrid equity capitallike securities january 2010 fitch lowered credit ratings virginia power’s preferred stock dominion’s junior subordinated debt securities enhanced junior subordinated notes reflecting revision fitch’s ratings methodology rates securities two notches credit rating senior unsecured debt securities credit ratings february 1 2010 follow february 1 2010 fitch standard poor’s maintained stable outlook respective ratings dominion virginia power moody’s maintains stable outlook ratings dominion positive outlook ratings virginia power downgrade individual company’s credit rating would necessarily restrict ability raise shortterm longterm financing long credit rating remains “investment grade” would likely increase cost borrowing dominion virginia power work closely fitch moody’s standard poor’s objective maintaining current credit ratings order maintain current ratings companies may find necessary modify business plans changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion virginia power must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion virginia power typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens dominion virginia power required pay annual commitment fees maintain credit facilities addition credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2009 calculated total debt total capital ratio pursuant terms agreements follows 1 indebtedness defined bank agreements excludes junior subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets provisions apply separately dominion virginia power dominion virginia power either company’s material subsidiaries fail make payment various debt obligations excess 35 million lenders could require company accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds company accordingly default dominion affect lenders’ commitment virginia power however default virginia power would affect lenders’ commitment dominion joint credit agreement dominion executed replacement capital covenants rccs connection issuance following hybrid securities  300 million 2006 series enhanced junior subordinated notes due 2066 june 2006 hybrids  500 million 2006 series b enhanced junior subordinated notes due 2066 september 2006 hybrids  685 million 2009 series enhanced junior subordinated notes due 2064 subject maturity extensions later 2079 june 2009 hybrids terms rccs dominion promises covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior respective rcc termination date dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs proceeds dominion receives replacement offering adjusted predetermined factor must exceed redemption repurchase price december 31 2009 termination dates covered debt rccs associated dominion’s hybrids follows 1 automatically extended set forth rcc additional quarterly periods extent maturity date extended dominion virginia power monitor debt covenants regular basis order ensure events default occur december 31 2009 events default changes dominion’s debt covenants dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2009 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion virginia power’s ability pay dividends receive dividends subsidiaries december 31 2009 see note 18 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes future cash payments contractual obligations planned capital expenditures contractual obligations dominion virginia power party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion virginia power parties december 31 2009 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s virginia power’s current liabilities paid cash 2010 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 reflect dominion’s ability defer interest payments junior subordinated notes 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 represents summation settlement amounts contracts due dominion physical financial transactions among counterparties dominion liquidated terminated 5 includes capital operations maintenance commitments 6 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 13 15 22 consolidated financial statements due uncertainty timing amounts ultimately paid 186 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 6 consolidated financial statements 7 includes interest rate swap agreements management’s discussion analysis financial condition results operations continued 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 amounts exclude open purchase orders services provided demand timing cannot determined 3 excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 13 15 22 consolidated financial statements due uncertainty timing amounts ultimately paid 97 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 6 consolidated financial statements planned capital expenditures dominion’s planned capital expenditures expected total approximately 39 billion 38 billion 42 billion 2010 2011 2012 respectively dominion’s expenditures expected include construction expansion electric generation natural gas transmission storage facilities environmental upgrades construction improvements expansion electric transmission distribution assets purchases nuclear fuel expenditures explore develop natural gas oil properties virginia power’s planned capital expenditures expected total approximately 25 billion 22 billion 24 billion 2010 2011 2012 respectively virginia power’s expenditures expected include construction expansion electric generation facilities environmental upgrades construction improvements expansion electric transmission distribution assets dominion virginia power expect fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors based available generation capacity current estimates growth customer demand virginia power need additional generation future see dominion generationproperties item 1 business discussion virginia power’s expansion plans estimates subject continuing review adjustment actual capital expenditures may vary estimates companies may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others december 31 2009 dominion issued 261 million guarantees support third parties equity method investees primarily reflecting guarantees issued support nedpower fowler ridge wind farm joint ventures see note 23 consolidated financial statements discussion guarantees leasing arrangement dominion leases fairless pennsylvania began commercial operations june 2004 construction dominion acted construction agent lessor controlled design construction facility since reimbursed project costs 898 million advanced lessor dominion makes annual lease payments 53 million lease expires 2013 time dominion may renew lease negotiated amounts based original project costs current market conditions subject lessor approval purchase fairless original construction cost sell fairless behalf lessor independent third party fairless sold proceeds sale less original construction cost dominion would required make payment lessor amount 7075 original project costs adjusted certain costs specified lease agreement contain provisions involve credit rating stock price trigger events benefits arrangement include  certain tax benefits dominion considered owner leased property tax purposes result dominion entitled tax deductions depreciation recognized financial accounting purposes  operating lease financial accounting purposes asset related borrowings used finance construction asset included consolidated balance sheets although improves measures leverage calculated using amounts reported consolidated financial statements credit rating agencies view lease obligations debt equivalents evaluating dominion’s credit profile future issues matters see item 1 business item 3 legal proceedings notes 14 23 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations andor financial condition environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred approximately 252 million 205 million 181 million expenses including depreciation 2009 2008 2007 respectively connection environmental protection monitoring activities expects expenses approximately 268 million 274 million 2010 2011 respectively addition capital expenditures related environmental controls 266 million 254 million 293 million 2009 2008 2007 respectively expenditures expected approximately 383 million 322 million 2010 2011 respectively virginia power incurred approximately 134 million 125 million 121 million expenses including depreciation 2009 2008 2007 respectively connection environmental protection monitoring activities expects expenses approximately 153 million 150 million 2010 2011 respectively addition capital expenditures related environmental controls 109 million 116 million 189 million 2009 2008 2007 respectively expenditures expected approximately 102 million 54 million 2010 2011 respectively future environmental regulations already federal legislative proposals regulatory action regarding regulation ghg emissions dominion virginia power expect may federal legislation regulatory action regarding compliance stringent air emission standards regarding coal combustion byproducts regarding regulation cooling water intake structures discharges future respect ghg emissions outcome terms specific requirements timing uncertain may include ghg emissions capandtrade program carbon tax electric generators natural gas businesses regulation ghgs caa respect emission reductions specific requirements depend epa andor states replace camr outcome epa’s response cair remand respect cooling water intakes discharges companies expect future federal regulation cooling water intake structures focus epa state regulatory authorities thermal discharge issues respect coal combustion byproducts dominion virginia power expect federal regulation coal combustion byproduct handling disposal practices new proposals adopted additional significant expenditures may required item 7a item 7 management’s discussion analysis financial condition results operations introduction management’s discussion analysis financial condition results operations mda discusses results operations general financial condition virginia power mda read conjunction consolidated financial statements “the company” used throughout mda depending context use may represent following legal entity virginia electric power company one virginia power’s consolidated subsidiaries entirety virginia power consolidated subsidiaries company whollyowned subsidiary dominion resources inc dominion risk factors cautionary statements may affect future results report contains statements concerning company’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” similar words company makes forwardlooking statements full knowledge risks uncertainties exist may cause actual results materially different results predicted factors could cause actual results differ often presented forwardlooking statements addition factors could cause actual results differ materially indicated forwardlooking statement factors include weather conditions fluctuations energyrelated commodities prices effect could company’s earnings liquidity position underlying value assets trading counterparty credit risk capital market conditions including price risk due marketable securities held investments trusts benefit plans changes rating agency requirements ratings changes accounting standards risks operating businesses regulated industries becoming deregulated transfer control company’s transmission facilities regional transmission entity collective bargaining agreements labor negotiations political economic conditions including inflation rates specific risks discussed company bases forwardlooking statements management’s beliefs assumptions using information available time statements made company cautions reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often materially differ actual results company undertakes obligation update forwardlooking statement reflect developments occurring statement made company’s operations weather sensitivethe company’s results operations affected changes weather conditions directly influence demand electricity affect price energy commodities addition severe weather including hurricanes winter storms droughts destructive causing outages property damage requiring company incur additional expenses company subject complex government regulation could adversely affect operationsthe company’s operations subject extensive regulation require numerous permits approvals certificates various federal state local governmental agencies company must also comply environmental legislation regulations management believes necessary approvals obtained company’s existing operations business conducted accordance applicable laws however new laws regulations revision reinterpretation existing laws regulations may require company incur additional expenses costs environmental compliance liabilities litigation could exceed company’s estimatescompliance federal state local environmental laws regulations may result increased capital operating costs including remediation containment monitoring obligations addition company may responsible party environmental clean site identified regulatory body management cannot predict certainty amount timing future expenditures related environmental matters difficulty estimating clean costs compliance possibility changes made current environmental laws regulations also uncertainty quantifying liabilities environmental laws impose joint several liability potentially responsible parties capped electric rates virginia may insufficient allow full recovery stranded costsunder virginia utility restructuring act company’s base rates excluding fuel costs certain allowable adjustments remain unchanged july 2007 unless modified terminated consistent act capped rates wires charges applicable assessed customers opting alternative suppliers allow company recover certain generationrelated costs fuel costs however company remains exposed numerous risks costrecovery shortfalls include exposure potentially stranded costs future environmental compliance requirements changes tax laws inflation increased capital costs see future issues outlook mda note 21 consolidated financial statements electric generation business subject competitioneffective january 1 2002 generation portion company’s operations virginia open competition longer subject costbased rate regulation result increased pressure lower costs including cost purchased electricity company’s generation business previously operated competitive environment extent timing entry additional competitors electric market virginia unknown therefore difficult predict extent company able operate profitably within new environment inherent risks operation nuclear facilitiesthe company operates nuclear facilities subject inherent risks include threat terrorist attack ability dispose spent nuclear fuel disposal subject complex federal state regulatory constraints risks also include cost company’s ability maintain adequate reserves decommissioning costs plant maintenance exposure potential liabilities arising operation facilities company maintains decommissioning trusts external insurance coverage minimize financial exposure risks however possible costs arising claims could exceed amount insurance coverage use derivative instruments could result financial lossesthe company uses derivative instruments including futures forwards options swaps manage commodity financial market risks addition company purchases sells commoditybased contracts natural gas electricity oil markets trading purposes future company could recognize financial losses contracts result volatility market values underlying commodities counterparty fails perform contract absence actively quoted market prices pricing information external sources valuation financial instruments involves management’s judgment use estimates result changes underlying assumptions use alternative valuation methods could affect value reported fair value contracts additional information concerning company’s derivatives commoditybased trading contracts see market rate sensitive instruments risk management mda notes 2 9 consolidated financial statements company exposed market risks beyond control energy clearinghouse operationsthe company’s energy clearinghouse risk management operations subject multiple market risks including market liquidity counterparty credit strength price volatility many industry participants experienced severe business downturns past year resulting forced exit curtail participation energy trading markets led reduction number trading partners lower industry trading revenues lower expected revenues company’s energy clearinghouse operations declining credit worthiness company’s trading counterparties may limit level trading activities parties increase risk counterparties may perform contract inability access financial markets could affect execution company’s business planthe company relies access shortterm money markets longerterm capital markets significant source liquidity capital requirements satisfied cash flows operations management believes company subsidiaries maintain sufficient access financial markets based upon current credit ratings however certain disruptions outside company’s control may increase cost borrowing restrict ability access one financial markets disruptions could include economic downturn bankruptcy unrelated energy company changes company’s credit ratings restrictions company’s ability access financial markets may affect ability execute business plan scheduled changing rating agency requirements could negatively affect company’s growth business strategyas march 1 2003 company’s senior secured debt rated stable outlook standard poors rating group division mcgrawhill companies inc standard poor’s a2 stable outlook moody’s investor service moody’s agencies recently implemented stringent applications financial requirements various ratings levels order maintain current credit ratings light future new requirements company may find necessary take steps change business plans ways may adversely affect growth earnings reduction company’s credit ratings either standard poor’s moody’s could increase borrowing costs adversely impact results operations potential changes accounting practices may adversely affect company’s financial resultsthe company cannot predict impact future changes accounting regulations practices general respect public companies energy industry operations specifically new accounting standards could issued financial accounting standards board fasb securities exchange commission sec could impact way company required record revenues expenses assets liabilities changes accounting standards could adversely affect company’s reported earnings increase liabilities operating segments general management’s discussion company’s results operations focuses contributions operating segments however discussion company’s financial condition liquidity capital resources entire company’s two primary operating segments energy manages company’s portfolio generating facilities power purchase contracts energy trading marketing hedging arbitrage activities energy’s operating results reflect impact weather demand electricity customer growth influenced overall economic conditions changes prices commodities primarily electricity natural gas segment actively markets trades uses hedging purposes consumes generation activities cost fuel used generation operations electric energy purchases incurred company serve virginia north carolina retail customers generally recoverable rates charged customers delivery manages company’s electric distribution transmission systems well customer service delivery’s operating results reflect impact weather demand electricity customer growth influenced overall economic conditions segment subject costofservice rate regulation base rates currently capped virginia north carolina addition company also reports corporate segment company includes certain expenses allocated energy delivery segments corporate effective january 1 2003 company’s electric transmission operations became part energy segment instead delivery segment information company’s operating segments see note 26 consolidated financial statements critical accounting policies company identified following accounting policies result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions accounting risk management energy trading contracts fair valuethe company uses derivatives manage commodity financial market currency exchange risks addition company purchases sells commoditybased contracts natural gas electricity oil markets trading purposes accounting requirements derivatives hedging activities complex interpretation requirements standardsetting bodies ongoing derivatives specific exceptions reported consolidated balance sheets fair value beginning 2001 energy trading contracts also reported consolidated balance sheets fair value changes fair value except related derivative instruments designated cash flow hedges generally included determination company’s net income financial reporting date contracts ultimately settled measurement fair value based actively quoted market prices available absence actively quoted market prices company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available measurement involves judgment estimates based valuation methodologies deemed appropriate company’s management individual contracts use different assumptions could material effect contract’s estimated fair value addition hedges forecasted transactions company must estimate expected future cash flows forecasted transactions well evaluate probability occurrence timing transactions changes conditions occurrence unforeseen events could affect timing recognition changes fair value certain hedging derivatives see selected informationenergy trading activities market rate sensitive instruments risk management mda notes 2 9 21 consolidated financial statements accounting regulated operationsmethods allocating costs accounting periods operations subject federal state costofservice rate regulation may differ accounting methods generally applied nonregulated companies timing cost recovery prescribed regulatory authorities differs timing expense recognition used accounting purposes company’s consolidated financial statements may recognize regulatory asset expenditures otherwise would expensed regulatory assets represent probable future revenue associated certain costs recovered customers rates regulatory liabilities represent probable future reductions revenue associated expected customer credits rates management makes assumptions regarding probability regulatory asset recovery future rates approved applicable regulatory authorities expectations future recovery generally based upon historical experience well discussions applicable regulatory authorities recovery regulatory assets determined less probable would expensed period assessment made see notes 2 10 consolidated financial statements longlived assetsin testing company’s longlived assets intangible assets definite lives potential impairment accordance sfas 144 accounting impairment disposal longlived assets company required estimate future cash flows associated individual assets groups assets although cash flow estimates used company based best information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results sum undiscounted estimated future cash flows exceeds related asset’s carrying amount impairment exists otherwise potential impairment must measured comparing fair value asset carrying amount asset’s fair value determined calculating present value expected future cash flows requires management select appropriate discount rate recognition asset impairment would result charge earnings corresponding reduction carrying amount related property plant equipment intangible asset results operations company’s discussion results operations includes overview operating revenue operating results 2002 2001 consolidated basis sections followed detailed discussion results operations operating segments additional information company’s operating segments see note 26 consolidated financial statements overview operating revenueconsolidated following general discussion factors affect operating revenue energy delivery segments majority company’s operating revenue provided bundled rate tariffs regulated electric sales consist primarily sales retail customers rates authorized virginia commission north carolina utilities commission north carolina commission sales cooperatives municipalities wholesale rates authorized federal energy regulatory commission ferc also included regulated electric sales amounts received others use company’s transmission system transport electric energy tariffs authorized ferc addition regulated electric sales include revenue fuel rates subject approval regulatory authorities designed recover cost fuel used generating electricity customers served regulated tariffs overview 2002 resultsconsolidated net income increased 327 million 773 million compared 2001 net income increased 2002 due primarily aftertax charge 136 million taken first quarter 2001 connection termination certain longterm power purchase agreements company previously purchased electric energy comparably warmer temperatures summer 2002 customer growth company’s regulated electric service territories resulted higher regulated electric revenues 2002 increase regulated electric revenue 2002 included effect 34 million decrease revenues wholesale customers served requirements contracts information see capacity mda contribution company’s electric gas trading power marketing activities decreased 2002 total operating expenses decreased compared 2001 primarily due lower depreciation operations maintenance expense operating revenue increased 28 million 49 billion 2002 compared 2001 regulated electric sales increased 237 million revenue decreased 209 million favorable weather conditions reflecting increased cooling heating degreedays well customer growth estimated contributed approximately 195 million 60 million respectively 237 million increase regulated electric sales fuel rate recoveries increased approximately 65 million 2002 recoveries generally offset related increases electric fuel expense materially affect income partially offsetting increases net decrease 83 million due factors separately measurable factors include impact economic conditions customer usage especially nonresidential customers well variations seasonal rate premiums discounts 31 percent cooling degreedays 2002 2 percent heating degreedays compared 2001 company served average 43000 retail customers 2002 revenue energy trading activities decreased 218 million information see energy segment miscellaneous revenue increased 9 million comparable period 2001 operating expenses decreased 433 million 35 billion 2002 compared 2001 electric fuel energy purchases net purchased electric capacity increased 2002 company incurred restructuring costs 2001 2000 primarily associated dominion’s acquisition consolidated natural gas cng subsequent integration combined companies’ operations maintenance expenses lower 2002 primarily due additional costs incurred 2001 associated termination certain longterm power purchase contracts information restructuring costs termination power purchase contracts see corporate segment discussed depreciation amortization decreased primarily due changes estimated useful lives company’s fossilfueled generating plants transmission distribution properties offset effect routine property additions changes estimated useful lives reduced depreciation expense approximately 40 million 2002 see note 2 consolidated financial statements taxes decreased compared 2001 primarily due reduction average business occupation tax rates impact favorable resolution prior year sales use tax issues interest related charges decreased primarily result lower interest rates outstanding debt expenses associated preferred securities subsidiary trusts increased primarily due higher amount outstanding trust preferred securities december 31 2002 addition company’s effective income tax rate decreased see note 7 consolidated financial statements overview 2001 resultsconsolidated operating revenue increased 153 million 49 billion 2001 compared 2000 increase due primarily higher fuel rate recoveries growth number retail customers increased wholesale sales cooperatives municipalities requirements contracts factors offset milder weather conditions 2001 6 percent cooling degreedays summer 2001 compared 2000 10 percent decline 2001 heating degreedays offset benefit higher summer sales company served average 40000 retail customers 2001 results company’s electric gas trading marketing operations also contributed approximately 24 million increase operating revenue operating expenses increased 240 million 39 billion 2001 compared 2000 higher prices commodities consumed contributed increased electric fuel energy purchases net purchased electric capacity expense decreased company terminated certain contracts early 2001 see note 21 consolidated financial statements depreciation amortization decreased primarily due change estimated useful lives company’s nuclear plants connection expected relicensing plants offset routine property additions change useful lives nuclear facilities reduced depreciation expense approximately 72 million 2001 information see energy segment note 2 consolidated financial statements company incurred restructuring costs 2001 2000 primarily associated dominion’s acquisition cng subsequent integration combined companies’ operations maintenance expenses increased primarily due costs associated termination certain longterm power purchase contracts information restructuring costs termination power purchase contracts see corporate segment discussed company’s effective income tax rate increased taxes decreased 2001 due utility operations virginia becoming subject state income taxes lieu gross receipts taxes segment results energy segment company provides electricity primarily following fuel sources nuclear coal oil purchased power system energy output energy source average fuel cost shown fuel cost presented mills one tenth one cent per kilowatthour 1 excludes old dominion electric cooperative’s odec 116 percent ownership interest north anna power station 2 excludes odec’s 50 percent ownership interest clover power station 2002 results energy’s net income contribution increased 67 million 447 million 2002 compared 2001 increase net income primarily reflects 88 million decrease operating expenses partially offset 25 million decrease operating revenue comparably warmer temperatures summer 2002 customer growth contributed approximately 133 million 41 million respectively 179 million increase energy’s segment regulated electric sales partially offset factors discussed overview 2002 resultsconsolidated addition energy manages company’s energy trading hedging arbitrage power marketing activities dominion energy clearinghouse company’s electric trading revenue representing net gains losses contract settlements unrealized changes fair value contracts yet settled decreased approximately 32 million compared 2001 decrease reflects effect unfavorable price changes lower trading margins power marketing sales decreased approximately 74 million compared 2001 less generation available sale wholesale markets primarily due higher demand company’s utility service territory customers 2002 gas trading revenue net cost sales decreased approximately 112 million approximately 70 million decrease relates contracts held one company’s unregulated subsidiaries part dominion’s consolidated price risk management strategy associated anticipated sales dominion’s 2002 2003 natural gas production miscellaneous revenue increased approximately 14 million comparable period 2001 primarily due increases sales commodities operating expenses decreased 88 million 2002 compared 2001 electric fuel energy purchases net increased 29 million result 66 million increase electric fuel energy purchases subject rate recovery partially offset 37 million decrease fuel expenses attributable less wholesale marketing utility plant generation purchased electric capacity costs increased 11 million due additional capacity acquired serve utility demand 2002 depreciation expense decreased 13 million reflecting effect changes estimated useful lives fossilfired generation property partially offset impact new property additions see note 2 consolidated financial statements operations maintenance decreased 95 million 2002 primarily reflecting 68 million decrease scheduled outages routine maintenance costs nuclear fossil plants 27 million decrease general administrative expenses taxes decreased approximately 20 million compared 2001 primarily due reduction average business occupation tax rates impact favorable resolution prior year sales use tax issues 2001 results customer growth increase fuel rate recoveries contributed increase energy’s regulated electric sales see overview operating revenueconsolidated overview 2001 resultsconsolidated results company’s electric gas trading marketing operations also contributed approximately 24 million increase operating revenue energy segment operating expenses increased 53 million 2001 compared 2000 electric fuel energy purchases net higher 2001 reflecting higher fuel prices coal oil consumed effect expenses net income mitigated increased fuel rate revenue including higher levels recovery previously deferred fuel costs purchased electric capacity costs decreased result termination longterm power purchase agreements first quarter 2001 decrease depreciation amortization expense primarily reflects 72 million decrease change estimated useful lives company’s nuclear plants change based company’s expectation 20year extensions operating licenses nuclear facilities granted application filed nuclear regulatory commission nrc may 2001 company expects receive renewed license units 2003 decrease partially offset additional depreciation expense related recent generationrelated capital expenditures operations maintenance increased due scheduled outages nuclear fossil plants taxes decreased reflecting change virginia whereby company became subject state income taxes lieu gross receipts taxes effective january 2001 selected informationenergy trading activities discussed earlier energy manages company’s energy trading hedging arbitrage activities clearinghouse company believes operations complement integrated energy business facilitate risk management activities part operations clearinghouse enters contracts purchases sales energyrelated commodities including natural gas electricity oil settlement contract may require physical delivery underlying commodity cases exchange cash contracts classified energy trading contracts financial accounting purposes included consolidated balance sheets components current noncurrent derivative energy trading assets liabilities gains losses energy trading contracts including realized unrealized amounts reported net consolidated statements income revenue accordance generally accepted accounting principles company reports energy trading contracts financial statements fair value discussion company determines fair value energy trading contracts see critical accounting policies presented earlier mda clearinghouse enters contracts objective benefiting changes prices energy commodities clearinghouse management continually monitors contract positions considering location timing delivery settlement energy commodity relation market price activity seeking arbitrage opportunities example entering contract purchase commodity clearinghouse typically enters sales contract combination sales contracts quantities delivery settlement terms identical similar purchase contract purchase sales contracts settled either physical delivery underlying commodity net cash settlement clearinghouse may receive net cash margin realized gain sometimes pay net cash margina realized loss contracts settled however company must record changes fair value contracts changes fair value represent unrealized gains losses extent purchase sales contracts identical similar terms held clearinghouse changes fair values generally offset one another although clearinghouse may hold purchase sales contracts delivery commodities particular locations times offset exposures monitored actively managed daily basis company’s risk management policies procedures designed limit exposure commodity price changes additional discussion see market rate sensitive instruments risk management notes 2 9 23 consolidated financial statements also see note 4 consolidated financial statements discussion company’s implementation new accounting requirements effective january 1 2003 reflect decisions emerging issues task force eitf issue 023 issues involved accounting contracts issue 9810 result energyrelated contracts longer subject fair value accounting summary changes unrealized gains losses company’s energy trading contracts 2002 follows balance net unrealized gains losses company’s energy trading contracts december 31 2002 summarized following table based approach used determine fair value contract settlement delivery dates 1 exchangetraded overthecounter contracts 2 values based prices overthecounter broker activity industry services applicable conventional option pricing models 3 values based company’s estimate future commodity prices information external sources available use internallydeveloped models reflecting option pricing theory discounted cash flow concepts etc delivery segment 2002 results delivery’s net income contribution increased 92 million 322 million 2002 compared 2001 increase net income reflects 51 million increase operating revenue 75 million decrease operating expenses amounts partially offset increases income tax expense comparably warmer temperatures summer 2002 customer growth contributed approximately 62 million 19 million respectively 58 million increase delivery segment’s regulated electric sales partially offset factors discussed overview 2002 resultsconsolidated miscellaneous revenue decreased 7 million 2001 operating expenses 638 million 2002 compared 713 million 2001 operations maintenance expense decreased approximately 57 million reflecting decrease general administrative salaries materials supplies expenditures contractors also delivery’s operating expenses impacted severe weather hurricanes major thunderstorms ice storms damage company’s distribution transmission systems approximate 6 million increase service restoration costs recorded operations maintenance expense due ice storms late 2002 depreciation expense decreased 10 million reflecting effect changes estimated useful lives distribution property partially offset impact new property additions see note 2 consolidated financial statements taxes decreased 7 million compared 2001 primarily due reduction average business occupation tax rates impact favorable resolution prior year sales use tax issues 2001 results customer growth main contributor increase delivery’s segment regulated electric sales also see overview operating revenueconsolidated overview 2001 resultsconsolidated operating expenses 713 million 2001 compared 718 million 2000 2001 2000 unusual levels storm restoration activities depreciation amortization increased slightly result routine property additions operations maintenance expenses included moderate increase provisions uncollectible customer accounts taxes decreased reflecting change virginia whereby company’s utility operations became subject state income taxes lieu gross receipts taxes effective january 2001 corporate 2002 results corporate operations reported income net related taxes 4 million 2002 compared expenses net related taxes 164 million 2001 primarily due costs associated purchase three nonutility generating plants termination certain longterm power purchase contracts 2001 addition results include pretax adjustment 7 million recorded 2002 adjust liabilities resulted restructuring activities initiated late 2001 information see notes 6 21 consolidated financial statements 2001 results corporate operations reported expenses net related taxes 164 million 2001 increase 128 million compared 2000 results include pretax restructuring costs 48 million pretax charge 220 million related costs associated purchase three nonutility generating plants termination certain longterm power purchase contracts see notes 6 21 consolidated financial statements liquidity capital resources company depends internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash flow provided operating activities generally satisfied proceeds shortterm borrowings longterm cash needs met sales securities additional longterm debt financing internal sources liquidity cash flow operating activities provided 13 billion 2002 11 billion year 2001 2000 company’s management believes operations provide stable source cash flow sufficient contribute planned levels capital expenditures maintain current dividends payable dominion noted company uses combination shortterm borrowings sales securities fund capital requirements covered timing amounts operating cash flows company’s operations subject risks uncertainties may negatively impact cash flows operations risks uncertainties include limited following n unusual weather effect energy sales customers energy commodity prices n extreme weather events could disrupt cause catastrophic damage company’s electric distribution transmission systems n exposure unanticipated changes prices energy commodities purchased sold including effect derivative instruments may require use funds post margin deposits counterparties n effectiveness dominion’s risk management activities underlying assessment market conditions related factors including energy commodity prices basis counterparty credit risk liquidity volatility availability generation transmission capacity currency exchange rates interest rates n cost replacement electric energy event longerthan expected unscheduled generation outages n contractual regulatory restrictions transfers funds among company dominion company subsidiaries n timeliness recovery costs subject costofservice utility rate regulation external sources liquidity company relies access bank capital markets significant source liquidity capital requirements satisfied cash provided company’s operations discussed credit ratings section company’s ability borrow funds issue securities return demanded investors affected company’s credit ratings addition raising external capital subject certain regulatory approvals including sec virginia commission 2002 company issued longterm debt net exchanged debt trust preferred securities preferred stock totaling approximately 11 billion discussed proceeds used primarily fund repayment shortterm debt repayment longterm debt maturities company’s capital expenditures credit facilities shortterm debt may 2002 dominion cng company entered two joint credit facilities allow aggregate borrowings 2 billion facilities include 125 billion 364day revolving credit facility terminates may 2003 750 million threeyear revolving credit facility terminates may 2005 company expects renew 364day revolving credit facility prior maturity may 2003 joint credit facilities used working capital support combined commercial paper programs dominion cng company general corporate purposes threeyear facility also used support 200 million letters credit december 31 2002 total outstanding letters credit supported threeyear facility 106 million issued dominion behalf subsidiaries december 31 2002 total outstanding commercial paper supported joint credit facilities 12 billion company’s borrowings 443 million weighted average interest rate 167 percent december 31 2001 total outstanding commercial paper supported previous credit agreements 19 billion company’s borrowings 436 million weighted average interest rate 196 percent commercial paper borrowings used primarily fund working capital requirements may vary significantly course year depending upon timing amount cash requirements satisfied cash provided operations longterm debt 2002 company redeemed 200 million 675 percent 1997a mortgage bonds due february 1 2007 part proceeds issuance 650 million 5375 percent senior notes due february 1 2007 senior notes redemption included direct exchange senior notes 117 million mortgage bonds company used remaining cash proceeds issuance senior notes redeem remaining 83 million mortgage bonds general corporate purposes including repayment debt 2002 company repaid following longterm debt securities n 280 million mediumterm notes various series n 83 million 1997a 675 percent mortgage bonds described n 155 million 1992e 7375 percent mortgage bonds n 100 million 1993f 6 percent mortgage bonds february 2003 company issued 400 million aggregate principal amount 2003 series 475 percent senior notes due 2013 company plans use proceeds general corporate purposes including repayment debt company obligated mandatorily redeemable preferred securities subsidiary trust preferred stock 2002 company virginia power capital trust ii issued 400 million 7375 percent trust preferred securities trust preferred securities must redeemed trust’s sole assets junior subordinated notes due 2042 issued company redeemed company used net proceeds sale trust preferred securities primarily redeem june 1989 series september 1992a series september 1992b series october 1988 series variable rate preferred stock 250 million 805 percent trust preferred securities virginia power capital trust 135 million see note 16 consolidated financial statements additional discussion capital trust securities 2002 company issued 1250 units consisting 1000 shares per unit cumulative preferred stock 125 million preferred stock dividend rate 550 percent end initial dividend period december 20 2007 dividend rate subsequent periods determined according periodic auctions preferred stock liquidation preference 100 per share plus accumulated unpaid dividends company used proceeds general corporate purposes repay debt see note 17 consolidated financial statements common stock exchange 150 million reduction amounts payable dominion company issued common stock dominion borrowings parent 2002 dominion advanced 100 million net repayments certain unregulated subsidiaries company pursuant shortterm demand note interest charges incurred company material see note 24 consolidated financial statements amounts available shelf registrations march 1 2003 company 1325 billion available capacity currently effective shelf registrations sec would permit company issue debt preferred securities meet future capital requirements credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities management believes current credit ratings company provide sufficient access capital markets however disruptions bank capital markets specifically related company may affect company’s ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing company’s credit ratings credit ratings subject revision withdrawal time assigning rating organization rating evaluated independently credit ratings company affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies credit ratings company march 1 2003 follow credit ratings reflect standard poor’s downgrade credit ratings company’s debt preferred securities subsidiary trust preferred stock commercial paper october 2002 based conclusions regulatory insulation virginia better states standard poor’s concluded company’s ratings onenotch ratings parent dominion resources inc standard poor’s noted company’s downgrade reflective diminished credit protection measures company’s credit protection measures standalone basis remain strong generally downgrade company’s credit rating would restrict ability raise shortterm longterm financing long credit rating still “investment grade” would increase cost borrowing management working closely standard poor’s moody’s objective maintaining company’s current credit ratings discussed risk factors cautionary statements may affect future results order maintain current ratings company may find necessary take steps change business plans changes may adversely affect growth debt covenants part borrowing funds issuing debt shortterm longterm preferred securities company must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock dominion including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique company typical covenants include n timely payment principal interest n information requirements including submittal financial reports filed sec lenders n keeping books records accordance generally accepted accounting principles n payment taxes maintaining insurance n performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantial assets n financial covenants limit total funded debt total capitalization n compliance collateral minimums requirements related mortgage bonds see note 15 consolidated financial statements n limitations liens company monitors covenants regular basis order provide assurance events default occur december 31 2002 events default company’s covenants investing activities 2002 company’s investing activities resulted net cash outflow 857 million activities included plant construction property additions 748 million nuclear fuel expenditures 59 million generationrelated projects totaled approximately 393 million included environmental upgrades nuclear reactor head replacement expenditures routine capital improvements company spent approximately 322 million transmission distributionrelated projects reflecting routine capital improvements expenditures associated new connections general information technology projects totaled 33 million investing activities also include 36 million contributions company’s nuclear decommissioning trusts miscellaneous expenditures totaled 14 million capital requirements company expects fund capital requirements debt maturities cash flow operations combination sales securities shortterm borrowings capacity company anticipates retail peak demand grow approximately 10 percent year 2005 reflecting continued growth number retail customers expected served company however sales wholesale requirements contracts declined approximately 34 million 2002 compared 2001 decreases expected contracts expire future additional capacity energy requirements 2005 met primarily market purchases plant equipment company’s generation construction nuclear fuel expenditures 2003 2004 2005 expected total approximately 630 million 395 million 325 million respectively company’s annual transmission distribution capital expenditures expected approximately 55 million 310 million respectively years 2003 2004 2005 company’s distribution capital expenditures primarily provide customer growth reliability initiatives routine replacements early 2002 company completed installation sulfur dioxide so2 emission control equipment two coalfired generating units total cost approximately 120 million additional 55 million budgeted 2007 development future so2 control projects response clean air act requirements company installing nitrogen oxide nox reduction equipment affected facilities estimated capital cost 630 million 370 million incurred december 31 2002 installations scheduled completion midyear 2004 company also discontinuing use coal possum point station prince william county virginia two possum point station’s oilfired units retired two coalfired units converted gas estimated capital cost 13 million 5 million incurred december 31 2002 see environmental matters additional discussion clean air act matters company also plans spend approximately 150 million 2003 complete vessel head replacements north anna surry nuclear stations total cost project estimated 202 million 52 million incurred december 31 2002 contractual cash obligations presented summary company’s contractual obligations december 31 2002 items discussed notes 15 16 21 consolidated financial statements company expects fund obligations commitments cash flow operations combination sales securities shortterm borrowings amounts include planned capital expenditures working capital commitments repayment shortterm debt settlement derivative energy trading contracts amounts interest distributions payable securities issued company addition company entered agreements another dominion subsidiary order develop construct finance lease new power generation facility company’s possum point station prince william county virginia project scheduled completion 2003 estimated cost 370 million upon completion company operate new generating facility operating lease estimated annual lease payments 20 million see note 21 consolidated financial statements future issues outlook electric deregulation legislation virginiaenacted 1999 virginia electric utility restructuring act virginia restructuring act establishes plan restructure virginia’s electric utility industry provides phasein choice retail customers january 1 2002 january 1 2004 ordered virginia commission company made retail choice available virginia regulated electric customers january 1 2003 virginia restructuring act generation portion company’s virginia jurisdictional operations longer subject costbased rate regulation january 1 2002 company’s base rates excluding fuel costs certain allowable adjustments remain capped july 2007 unless modified terminated sooner act recovery generationrelated costs continue capped rates applicable wires charge assessed customers opting alternative suppliers company may petition virginia commission terminate capped rates january 1 2004 company request capped rates terminated virginia commission may terminate capped rates finds competitive generation services market exists within company’s service area additionally virginia restructuring act provides end capped rate period default service provided company based upon competitive market prices electric generation services virginia commission opened proceeding determine components default service virginia north carolinathe north carolina general assembly exploring future electric service north carolina development competitive wholesale market retail competition however date significant activity virginia commission report status competition virginia august 2002 virginia commission submitted governor legislative transition task force task force status report development competitive retail market electric generation within virginia addendum report virginia commission recommended state policymakers decide promptly whether proceed delay implementation virginia restructuring act light recent developments impacting electric industry restructuring virginia including ferc issuance notice proposed rule making standard market design assessment made time concerning future developments legislation would delay entry regional transmission organization rto july 1 2004 approved virginia general assembly february 2003 awaiting action governor proposed legislation also would require company file application virginia commission july 1 2003 join rto subject virginia commission approval company would required transfer management control transmission assets rto january 1 2005 separation generation delivery operations virginia restructuring act company separated generation distribution transmission functions creation divisions within company virginia codes conduct ensure company’s generation divisions operate independently prevent crosssubsidies generation divisions economic risks benefits transition competitive electric marketplace virginia previously discussed company recover generationrelated costs capped rates wires charges applicable assessed customers opting alternative suppliers transition period extends july 2007 unless modified terminated earlier virginia restructuring act virginia restructuring act company may request termination capped rates time january 1 2004 virginia commission may grant company’s request terminate capped rates finds competitive generation services market exists company’s service area company exposed certain risks result deregulation utility operations also opportunity realize potential benefits transition period management successful preparing change environment generationrelated business operates stranded costs stranded costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market december 31 2002 company’s exposure potentially stranded costs consisted longterm purchased power contracts could ultimately determined market generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements company believes capped electric retail rates applicable wires charges provide opportunity recover portion potentially stranded costs depending market prices electricity factors recovery company’s potentially stranded costs remains subject numerous risks even cappedrate environment include among others exposure longterm power purchase commitment losses future environmental compliance requirements changes tax laws nuclear decommissioning costs inflation increased capital costs recovery certain items discussed notes 8 21 consolidated financial statements enactment deregulation legislation 1999 caused discontinuance sfas 71 accounting effects certain types regulation company’s utility generationrelated operations also caused company review utility generation assets impairment longterm power purchase contracts potential loss time significant assumptions considered review included possible future market prices fuel electricity load growth generating unit availability future capacity additions company’s market capital expenditures including related environmental improvements decommissioning activities based analyses recognition plant impairments contract losses appropriate time response future events resulting development competitive market structure virginia expiration termination capped rates wires charges company may reevaluate utility generation assets impairment longterm power purchase contracts potential losses assumptions future market prices electricity represent critical factor affects results evaluations since 1999 market prices electricity fluctuated significantly continue subject volatility review future would highly dependent assumptions considered appropriate time could possibly result recognition plant impairment contract losses would material company’s results operations financial position december 2002 task force requested virginia commission convene work group stranded costs work group attempt develop consensus methodology determining underrecovery stranded costs virginia commission report work group’s findings task force july 1 2003 assessment made time concerning future developments changes cost structure virginia restructuring act define specific generationrelated costs recovered provide generationrelated cash flows combination capped rates wires charges billed customers transition period generationrelated cash flows provided virginia restructuring act intended compensate company continuing provide generation services allow management incur costs restructure operations transition period result transition period company may realize increased rate return generationrelated operations extent management favorably alter cost structure underlying utility generationrelated operations conversely risks affecting recovery company’s stranded costs discussed may also adversely impact cost structure transition period accordingly company could realize negative economic impact adverse event addition managing cost generationrelated operations company may also seek opportunities sell available electric energy capacity customers beyond electric utility service territory using cash flows operations transition period company may alter cost structure choose make additional investments business capped rates derived rates established part 1998 virginia rate settlement provide specific recovery particular generationrelated expenditures except certain regulatory assets see note 10 consolidated financial statements extent company manages operations reduce overall operating costs levels contemplated capped rates company’s earnings may increase since enactment virginia restructuring act company reviewing cost structure identify opportunities reduce annual operating expenses generation related operations example company terminated certain longterm power purchase agreements 2001 resulting aftertax charge 136 million see note 21 consolidated financial statements avoiding fixed capacity payments would otherwise required contracts annual aftertax earnings increase 30 million capped rate transition period also 2002 2001 company revised estimated useful lives electric generation transmission distribution assets changes estimates based upon expected lifeextensions nuclear plants new studies assets result changes annual aftertax earnings increase approximately 88 million capped rate transition period see note 2 consolidated financial statements regional transmission organization virginia restructuring act requires company join rto ferc encourages rto formation means foster wholesale market formation ferc order 2000 requires public utility owns operates transmission facilities make certain filings respect rto formation rely voluntary formation rtos advance energy policies joining rto company would transfer functional control transmission assets rto third party september 2002 company pjm interconnection llc pjm entered pjm south implementation agreement provides subject regulatory approval certain provisions company become member pjm transfer functional control electric transmission facilities pjm inclusion new pjm south region integrate control area pjm energy markets otherwise facilitate establishment operation pjm rto respect company’s transmission facilities agreement also contemplates additional agreements transmission tariff provisions negotiated parties allocates costs implementation agreement among parties company intends file ferc approval join pjm future company also seek authorization virginia commission north carolina commission become member pjm time company incur integration operating costs associated joining rto company deferred certain costs future recovery giving consideration seeking regulatory approval defer balance costs december 2002 american electric power commonwealth edison company dayton power light company collectively new pjm companies pjm company tendered joint filing ferc joint filing proposes 1 include new pjm companies’ transmission facilities within pjm functional control 2 establish transmission rate existing pjm region company new pjm companies 3 adopt transitional rate method maintain transmission revenue company new pjm companies 4 amend certain agreements file ferc concerning pjm energy market planning processes system operations related integration new pjm companies pjm also december 2002 company filed ferc amendment open access transmission tariff establish transitional transmission rate method would apply time american electric power commonwealth edison company would begin participate pjm transmission tariff company joins pjm legislation would delay entry rto july 1 2004 approved virginia general assembly february 2003 awaiting action governor proposed legislation also would require company file application virginia commission july 1 2003 join rto subject virginia commission approval company would required transfer management control transmission assets rto january 1 2005 wholesale competition company sells electricity wholesale market marketbased sales tariff authorized ferc agreed make wholesale power sales tariff loads located within service territory february 2002 company received ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside service territory sales would voluntary company’s sales natural gas oil wholesale markets regulated ferc rate matters virginiathe company filed virginia commissionapproved unbundled rates reflecting functional separation generation transmission distribution january 2002 base rates excluding fuel costs certain allowable adjustments capped remain unchanged july 2007 unless modified terminated sooner provided virginia restructuring act virginia restructuring act company may request termination capped rates time january 1 2004 virginia commission may grant company’s request terminate capped rates finds competitive generation services market exists company’s service area applicable wires charges effective january 1 2002 subject annual adjustment paid company’s virginia jurisdictional retail customers choose alternative generation supplier capped rate period october 2002 virginia commission approved company’s methodology 2003 market prices generation including capacity adder resulting wires charges capacity adder reflects capacity value sale generation expected produce addition energy value market prices inclusion capacity adder market price calculation reduce wires charge revenues amount expected additional revenue sale displaced capacity wholesale market company’s fuel factor sales virginia jurisdictional customers remain unchanged 2003 north carolinathe company cannot request increase north carolina jurisdictional base rates 2006 except certain events would significant financial impact fuel rates however still subject change annual proceedings ferc policy developments july 2002 ferc issued proposed rules would establish standardized transmission service wholesale electric market design entities participating wholesale electric markets ferc proposed exercise jurisdiction transmission component bundled retail transactions modify existing electric transmission tariff include single tariff service applicable transmission customers provide standard market design wholesale electric markets ferc also proposed transmission owners yet joined rto must contract separate entity independent transmission provider operate transmission facilities ferc scheduled number technical conferences meetings interested parties indicated market design timing rule subject change assessment made time concerning future developments ferc also continues pursue rulemaking eliminate separate standards conduct regulations natural gas pipelines electric transmission utilities replace requirements uniform standards applicable interstate “transmission providers” proposed standards would redefine scope affiliates covered standards conduct fercregulated companies proposed policy adopted supersede existing standards applicable company supports policy goal ensure competitive interstate energy markets however company advocated adjustments proposed rules company anticipates action ferc early 2003 company expects outcome final rule improve ability compete similarlysituated transmission providers expect final rule shortterm material impact results operations financial position cash flows environmental matters company subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs utility rates however extent environmental costs incurred connection operations regulated virginia commission period ending june 30 2007 excess level currently included virginia jurisdictional electric retail rates company’s results operations decrease date recovery regulated rates may sought environmental costs related regulated electric transmission distribution operations environmental protection monitoring expenditures company incurred approximately 117 million 109 million 90 million expenses including depreciation 2002 2001 2000 respectively connection environmental protection monitoring activities expects expenses approximately 115 million 2003 addition capital expenditures related environmental controls 269 million 197 million 207 million 2002 2001 2000 respectively amount estimated 2003 expenditures 230 million clean air act compliance clean air act requires company reduce emissions sulfur dioxide so2 nitrogen oxide nox gaseous byproducts fossil fuel combustion clean air act’s so2 reduction program based issuance limited number so2 emission allowances allowance permits emission one ton so2 atmosphere allowances may transacted third party implementation projects comply so2 nox limitations ongoing influenced changes regulatory environment availability allowances various state federal control programs emission control technology response clean air act requirements company installing nox reduction equipment affected facilities estimated capital cost 630 million 370 million incurred december 31 2002 installations scheduled completion midyear 2004 company also discontinuing use coal possum point station prince william county virginia two possum point station’s oilfired units retired two coalfired units converted gas 2003 estimated capital cost 13 million company installed so2 emission control equipment two coalfired generating units 2002 total cost 120 million additional 55 million budgeted 2007 development future so2 control projects environmental protection agency epa planning issue additional regulations address nonattainment new ozone fine particulate standards within next years well ongoing regulatory action associated regional haze regulatory action could require additional reductions so2 nox emissions company’s fossil fuelfired generating facilities addition epa process developing proposed standard mercury emissions electric utility coalfired boilers could require significant mercury emission reductions company’s coalfired generating units stringent emission reduction requirements imposed future new perhaps significant expenditures could required company cannot predict future financial impact implementing potential requirements operations time united states congress considering various “multipollutant” legislative proposals would require fossilfuel fired generating units comply stringent pollution control standards air emissions many proposals would rely upon flexible cap trade programs compliance would exempt covered facilities clean air act requirements would phasein emission reduction requirements variety timeframes 16 years company cannot predict whether proposals pass year future however stringent emissions standards ultimately imposed company’s generating units new perhaps significant expenditures could required company cannot predict future financial impact operations time 2000 company received notice violation epa alleging company failed obtain new source review permits clean air act prior undertaking specified construction projects mt storm power station west virginia attorney general new york filed suit company alleging similar violations clean air act mt storm power station company also received notices attorneys general connecticut new jersey intentions file suit similar violations december 2002 attorney general connecticut filed motion intervene plaintiff action filed new york state attorney general action stayed management believes company obtained necessary permits generating facilities company reached agreement principle federal government state new york resolve situation agreement principle includes payment 5 million civil penalty commitment 14 million environmental projects virginia west virginia connecticut new jersey new york 12year 12 billion capital investment program environmental improvements company’s coalfired generating stations virginia west virginia company already committed substantial portion 12 billion expenditures so2 nox emissions controls negotiations terms binding settlement expanded beyond basic agreement principle ongoing december 31 2002 company recorded discounted basis 18 million civil penalty environmental projects may 2002 epa issued section 114 request information whether projects undertaken company’s chesterfield chesapeake yorktown possum point bremo bluff power stations properly permitted clean air act’s new source review requirements company responded timely manner global climate change 1997 united states signed international protocol limit manmade greenhouse emissions united nations framework convention climate change however protocol become binding unless approved us senate currently bush administration indicated pursue ratification protocol set voluntary goal reducing nation’s greenhouse gas emission intensity 18 percent next 10 years however united states congress considering legislation could impose mandatory reductions greenhouse gas emissions cost compliance protocol mandatory greenhouse gas reduction obligations could significant company given highly uncertain outcome timing future action us federal government issue company cannot predict financial impact future climate change actions operations time clean water act compliance authority clean water act epa promulgating new regulations governing utilities employ cooling water intake structure flow levels exceed minimum threshold currently written epa’s proposed rule presents several control options consideration final rule company evaluating facility information bremo chesapeake chesterfield mt storm north anna possum point surry yorktown power stations given uncertainties future action epa issue company cannot predict future impact operations time accounting matters fasb issued several new standards affect company beginning 2003 include sfas 143 accounting asset retirement obligations interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees othersan interpretation fasb statements 5 57 107 interpretation 46 consolidation variable interest entities addition eitf rescinded eitf issue 9810 see note 4 consolidated financial statements discussion impact adopting new accounting standards information standardsetting activities outlook 2003 company believes operating businesses provide growth earnings 2003 however reported earnings 2003 also include effects severance costs workforce reduction plan discussed cumulative effect implementing changes accounting asset retirement obligations energy trading activities see note 4 consolidated financial statements 2003 projections company’s operating businesses anticipate continued growth electric utility service customers would however offset higher pension benefit expense effect assuming normal weather compared 2002 matters pension costs discussed note 20 consolidated financial statements company participates dominion pension plan qualified noncontributory defined benefit retirement plan participating employer company subject dominion’s funding policy generally contribute annually amount accordance provisions employment retirement income security act 1974 investment experience market conditions including interest rates impact measurement benefit obligations cost providing benefits accordingly assumptions discount rates expected longterm rate return investments important considerations sfas 87 employers’ accounting pensions however since objective sfas 87 recognize cost providing benefits employees’ service period permits delayed recognition certain elements retirement plan results dominion reviewed assumption used expected longterm rate return plan assets better reflect anticipated future market conditions adopted expected rate 875 percent 2003 change combined factors revised discount rate assumption 675 percent 2003 increase company’s 2003 pension expense estimated 22 million compared 2002 addition order maintain funded status dominion’s retirement plans dominion subsidiaries including company may contribute increased amounts plans future years workforce reductions connection plan announced dominion january 2003 company expects eliminate union salaried jobs 2003 workforce reductions affect primarily support positions including meter readers supply warehouse workers auto mechanics many reductions result investments automated meterreading technology purchases newer lower maintenance vehicles affected workers offered severance packages benefits union workers negotiated 2003 pending completion process identify affected positions company estimated cost workforce reductions change composition operating segments effective january 1 2003 company’s electric transmission operations reported part energy segment instead delivery segment nuclear relicensing company filed applications 20year lifeextensions north anna surry units may 2001 nrc completed review applications company expects receive renewed license units 2003 nuclear insurance priceanderson act expired august 2002 operating nuclear reactors would continue covered law would channel cap claims nuclear accident occur act renewed three times since 1957 congress currently holding hearings reauthorize legislation expiration act impact coverage existing nuclear license holders effect changes commodity prices company’s operations impacted changes energy commodity prices extent energy commodities sold company sales subject costofservice rate regulation commodity costs generally recovered rates market price changes impact company’s revenues commodity sales unregulated subsidiaries company established enterprise risk management function evaluate risks recommend actions management intended mitigate risks market rate sensitive instruments risk management company’s financial instruments commodity contracts related derivative instruments exposed potential losses due adverse changes interest rates foreign currency exchange rates commodity prices equity security prices described interest rate risk generally related company’s outstanding debt company exposed foreign exchange risk associated purchases certain nuclear fuel services denominated foreign currencies commodity price risk present company’s electric operations energy marketing trading operations due exposure market shifts prices received paid natural gas electricity commodities company uses derivative instruments manage price risk exposures operations company exposed equity price risk various portfolios equity securities company’s sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 percent unfavorable change interest rates foreign exchange rates commodity prices commodity price risktrading activities part strategy market energy manage related risks company manages portfolio commoditybased derivative instruments held trading purposes contracts sensitive changes prices natural gas electricity certain commodities company uses established policies procedures manage risks associated price fluctuations uses derivative instruments futures forwards swaps options mitigate risk creating offsetting market positions addition company seeks use generation capacity needed serve customers service territory satisfy commitments sell energy hypothetical 10 percent unfavorable change commodity prices would resulted decrease approximately 30 million 7 million fair value commodity contracts held trading purposes december 31 2002 2001 respectively interest rate risk company manages interest rate risk exposure predominantly maintaining balance fixed variable rate debt company also enters interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2002 hypothetical 10 percent increase market interest rates would decrease annual earnings approximately 2 million hypothetical 10 percent increase market interest rates determined december 31 2001 would resulted decrease annual earnings approximately 2 million foreign exchange risk company manages foreign exchange risk exposure associated anticipated future purchases nuclear fuel uranium enrichment services denominated foreign currencies utilizing currency forward contracts result holding contracts hedges company’s exposure foreign currency risk minimal hypothetical 10 percent unfavorable change relevant foreign exchange rates would resulted decrease approximately 17 million 5 million fair value currency forward contracts held company december 31 2002 2001 respectively investment price risk company subject investment price risk due marketable securities held investments decommissioning trust funds accordance current accounting standards marketable securities reported consolidated balance sheets fair value described note 8 consolidated financial statements company recognized net realized unrealized losses decommissioning trust investments 56 million 2002 29 million 2001 dominion also sponsors employee pension postretirement benefit plans company’s employees participate hold investments trusts fund benefit payments extent values investments held trusts decline effect reflected company’s recognition periodic cost employee benefit plans determination amount cash contributed company employee benefit plans risk management policies company operating procedures place administered experienced management help ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis management believes based dominion’s credit policies company’s december 31 2002 provision credit losses unlikely material adverse effect company’s financial position results operations cash flows would occur result counterparty nonperformance item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s results operations general financial condition virginia power’s dominion gas’ results operations mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data virginia power dominion gas meet conditions file reduced disclosure format therefore omitted certain sections mda contents mda consists following information • forwardlooking statements • accounting mattersdominion • dominion • results operations • segment results operations • virginia power • results operations • dominion gas • results operations • liquidity capital resourcesdominion • future issues mattersdominion forwardlooking statements report contains statements concerning companies’ expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words companies make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited • unusual weather conditions effect energy sales customers energy commodity prices • extreme weather events natural disasters including hurricanes high winds severe storms earthquakes flooding changes water temperatures availability cause outages property damage facilities • federal state local legislative regulatory developments including changes federal state tax laws regulations • changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs emissions extensive permitting requirements regulation additional substances • cost environmental compliance including costs related climate change • changes implementation enforcement practices regulators relating environmental standards litigation exposure remedial activities • difficulty anticipating mitigation requirements associated environmental regulatory approvals • risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities • unplanned outages facilities companies ownership interest • fluctuations energyrelated commodity prices effect could dominion’s dominion gas’ earnings companies’ liquidity position underlying value assets • counterparty credit performance risk • global capital market conditions including availability credit ability obtain financing reasonable terms • risks associated virginia power’s membership participation pjm including risks related obligations created default participants • fluctuations value investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion gas • fluctuations interest rates foreign currency exchange rates • changes rating agency requirements credit ratings effect availability cost capital • changes financial regulatory accounting principles policies imposed governing bodies • employee workforce factors including collective bargaining agreements labor negotiations union employees • risks operating businesses regulated industries subject changing regulatory structures • impacts acquisitions including recently completed dominion questar combination divestitures transfers assets joint ventures dominion midstream including recently completed contribution questar pipeline dominion midstream retirements assets based asset portfolio reviews • receipt approvals timing closing dates acquisitions divestitures • timing execution dominion midstream’s growth strategy • changes rules rtos isos dominion virginia power participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models • political economic conditions including inflation deflation • domestic terrorism threats companies’ physical intangible assets well threats cybersecurity • changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes supplies natural gas delivered dominion gas’ pipeline processing systems failure maintain replace customer contracts favorable terms changes customer growth usage patterns including result energy conservation programs availability energy efficient devices use distributed generation methods • additional competition industries companies operate including electric markets dominion’s merchant generation facilities operate potential competition development deployment alternative energy sources selfgeneration distributed generation technologies availability market alternatives large commercial industrial customers • competition development construction ownership certain electric transmission facilities virginia power’s service territory connection ferc order 1000 • changes technology particularly respect new developing alternative sources generation smart grid technologies • changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion gas • changes operating maintenance construction costs • timing receipt regulatory approvals necessary planned construction expansion projects compliance conditions associated regulatory approvals • inability complete planned construction conversion expansion projects outcomes within terms time frames initially anticipated • adverse outcomes litigation matters regulatory proceedings • impact operational hazards including adverse developments respect pipeline plant safety integrity equipment loss malfunction failure operator error catastrophic events additionally risks could cause actual results differ predicted results set forth item 1a risk factors companies’ forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results companies undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion discussed development selection disclosure policies audit committee board directors accounting regulated operations accounting dominion’s regulated electric gas operations differs accounting nonregulated operations dominion required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator dominion evaluates whether recovery regulatory assets future rates probable makes various assumptions analysis expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices dominion estimates fair value aros using present value techniques makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant dominion revises assumptions used calculate fair value existing aros adjusts carrying amount aro liability related longlived asset assets service assets ceased operations dominion adjusts carrying amount aro liability changes recognized income dominion accretes aro liability reflect passage time 2016 dominion recorded increase aros 449 million primarily related future ash pond landfill closure costs certain utility generation facilities dominion questar combination see note 22 consolidated financial statements additional information 2016 2015 2014 dominion recognized 104 million 93 million 81 million respectively accretion expects recognize 117 million 2017 dominion records accretion depreciation associated utility nuclear decommissioning aros regulated pipeline replacement management’s discussion analysis financial condition results operations continued aros adjustment regulatory liabilities related items significant portion dominion’s aros relates future decommissioning merchant utility nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2016 dominion’s nuclear decommissioning aros totaled 15 billion representing approximately 60 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated dominion’s nuclear decommissioning obligations dominion obtains thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition dominion’s cost estimates include cost escalation rates applied base year costs dominion determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2016 dominion 64 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion evaluates quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets dominion establishes valuation allowance morelikelythannot portion deferred tax asset realized december 31 2016 dominion established 135 million valuation allowances accounting derivative contracts instruments fair value dominion uses derivative contracts physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s nuclear decommissioning rabbi trusts pension postretirement funds also subject fair value accounting see notes 6 21 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services dominion considers whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available dominion believes observable pricing information indicative fair value judgment required develop estimates fair value cases dominion must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions dominion maximizes use observable inputs minimizes use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2016 dominion reported 64 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 dominion questar combination 2016 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2016 2015 2014 annual tests interim tests result recognition goodwill impairment general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operating longlived assets selection appropriate discount rate determining whether asset group impaired management groups assets lowest level identifiable cash flows although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see note 6 consolidated financial statements discussion impairments related certain longlived assets employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations mortality rates anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forecasts independent investment advisor • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets strategic target asset allocation dominion’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion develops assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 875 2016 2015 2014 2017 expected longterm rate return pension cost assumption 875 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 850 2016 2015 2014 2017 expected longterm rate return postretirement benefit cost assumption 850 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost ranged 287 499 pension plans 356 494 postretirement benefit plans 2016 440 2015 management’s discussion analysis financial condition results operations continued ranged 520 530 pension plans 420 510 postretirement benefit plans 2014 dominion selected discount rate ranging 331 450 pension plans ranging 392 447 postretirement benefit plans determining december 31 2016 projected benefit obligations dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2016 700 expected gradually decrease 500 2021 continue rate years thereafter mortality rates developed actual projected plan experience postretirement benefit plans dominion’s actuary conducts experience study periodically part process select best estimate mortality dominion considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate 2016 dominion conducted new experience study scheduled result updated mortality assumptions following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2016 025 decrease discount rate would increase dominion’s projected pension benefit obligation 287 million accumulated postretirement benefit obligation 43 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 152 million see note 21 consolidated financial statements additional information dominion’s employee benefit plans new accounting standards see note 2 consolidated financial statements discussion new accounting standards dominion results operations presented summary dominion’s consolidated results overview vs 2015 net income attributable dominion increased 12 primarily due higher renewable energy investment tax credits new pjm capacity performance market effective june 2016 increases partially offset decrease gains agreements convey shale development rights underneath several natural gas storage fields charges related future ash pond landfill closure costs certain utility generation facilities 2015 vs 2014 net income attributable dominion increased 45 primarily due absence charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities absence losses related repositioning dominion’s producer services business first quarter 2014 absence charges related dominion’s liability management exercise see note 13 consolidated financial statements information legislation related north anna offshore wind facilities see liquidity capital resources information liability management exercise analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2016 vs 2015 net revenue increased 10 primarily reflecting • 544 million increase electric utility operations primarily reflecting • 225 million electric capacity benefit primarily due new pjm capacity performance market effective june 2016 155 million expiration nonutility generator contracts 2015 58 million • increase rate adjustment clauses 183 million • absence 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 • 305 million increase due dominion questar combination increases partially offset • 47 million decrease merchant generation operations primarily due lower realized prices certain merchant generation facilities 64 million increase planned unplanned outage days 2016 26 million partially offset additional solar generating facilities placed service 37 million • 19 million decrease regulated natural gas transmission operations primarily due • 14 million decrease gas transportation storage activities primarily due decreased demand charges 28 million increased fuel costs 13 million contract rate changes 11 million decreased revenue gathering extraction services 8 million partially offset expansion projects placed service 18 million increased regulated gas sales 20 million • 17 million decrease ngl activities due decreased prices 15 million volumes 2 million partially offset • 12 million increase revenues primarily due increase services performed atlantic coast pipeline 21 million partially offset decreased amortization deferred revenue associated conveyed shale development rights 4 million • 12 million decrease regulated natural gas distribution operations primarily due decrease rate adjustment clause revenue related low income assistance programs 26 million decrease sales customers due reduction heating degree days 6 million partially offset increase amr pir program revenues 18 million operations maintenance increased 18 primarily reflecting • 148 million increase due dominion questar combination including 58 million transaction transition costs • 98 million increase charges related future ash pond landfill closure costs certain utility generation facilities • 78 million decrease gains agreements convey shale development rights underneath several natural gas storage fields • organizational design initiative costs 64 million • 50 million increase storm damage service restoration costs including 23 million hurricane matthew • 20 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 16 million increase due labor contract renegotiations well costs resulting union workforce temporary work stoppage partially offset • 26 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs bad debt expenses recovered rates impact net income depreciation depletion amortization increased 12 primarily due various expansion projects placed service income increased 28 primarily due increase earnings equity method investments 55 million increase afudc associated rateregulated projects 12 million partially offset lower realized gains net investment income nuclear decommissioning trust funds 19 million interest related charges increased 12 primarily due higher longterm debt interest expense resulting debt issuances 2016 134 million partially offset increase capitalized interest associated cove point liquefaction project 45 million income tax expense decreased 28 primarily due higher renewable energy investment tax credits 189 million impact state legislative change 14 million partially offset higher pretax income 15 million 2015 vs 2014 net revenue increased 10 primarily reflecting • absence losses related repositioning dominion’s producer services business first quarter 2014 reflecting termination natural gas trading certain energy marketing activities 313 million • 159 million increase electric utility operations primarily reflecting • increase rate adjustment clauses 225 million • increase sales retail customers primarily due net increase cooling degree days 38 million • decrease capacity related expenses 33 million partially offset • 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 • decrease sales customers due effect changes customer usage factors 24 million • decrease due charge based 2015 biennial review order refund revenues customers 20 million • absence losses related retail electric energy marketing business sold first quarter 2014 129 million • 77 million increase merchant generation operations primarily due increased generation output reflecting absence planned outages certain merchant generation facilities 83 million additional solar generating facili management’s discussion analysis financial condition results operations continued ties placed service 53 million partially offset lower realized prices 58 million • 38 million increase regulated natural gas distribution operations primarily due increase rate adjustment clause revenue related low income assistance programs 12 million increase amr pir program revenues 24 million various expansion projects placed service 22 million partially offset decrease gathering revenues 9 million • 30 million increase regulated natural gas transmission operations primarily reflecting • 61 million increase gas transportation storage activities primarily due addition dcg 62 million decreased fuel costs 24 million various expansion projects placed service 24 million partially offset decreased regulated gas sales 46 million • 46 million net increase primarily due services performed atlantic coast pipeline blue racer partially offset • 61 million decrease ngl activities primarily due decreased prices operations maintenance decreased 6 primarily reflecting • absence charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities 370 million • increase gains agreements convey shale development rights underneath several natural gas storage fields 63 million • 97 million decrease planned outage costs primarily due decrease scheduled outage days certain merchant generation facilities 59 million nonnuclear utility generation facilities 38 million • 22 million decrease charges related future ash pond landfill closure costs certain utility generation facilities decreases partially offset • absence gain sale dominion’s electric retail energy marketing business march 2014 100 million net 31 million writeoff goodwill • 80 million increase certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • absence gains sale assets blue racer 59 million • 53 million increase utility nuclear refueling outage costs primarily due amortization outage costs previously deferred pursuant virginia legislation enacted april 2014 • 46 million net increase due services performed atlantic coast pipeline blue racer expenses billed entities significantly impact net income • 22 million increase due acquisition dcg income decreased 22 primarily reflecting lower tax recoveries associated contributions aid construction 17 million decrease interest income related income taxes 12 million lower net realized gains nuclear decommissioning trust funds 11 million interest related charges decreased 24 primarily result absence charges associated dominion’s liability management exercise 2014 income tax expense increased 100 primarily reflecting higher pretax income outlook dominion’s strategy continue focusing regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide eps growth growing dividend maintain stable credit profile dominion expects 80 90 earnings primary operating segments come regulated longterm contracted businesses dominion’s 2017 net income expected remain substantially consistent per share basis compared 2016 dominion’s 2017 results expected positively impacted following • decreased charges related future ash pond landfill closure costs certain utility generation facilities • inclusion operations acquired dominion questar entire year • decreased transaction transition costs associated dominion questar combination • growth weathernormalized electric utility sales approximately 1 • construction operation growth projects electric utility operations associated rate adjustment clause revenue • construction operation growth projects gas transmission distribution dominion’s 2017 results expected negatively impacted following • lower power prices additional planned refueling outage millstone • decreased cove point import contract revenues • increase depreciation depletion amortization • higher effective tax rate driven primarily decrease investment tax credits • share dilution additionally 2017 dominion expects focus meeting new developing environmental requirements including making investments utilityscale solar generation particularly virginia 2018 dominion expected experience increase net income per share basis compared 2017 primarily due liquefaction project service full year segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion dvp presented operating statistics related dvp’s operations 1 period average presented aftertax basis key factors impacting dvp’s net income contribution 2016 vs 2015 vs 2014 dominion generation presented operating statistics related dominion generation’s operations presented aftertax basis key factors impacting dominion generation’s net income contribution 2016 vs 2015 1 represents noncontrolling interest related merchant solar partnerships 2015 vs management’s discussion analysis financial condition results operations continued dominion energy presented selected operating statistics related dominion energy’s operations 1 includes dominion questar effective september 2016 2 period average 3 includes dominion questar customer accounts entire year 4 excludes 511 thousand average retail electric energy marketing customer accounts due sale business march 2014 presented aftertax basis key factors impacting dominion energy’s net income contribution 2016 vs 2015 vs 2014 1 primarily represents absence gain sale northern system 2 represents portion earnings attributable dominion midstream’s public unitholders corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources see note 25 consolidated financial statements discussion items detail corporate also includes specific items attributable corporate segment 2016 primarily included 53 million aftertax transaction transition costs associated dominion questar combination 2014 primarily included 174 million aftertax charges associated dominion’s liability management exercise virginia power results operations presented summary virginia power’s consolidated results overview vs 2015 net income increased 12 primarily due new pjm capacity performance market effective june 2016 increase rate adjustment clause revenue absence writeoff deferred fuel costs associated virginia legislation enacted february 2015 increases partially offset charges related future ash pond landfill closure costs certain utility generation facilities 2015 vs 2014 net income increased 27 primarily due absence charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2016 vs 2015 net revenue increased 11 primarily reflecting • 225 million electric capacity benefit primarily due new pjm capacity performance market effective june 2016 155 million expiration nonutility generator contracts 2015 58 million • increase rate adjustment clauses 183 million • absence 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 operations maintenance increased 14 primarily reflecting • 98 million increase charges related future ash pond landfill closure costs certain utility generation facilities • 50 million increase storm damage service restoration costs including 23 million hurricane matthew • 37 million increase salaries wages benefits general administrative expenses • organizational design initiative costs 32 million income tax expense increased 10 primarily reflecting higher pretax income 2015 vs 2014 net revenue increased 3 primarily reflecting • increase rate adjustment clauses 225 million • increase sales retail customers primarily due net increase cooling degree days 38 million • decrease capacity related expenses 33 million partially offset • 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 • decrease sales customers due effect changes customer usage factors 24 million • decrease due charge based 2015 biennial review order refund revenues customers 20 million operations maintenance decreased 15 primarily reflecting • absence 370 million charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities • 38 million decrease planned outage costs primarily due decrease scheduled outage days certain nonnuclear utility generation facilities decreases partially offset • 80 million increase certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • 53 million increase utility nuclear refueling outage costs primarily due amortization outage costs previously deferred pursuant virginia legislation enacted april 2014 income decreased 27 primarily reflecting lower tax recoveries associated contributions aid construction income tax expense increased 20 primarily reflecting higher pretax income dominion gas results operations presented summary dominion gas’ consolidated results overview vs 2015 net income decreased 14 primarily due decrease gains agreements convey shale development rights underneath several natural gas storage fields 2015 vs 2014 net income decreased 11 primarily due absence gains indirect sale assets blue racer decrease income ngl activities higher interest expense partially offset increased gains agreements convey shale development rights underneath several natural gas storage fields management’s discussion analysis financial condition results operations continued analysis consolidated operations presented selected amounts related dominion gas’ results operations analysis dominion gas’ results operations follows 2016 vs 2015 net revenue decreased 3 primarily reflecting • 34 million decrease regulated natural gas transmission operations primarily reflecting • 36 million decrease gas transportation storage activities primarily due decreased demand charges 28 million increased fuel costs 13 million contract rate changes 11 million decreased revenue gathering extraction services 8 million partially offset increased regulated gas sales 16 million expansion projects placed service 9 million • 18 million decrease ngl activities due decreased prices 16 million volumes 2 million partially offset • 21 million increase services performed atlantic coast pipeline • 12 million decrease regulated natural gas distribution operations primarily reflecting • decrease rate adjustment clause revenue related low income assistance programs 26 million • 9 million decrease revenue primarily due decrease pooling metering activities 3 million decrease blue racer management fees 3 million decrease gathering activities 2 million partially offset • 18 million increase amr pir program revenues • 8 million increase offsystem sales operations maintenance increased 22 primarily reflecting • 78 million decrease gains agreements convey shale development rights underneath several natural gas storage fields • 20 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income partially offset • 26 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs bad debt expenses recovered rates impact net income increased 10 million primarily due gain sale 065 noncontrolling partnership interest iroquois 5 million increase afudc associated rateregulated projects 5 million interest related charges increased 29 primarily due higher interest expense resulting issuances senior notes november 2015 second quarter 2016 28 million partially offset increase deferred rate adjustment clause interest expense 7 million income tax expense decreased 24 primarily reflecting lower pretax income 2015 vs 2014 net revenue increased 1 primarily reflecting • 43 million increase regulated natural gas distribution operations primarily due increase amr pir program revenues 24 million various expansion projects placed service 22 million partially offset • 27 million decrease regulated natural gas transmission operations primarily reflecting • 62 million decrease ngl activities primarily due decreased prices partially offset • 2 million increase gas transportation storage activities primarily due decreased fuel costs 24 million various expansion projects placed service 24 million partially offset decreased regulated gas sales 46 million • 33 million net increase revenue primarily due services performed atlantic coast pipeline blue racer 47 million partially offset decrease nonregulated gas sales 8 million decreased farmout revenues 6 million operations maintenance increased 15 primarily reflecting • 47 million net increase due services performed atlantic coast pipeline blue racer expenses billed entities significantly impact net income • absence gains sale assets blue racer 59 million partially offset • increase gains agreements convey shale development rights underneath several natural gas storage fields 63 million depreciation amortization increased 10 primarily due various expansion projects placed service interest related charges increased 46 million primarily due higher longterm debt interest expense resulting debt issuances december 2014 income tax expense decreased 15 primarily reflecting lower pretax income liquidity capital resources dominion depends internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2016 dominion 23 billion unused capacity credit facilities see additional discussion credit facilities shortterm debt summary dominion’s cash flows presented operating cash flows net cash provided dominion’s operating activities decreased 348 million primarily due higher operations maintenance expenses derivative activities increased payments income taxes interest decrease partially offset benefit new pjm capacity performance market higher deferred fuel cost recoveries revenues rate adjustment clauses virginia jurisdiction dominion believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares december 2016 dominion’s board directors established annual dividend rate 2017 302 per share common stock 79 increase 2016 rate dividends subject declaration board directors january 2017 dominion’s board directors declared dividends payable march 2017 755 cents per share common stock dominion’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2016 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 27 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 10 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 15 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 16 total net credit exposure investing cash flows net cash used dominion’s investing activities increased 42 billion primarily due dominion questar combination higher capital expenditures partially offset absence dominion’s acquisition dcg 2015 acquisition fewer solar development projects 2016 financing cash flows liquidity dominion relies capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings dominion’s ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances dominion currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows dominion use automatic shelf registration statements register offering securities exchange offers business combination transactions net cash provided dominion’s financing activities increased 39 billion primarily reflecting higher net debt issuances higher issuances common stock dominion midstream common convertible preferred units connection dominion questar combination management’s discussion analysis financial condition results operations continued liability management 2014 dominion elected redeem certain debt preferred securities prior stated maturities proceeds issuance lowercost senior enhanced junior subordinated notes used fund redemption payments see note 17 consolidated financial statements descriptions redemptions time dominion may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions tender offers otherwise credit facilities shortterm debt dominion uses shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations january 2016 dominion expanded shortterm funding resources 10 billion increase one joint revolving credit facility limits addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties connection commodity hedging activities dominion required provide collateral counterparties circumstances certain collateral arrangements dominion may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time dominion may vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates dominion issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion’s commercial paper letters credit outstanding well capacity available credit facilities follows 1 may 2016 maturity dates facilities extended april 2019 april 2020 credit facilities used support bank borrowings issuance commercial paper well support combined 20 billion letters credit 2 january 2016 facility limit increased 40 billion 50 billion 3 weightedaverage interest rate outstanding commercial paper supported dominion’s credit facilities 105 december 31 2016 dominion questar’s revolving multiyear 364day credit facilities limits 500 million 250 million respectively terminated october 2016 shortterm notes november 2015 dominion issued 400 million private placement shortterm notes matured may 2016 bore interest variable rate december 2015 dominion issued additional 200 million variable rate shortterm notes matured may 2016 proceeds used general corporate purposes february 2016 dominion purchased cancelled 100 million variable rate shortterm notes would otherwise matured may 2016 using proceeds february 2016 issuance senior notes mature 2018 september 2016 dominion borrowed 12 billion term loan agreement bore interest variable rate net proceeds used finance dominion questar combination december 2016 loan repaid cash received dominion midstream connection contribution questar pipeline loan would otherwise matured september 2017 see note 3 consolidated financial statements information longterm debt 2016 dominion issued following longterm public debt 2016 dominion also issued following longterm private debt • february 2016 dominion issued 500 million 2125 senior notes private placement notes mature 2018 proceeds used repay repurchase shortterm debt including commercial paper shortterm notes general corporate purposes • may 2016 dominion gas issued 150 million private placement 38 senior notes mature 2031 proceeds used general corporate purposes june 2016 dominion gas issued 250 million private placement 2875 senior notes mature 2023 proceeds used general corporate purposes repay shortterm debt including commercial paper also june 2016 dominion gas issued  250 million private placement 145 senior notes mature 2026 notes recorded 280 million issuance included longterm debt consolidated balance sheets 263 million december 31 2016 proceeds used general corporate purposes repay shortterm debt including commercial paper • september 2016 dominion issued 300 million private placement 150 senior notes mature 2018 proceeds used general corporate purposes repay shortterm debt including commercial paper • december 2016 questar gas issued 50 million 362 private placement senior notes 50 million 367 private placement senior notes mature 2046 2051 respectively proceeds used general corporate purposes • december 2016 dominion issued 250 million private placement 1875 senior notes mature 2018 proceeds used general corporate purposes repay shortterm debt including commercial paper 2016 dominion also remarketed following longterm debt • march 2016 may 2016 dominion successfully remarketed 550 million 2013 series 107 rsns due 2021 550 million 2013 series b 118 rsns due 2019 respectively pursuant terms related 2013 equity units connection remarketings interest rates series b junior subordinated notes reset 4104 2962 respectively dominion receive proceeds remarketings see note 17 consolidated financial statements information • december 2016 virginia power remarketed 37 million industrial development authority town louisa virginia pollution control refunding revenue bonds series 2008 c mature 2035 bear interest coupon rate 185 may 2019 bear interest market rate determined time previously bonds bore interest coupon rate 70 remarketing accounted debt extinguishment previous investors 2016 dominion also borrowed following term loan agreements • december 2016 dominion midstream borrowed 300 million term loan agreement matures december 2019 bears interest variable rate net proceeds used finance portion acquisition questar pipeline dominion see note 3 consolidated financial statements information • december 2016 sbl holdco borrowed 405 million term loan agreement bears interest variable rate term loan amortizes 18year period matures december 2023 debt nonrecourse dominion secured sbl holdco’s interest certain merchant solar facilities see note 15 consolidated financial statements information proceeds used general corporate purposes 2016 dominion repaid 18 billion shortterm notes repaid repurchased 16 billion longterm debt january 2017 dominion issued 400 million 1875 senior notes 400 million 275 senior notes mature 2019 2022 respectively issuance common stock equity securities dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion began purchasing common stock open market plans april 2014 dominion began issuing new common shares direct stock purchase plans 2016 dominion issued 42 million shares common stock totaling 314 million employee savings plans direct stock purchase dividend reinvestment plans employee director benefit plans dominion received cash proceeds 295 million issuance 40 million shares dominion direct® employee savings plans april 2016 july 2016 dominion issued 85 million shares related stock purchase contract entered part dominion’s 2013 equity units received 11 billion total proceeds additionally dominion completed market issuance equity april 2016 102 million shares received proceeds 756 million registered underwritten public offering portion net proceeds used finance dominion questar combination see note 3 consolidated financial statements information 2017 dominion plans issue shares employee savings plans direct stock purchase dividend reinvestment plans stock purchase contracts see note 17 consolidated financial statements description common stock issued dominion stock purchase contracts fourth quarter 2016 dominion midstream received 482 million proceeds issuance common units 490 million proceeds issuance convertible preferred units net proceeds primarily used finance portion acquisition questar pipeline dominion see note 3 consolidated financial statements information repurchase common stock dominion repurchase shares 2016 plan repurchase shares 2017 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization purchase dominion midstream units september 2015 dominion initiated program purchase market 50 million common units representing limited partner interests dominion midstream expired september 2016 dominion purchased approximately 658000 common units 17 million 887000 common units 25 million years ended december 31 2016 2015 respectively acquisition dominion questar accordance terms dominion questar combination closing share issued outstanding dominion questar common stock converted right receive 2500 per share cash total consideration 44 billion based 1755 million shares dominion questar outstanding closing dominion also acquired dominion questar’s outstanding debt approximately 15 billion dominion financed dominion questar combination 1 august 2016 issuance 14 billion 2016 equity units 2 august management’s discussion analysis financial condition results operations continued 2016 issuance 13 billion senior notes 3 september 2016 borrowing 12 billion term loan agreement repaid cash received dominion midstream connection contribution questar pipeline 4 500 million proceeds april 2016 issuance common stock credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion believes current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion may affect ability access funding sources cause increase return required investors dominion’s credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions february 2016 standard poor’s lowered following ratings dominion issuer bbb senior unsecured debt securities bbb juniorremarketable subordinated debt securities bbb addition standard poor’s affirmed dominion’s commercial paper rating a2 revised outlook stable negative march 2016 fitch standard poor’s changed rating dominion’s junior subordinated debt securities account inability defer interest payments remarketed 2013 series rsns subsequently junior subordinated debt securities without interest deferral feature rated one notch higher fitch standard poor’s bbb junior subordinated debt securities interest deferral feature bbb see note 17 consolidated financial statements description remarketed notes credit ratings february 23 2017 follow 1 securities interest deferral feature 2 securities interest deferral feature february 23 2017 fitch moody’s standard poor’s maintained stable outlook respective ratings dominion downgrade individual company’s credit rating necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade could result increase cost borrowing dominion works closely fitch moody’s standard poor’s objective achieving targeted credit ratings dominion may find necessary modify business plan maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion typical covenants include • timely payment principal interest • information requirements including submitting financial reports filed sec information changes dominion’s credit ratings lenders • performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets • compliance collateral minimums requirements related mortgage bonds • limitations liens dominion required pay annual commitment fees maintain credit facilities addition dominion’s credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2016 calculated total debt total capital ratio pursuant terms agreements follows 1 pursuant waiver received april 2016 connection closing dominion questar combination 65 maximum debt total capital ratio dominion’s credit agreements respect dominion temporarily increased 70 end fiscal quarter ending june 30 2017 2 indebtedness defined bank agreements excludes certain junior subordinated remarketable subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets dominion material subsidiaries fails make payment various debt obligations excess 100 million lenders could require defaulting company borrower dominion’s credit facilities accelerate repayment outstanding borrowings lenders could terminate commitments lend funds company credit facilities addition defaulting company virginia power dominion’s obligations repay outstanding borrowing credit facilities could also accelerated lenders’ commitments dominion could terminate dominion executed rccs connection issuance following hybrid securities • june 2006 hybrids • september 2006 hybrids • june 2009 hybrids october 2014 dominion redeemed june 2009 hybrids redemption conducted compliance rcc see note 17 consolidated financial statements additional information including terms rccs december 31 2016 termination dates covered debt rccs associated dominion’s hybrids follows dominion monitors debt covenants regular basis order ensure events default occur december 31 2016 events default dominion’s debt covenants dividend restrictions certain agreements associated dominion’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s ability pay dividends receive dividends subsidiaries december 31 2016 see note 17 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments contract adjustment payments certain junior subordinated notes equity units initially form corporate units information incorporated herein reference future cash payments contractual obligations planned capital expenditures contractual obligations dominion party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion party december 31 2016 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s current liabilities paid cash 2017 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt payments related stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2016 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements reflect dominion’s ability defer interest stock purchase contract payments certain junior subordinated notes rsns equity units initially form corporate units 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 includes capital operations maintenance commitments 6 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 48 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 7 includes interest rate foreign currency swap agreements planned capital expenditures dominion’s planned capital expenditures expected total approximately 58 billion 50 billion 52 billion 2017 2018 2019 respectively dominion’s planned expenditures expected include construction expansion electric generation natural gas transmission storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel maintenance construction liquefaction project dominion’s portion atlantic coast pipeline management’s discussion analysis financial condition results operations continued dominion expects fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors see dvp dominion generation dominion energyproperties item 1 business discussion dominion’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion’s board directors late 2016 subject continuing review adjustment actual capital expenditures may vary estimates dominion may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements leasing arrangement july 2016 dominion signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 365 million fund estimated project costs project expected completed mid2019 dominion appointed act construction agent lessor time dominion request cash draws lessor debt investors fund project costs totaled 46 million december 31 2016 project terminated certain events default dominion could required pay 899 funded amount specific full recourse events dominion could required pay 100 funded amount fiveyear lease term commence construction substantially complete facility able occupied end initial lease term dominion extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion may required make payment lessor 87 project costs difference project costs sale proceeds respective transactions structured dominion considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements financial accounting treatment lease agreement impacted new accounting standard issued february 2016 see note 2 consolidated financial statements additional information dominion considered owner leased property tax purposes result entitled tax deductions depreciation interest expense guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements sub ject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others see note 22 consolidated financial statements additional information incorporated herein reference future issues matters see item 1 business notes 13 22 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred 394 million 298 million 313 million expenses including accretion depreciation 2016 2015 2014 respectively connection environmental protection monitoring activities including charges related future ash pond landfill closure costs expects expenses approximately 190 million 185 million 2017 2018 respectively addition capital expenditures related environmental controls 191 million 94 million 101 million 2016 2015 2014 respectively expenditures expected approximately 185 million 115 million 2017 2018 respectively future environmental regulations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum delegated states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements august 2015 epa issued final carbon standards existing fossil fuel power plants known clean power plan rule uses set measures reducing emissions existing sources includes efficiency improvements coal plants displacing coalfired generation increased utilization natural gas combined cycle units expanding renewable resources new rule requires states impose standards performance limits existing fossil fuelfired electric generating units equivalent statewide intensitybased massbased co2 binding goals limits states required submit final plans identifying comply rule september 2018 epa also issued proposed federal plan model trading rule states adopt would put place response final guidelines state either submit state plan approved epa virginia power’s recent integrated resources plan filed april 2016 includes four alternative plans represent plausible compliance strategies rule proposed include additional coal unit retirements additional low zerocarbon resources final rule challenged us court appeals dc circuit february 2016 us supreme court issued stay clean power plan disposition petitions challenging rule court appeals petitions filed future us supreme court dominion know whether legal challenges impact submittal deadlines state implementation plans june 2016 governor virginia signed executive order directing virginia natural resources secretary convene workgroup charged recommending concrete steps reduce carbon pollution include clean power plan option unless rule survives court challenges state plans developed epa approves plans dominion cannot predict potential financial statement impacts believes potential expenditures comply could material december 2012 epa issued final rule set stringent annual air quality standard fine particulate matter epa issued final attainmentnonattainment designations january 2015 states develop implementation plans dominion cannot determine whether facilities located areas designated nonattainment standard impacted expect impacts material epa finalized rules establishing new 1hour naaqs no2 new 1hour naaqs so2 could require additional nox so2 controls certain areas dominion operates states developed implementation plans standards impact dominion’s facilities emit nox so2 uncertain additionally impact permit limits implementing naaqs dominion’s facilities uncertain time climate change december 2015 paris agreement formally adopted united nations framework convention climate change accord establishes universal framework addressing ghg emissions involving actions nations concept nationally determined contributions nation defines ghg commitment make sets place process increasing commitments every five years also contains global goal holding increase global average temperature well 2 degrees celsius preindustrial levels pursue efforts limit temperature increase 15 degrees celsius preindustrial levels aim reach global peaking ghg emissions soon possible key element initial us nationally determined contributions achieving 26 28 reduction 2005 levels 2025 implementation clean power plan establishes interim emission reduction targets fossil fuelfired electric generating units period 2022 2029 final targets achieved 2030 epa estimates clean power plan result nationwide reduction co2 emissions fossil fuelfired electric generating units 32 2005 levels 2030 march 2016 part climate action plan epa began development regulations reducing methane emissions existing sources oil natural gas sectors november 2016 epa issued information collection request collect information existing sources upstream local distribution companies sector depending results information collection request epa may propose new regulations existing sources dominion cannot currently estimate potential impacts results operations financial condition andor cash flows related matter phmsa regulation recent reauthorization phmsa included new provisions historical records research maximumallowed operating pressure validation use automated remotecontrolled valves new replaced lines increased civil penalties evaluation expanding integrity management beyond highconsequence areas phmsa yet issued new rulemaking items legal matters collective bargaining agreement april 2016 labor contract dominion local 69 expired august 2016 parties reached tentative agreement new labor contract however agreement submitted members local 69 approval september 2016 following temporary lock union members local 69 agreed strike dti hope least april 1 2017 exchange dti hope agreed recall union members work lock period contract negotiations resumed october 2016 continuing local 69 represents approximately 760 dti employees west virginia new york pennsylvania ohio virginia approximately 150 hope employees west virginia doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets cea amended title vii doddfrank act requires certain overthe counter derivatives swaps cleared derivatives clearing organization swap subject clearing requirement executed designated contract market swap execution facility nonfinancial entities use swaps hedge mitigate commercial risk often referred end users may elect enduser exception cea’s clearing requirements dominion elected exempt swaps cea’s clearing requirements cftc may continue adopt final rules implement provisions doddfrank act ongoing rulemaking process including rules regarding margin requirements noncleared swaps result rulemaking process dominion’s derivative activities exempted clearing exchange trading margin requirements could subject higher costs due decreased market liquidity increased margin payments addition dominion’s swap dealer counterparties may attempt passthrough additional trading costs connection implementation compliance title vii doddfrank act due evolving rulemaking process dominion currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows management’s discussion analysis financial condition results operations continued item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion energy’s results operations general financial condition virginia power dominion energy gas’ results operations mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data virginia power dominion energy gas meet conditions file reduced disclosure format therefore omitted certain sections mda contents mda consists following information • forwardlooking statements • accounting mattersdominion energy • dominion energy • results operations • segment results operations • virginia power • results operations • dominion energy gas • results operations • liquidity capital resourcesdominion energy • future issues mattersdominion energy forwardlooking statements report contains statements concerning companies’ expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words companies make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited • unusual weather conditions effect energy sales customers energy commodity prices • extreme weather events natural disasters including limited hurricanes high winds severe storms earthquakes flooding changes water temperatures availability cause outages property damage facilities • federal state local legislative regulatory developments including changes federal state tax laws regulations • changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs substances extensive permitting requirements regulation additional substances • cost environmental compliance including costs related climate change • changes implementation enforcement practices regulators relating environmental standards litigation exposure remedial activities • difficulty anticipating mitigation requirements associated environmental regulatory approvals related appeals • risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities • unplanned outages facilities companies ownership interest • fluctuations energyrelated commodity prices effect could dominion energy dominion energy gas’ earnings companies’ liquidity position underlying value assets • counterparty credit performance risk • global capital market conditions including availability credit ability obtain financing reasonable terms • risks associated virginia power’s membership participation pjm including risks related obligations created default participants • fluctuations value investments held nuclear decommissioning trusts dominion energy virginia power benefit plan trusts dominion energy dominion energy gas • fluctuations interest rates foreign currency exchange rates • changes rating agency requirements credit ratings effect availability cost capital • changes financial regulatory accounting principles policies imposed governing bodies • employee workforce factors including collective bargaining agreements labor negotiations union employees • risks operating businesses regulated industries subject changing regulatory structures • impacts acquisitions including recently completed scana combination divestitures transfers assets joint ventures retirements assets based asset portfolio reviews • receipt approvals timing closing dates acquisitions divestitures • changes rules rtos isos dominion energy virginia power participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models • political economic conditions including inflation deflation • domestic terrorism threats companies’ physical intangible assets well threats cybersecurity • changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes supplies natural gas delivered dominion energy dominion energy gas’ pipeline processing systems failure maintain replace customer contracts favorable terms changes customer growth usage patterns including result management’s discussion analysis financial condition results operations continued energy conservation programs availability energy efficient devices use distributed generation methods • additional competition industries companies operate including electric markets dominion energy’s merchant generation facilities operate potential competition development deployment alternative energy sources selfgeneration distributed generation technologies availability market alternatives large commercial industrial customers • competition development construction ownership certain electric transmission facilities dominion energy virginia power’s service territories connection order 1000 • changes technology particularly respect new developing alternative sources generation smart grid technologies • changes regulated electric rates collected dominion energy virginia power regulated gas distribution transportation storage rates including lng storage collected dominion energy dominion energy gas • changes operating maintenance construction costs • timing receipt regulatory approvals necessary planned construction growth projects compliance conditions associated regulatory approvals • inability complete planned construction conversion growth projects outcomes within terms time frames initially anticipated including result increased public involvement intervention projects • adverse outcomes litigation matters regulatory proceedings including matters acquired scana combination • impact operational hazards including adverse developments respect pipeline plant safety integrity equipment loss malfunction failure operator error catastrophic events additionally risks could cause actual results differ predicted results set forth item 1a risk factors companies’ forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results companies undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion energy identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion energy discussed development selection disclosure policies audit committee board directors accounting regulated operations accounting dominion energy’s regulated electric gas operations differs accounting nonregulated operations dominion energy required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator dominion energy evaluates whether recovery regulatory assets future rates probable makes various assumptions analysis expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion energy recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred sufficient information becomes available determine fair value generally capitalized part cost related longlived assets absence quoted market prices dominion energy estimates fair value aros using present value techniques makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation creditadjusted risk free rates future may significant dominion energy revises assumptions used calculate fair value existing aros adjusts carrying amount aro liability related longlived asset assets service assets ceased operations dominion energy adjusts carrying amount aro liability changes recognized income dominion energy accretes aro liability reflect passage time 2018 dominion energy recorded increase aros 140 million primarily related future ash pond landfill closure costs certain generation facilities see note 22 consolidated financial statements additional information 2018 2017 2016 dominion energy recognized 119 million 117 million 104 million respectively accretion expects recognize approximately 145 million 2019 dominion energy records accretion depreciation associated utility nuclear decommissioning aros regulated pipeline replacement aros adjustment regulatory liabilities related items significant portion dominion energy’s aros relates future decommissioning merchant utility nuclear facilities nuclear decommissioning aros reported power generation segment subsequent scana combination scana’s nuclear decommissioning aros reported southeast energy segment december 31 2018 dominion energy’s nuclear decommissioning aros totaled 16 billion representing approximately 62 total aros subsequent scana combination dominion energy’s nuclear decommissioning aros total approximately 18 billion representing approximately 55 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated dominion energy’s nuclear decommissioning obligations dominion energy obtains thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition dominion energy’s cost estimates include cost escalation rates applied base year costs dominion energy determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws including provisions 2017 tax reform act involves uncertainty since tax authorities may interpret laws differently addition states companies operate may conform provisions 2017 tax reform act ultimate resolution clarification income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2018 dominion energy 44 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion energy evaluates quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets dominion energy establishes valuation allowance morelikelythannot portion deferred tax asset realized december 31 2018 dominion energy established 158 million valuation allowances 2017 tax reform act included broad range tax reform provisions affecting companies including changes corporate tax rates business deductions many provisions differ significantly prior us tax law resulting pervasive financial reporting implications companies 2017 tax reform act included significant changes internal revenue code 1986 including amendments significantly change taxation individuals business entities included specific provisions related regulated public utilities including dominion energy subsidiaries questar gas hope sceg psnc following scana combination virginia power dominion energy gas’ subsidiaries deti east ohio significant changes impact companies included 2017 tax reform act reducing corporate federal income tax rate 35 21 ii effective 2018 limiting deductibility interest expense 30 adjusted taxable income certain businesses disallowed interest allowed carried forward indefinitely iii permitting 100 expensing 100 bonus depreciation certain qualified property iv eliminating deduction qualified domestic production activities v limiting utilization net operating losses arising december 31 2017 80 taxable income indefinite carryforward specific provisions related regulated public utilities 2017 tax reform act generally allow continued deductibility interest expense exclusion full expensing tax purposes certain property acquired placed service september 27 2017 continued certain rate normalization requirements accelerated depreciation benefits date enactment companies’ deferred taxes remeasured based upon new tax rate expected apply temporary differences realized settled regulated operations many changes deferred taxes represented amounts probable collection refund customers recorded either increase regulatory asset liability 2017 tax reform act included provisions stipulate excess deferred taxes may passed back customers certain accelerated tax depreciation benefits potential refunds deferred taxes determined companies’ regulators nonregulated operations changes deferred taxes recorded adjustment deferred tax expense management’s discussion analysis financial condition results operations continued accounting derivative contracts financial instruments fair value dominion energy uses derivative contracts physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value majority investments held dominion energy’s nuclear decommissioning rabbi trusts pension postretirement funds also subject fair value accounting see notes 6 21 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services dominion energy considers whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available dominion energy believes observable pricing information indicative fair value judgment required develop estimates fair value cases dominion energy must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions dominion energy maximizes use observable inputs minimizes use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2018 dominion energy reported 64 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 dominion energy questar combination 2016 discussed note 3 consolidated financial statements dominion energy expects reflect significant amount goodwill connection scana combination consolidated balance sheet first quarter 2019 april year dominion energy tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2018 2017 2016 annual tests interim tests result recognition goodwill impairment general dominion energy estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion energy’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications partic ularly changes discount rates growth rates inherent dominion energy’s estimates future cash flows could result future impairment goodwill although dominion energy consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset equity method investment impairment testing impairment testing individual group longlived assets including intangible assets definite lives equity method investments required circumstances indicate assets may impaired longlived asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount equity method investment’s carrying amount exceeds fair value decline value deemed otherthantemporary impairment recognized extent fair value less carrying amount performing impairment test longlived assets equity method investments involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets case longlived assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operations longlived assets equity method investments selection appropriate discount rate determining whether longlived asset group impaired management groups assets lowest level identifiable cash flows although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset underlying assets equity method investees including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see notes 6 9 consolidated financial statements discussion impairments related certain longlived assets equity method investments discussed future issues matters delays obtaining permits necessary construction delays due judicial actions impacted estimated cost schedule atlantic coast pipeline project result dominion energy evaluated carrying amount equity method investment atlantic coast pipeline otherthantemporary impairment determined impaired significant changes affecting discounted cash flow estimates associated atlantic coast pipeline project future unfavorable judicial actions resulting construction inservice delays along increase construction costs could result impairment charge employee benefit plans dominion energy sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations mortality rates anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion energy’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates critical assumptions dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine longterm historic returns well historic risk premiums various asset classes • expected future risk premiums asset classes’ volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major capital market assumptions • investment allocation plan assets strategic target asset allocation dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments private equity investments strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line targets future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion energy calculated pension cost using expected longterm rate return plan assets assumption 875 2018 2017 2016 2019 expected longterm rate return pension cost assumption 865 dominion energy’s plans held december 31 2018 dominion energy calculated postretirement benefit cost using expected longterm rate return plan assets assumption 850 2018 2017 2016 2019 expected longterm rate return postretirement benefit cost assumption 850 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost ranged 380 381 pension plans 376 postretirement benefit plans 2018 ranged 331 450 pension plans 392 447 postretirement benefit plans 2017 ranged 287 499 pension plans 356 494 postretirement benefit plans 2016 dominion energy selected discount rate ranging 442 443 pension plans 437 438 postretirement benefit plans determining december 31 2018 projected benefit obligations dominion energy establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion energy’s healthcare cost trend rate assumption december 31 2018 650 expected gradually decrease 500 2025 continue rate years thereafter mortality rates developed actual projected plan experience postretirement benefit plans dominion energy’s actuary conducts experience study periodically part process select best estimate mortality dominion energy considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate 2016 dominion energy conducted new experience study scheduled result updated mortality assumptions following table illustrates effect cost changing critical actuarial assumptions previously discussed dominion energy’s plans held december 31 2018 holding assumptions constant management’s discussion analysis financial condition results operations continued addition effects cost december 31 2018 025 decrease discount rate would increase dominion energy’s projected pension benefit obligation 294 million accumulated postretirement benefit obligation 37 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 130 million see note 21 consolidated financial statements additional information dominion energy’s employee benefit plans new accounting standards see note 2 consolidated financial statements discussion new accounting standards dominion energy results operations presented summary dominion energy’s consolidated results overview vs 2017 net income attributable dominion energy decreased 18 primarily due absence benefits 2017 resulting remeasurement deferred income taxes new corporate income tax rate impairment charge certain gathering processing assets charge associated virginia legislation enacted march 2018 decreased net investment earnings nuclear decommissioning trust funds lower renewable energy investment tax credits charge disallowance fercregulated plant decreases partially offset gains sales certain merchant generation facilities equity method investments commencement commercial operations liquefaction project absence charges associated equity method investments windpowered generation facilities 2017 vs 2016 net income attributable dominion energy increased 41 primarily due benefits resulting remeasurement deferred income taxes new corporate income tax rate dominion energy questar combination absence charges related future ash pond landfill closures increases partially offset lower renewable energy investment tax credits charges associated equity method investments windpowered generation facilities analysis consolidated operations presented selected amounts related dominion energy’s results operations analysis dominion energy’s results operations follows 2018 vs 2017 net revenue increased 2 primarily reflecting • 500 million increase due commencement commercial operations liquefaction project including terminalling services provided export customers 508 million regulated gas transportation contracts serve export customers 58 million partially offset credits associated startup phase liquefaction project 66 million • increase sales electric utility retail customers increase heating degree days heating season 2018 71 million increase cooling degree days cooling season 2018 69 million • 130 million increase due favorable pricing merchant generation facilities • 92 million increase due growth projects placed service liquefaction project • 74 million increase services performed atlantic coast pipeline • 46 million increase sales electric utility retail customers due customer growth increases partially offset • 325 million decrease regulated electric generation electric gas distribution operations result 2017 tax reform act • 215 million charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers • 94 million increase net electric capacity expense related annual pjm capacity performance market effective june 2017 112 million annual pjm capacity perform ance market effective june 2018 39 million partially offset benefit related nonutility generators 57 million • 89 million decrease rate adjustment clauses associated electric utility operations includes impacts 2017 tax reform act • 38 million decrease scheduled declines expiration certain deti cove point contracts net revenue reflect impact reduction planned outage days millstone offsetting increase unplanned outage days operations maintenance increased 8 primarily reflecting • 102 million increase storm damage service restoration costs regulated electric service territory • 81 million increase due charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 • 73 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 47 million increase operating expenses commercial operations liquefaction project costs associated regulated gas transportation contracts serve export customers • 38 million increase salaries wages benefits partially offset • 74 million decrease reduction planned outage days certain merchant utility generation facilities depreciation depletion amortization increased 5 primarily due increase various growth projects placed service 187 million including liquefaction project 81 million partially offset revised depreciation rates regulated nuclear plants comply virginia commission requirements 61 million impairment assets related charges increased 388 million primarily due 219 million impairment charge certain gathering processing assets 135 million charge disallowance fercregulated plant 37 million writeoff associated eastern market access project gains sales assets increased 233 million primarily due sale fairless manchester 210 million increase gains related agreements convey shale development rights natural gas storage fields 46 million income increased 663 million primarily reflecting gain sale dominion energy’s 50 limited partnership interest blue racer 546 million absence charges associated equity method investments windpowered generation facilities 158 million gain sale dominion energy’s 25 limited partnership interest catalyst old river hydroelectric limited partnership 87 million decrease nonservice components pension postretirement employee benefit credits capitalized property plant equipment 2018 45 million partially offset decrease net investment earnings nuclear decommissioning trust funds 209 million interest related charges increased 24 primarily due absence capitalization interest expense associated liquefaction project upon completion construction 111 million higher longterm debt interest expense resulting net debt issuances 2018 2017 92 million charges associated early redemption certain debt securities 69 million income tax expense increased 610 million primarily due absence benefits resulting remeasurement deferred income taxes new corporate income tax rate 851 million lower renewable energy investment tax credits 138 million partially offset reduced corporate income tax rate 414 million 2017 vs 2016 net revenue increased 8 primarily reflecting • 663 million increase operations acquired dominion energy questar combination included 2017 • 97 million electric capacity benefit related nonutility generators 133 million benefit due annual pjm capacity performance market effective june 2016 123 million partially offset annual pjm capacity performance market effective june 2017 159 million • 86 million increase due additional generation output merchant solar generating projects • 71 million increase sales electric utility retail customers due effect changes customer usage factors including 25 million related customer growth • 63 million increase regulated natural gas transmission growth projects placed service • 46 million increase rate adjustment clauses associated electric utility operations • 34 million increase services performed atlantic coast pipeline increases partially offset • 144 million decrease cove point import contracts • 114 million decrease due unfavorable pricing merchant generation facilities • decrease sales electric utility retail customers decrease cooling degree days cooling season 2017 53 million reduction heating degree days heating season 2017 28 million operations maintenance decreased 2 primarily reflecting • 197 million absence charges related future ash pond landfill closure costs certain utility generation facilities • 115 million decrease certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • absence organizational design initiative costs 64 million • 46 million decrease storm damage service restoration costs associated electric utility operations partially offset • 162 million increase operations acquired dominion energy questar combination included 2017 • 92 million increase salaries wages benefits • 36 million increase outage costs management’s discussion analysis financial condition results operations continued • 33 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income depreciation depletion amortization increased 22 primarily due operations acquired dominion energy questar combination included 2017 162 million various growth projects placed service 151 million taxes increased 12 primarily due operations acquired dominion energy questar combination included 2017 35 million increased property taxes related growth projects placed service 27 million gains sales assets increased 107 million primarily due sale certain assets associated nonregulated retail energy marketing operations income decreased 17 primarily due charges associated equity method investments windpowered generation facilities 158 million partially offset increase earnings excluding charges equity method investments 29 million increase afudc associated rateregulated projects 23 million increase nonservice cost components pension postretirement employee benefit credits 14 million interest related charges increased 19 primarily due higher longterm debt interest expense resulting debt issuances 2016 2017 171 million debt acquired dominion energy questar combination 37 million income tax expense decreased 685 million primarily due benefits resulting remeasurement deferred income taxes new corporate income tax rate 851 million partially offset lower renewable energy investment tax credits 133 million outlook dominion energy’s 2019 net income expected decrease per share basis compared 2018 primarily following • charges incurred refunds sceg electric customers transaction transition costs related scana combination • absence earnings gains sales certain merchant generation facilities equity method investments • charge associated early retirement existing automated meter reading infrastructure • return normal weather • increase pensionrelated expenses • share dilution decreases expected partially offset following • commercial operation liquefaction project entire year • inclusion operations acquired scana combination • absence charges associated impairment certain gathering processing assets disallowance fercregulated plant • absence charges associated virginia legislation enacted march 2018 • construction operation growth projects gas transmission distribution • construction operation growth projects electric utility operations segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion energy’s operating segments net income attributable dominion energy power delivery presented operating statistics related power delivery’s operations 1 period average presented aftertax basis key factors impacting power delivery’s net income contribution 2018 vs 2017 vs 2016 power generation presented operating statistics related power generation’s operations presented aftertax basis key factors impacting power generation’s net income contribution 2018 vs 2017 vs 2016 gas infrastructure presented selected operating statistics related gas infrastructure’s operations 1 includes dominion energy questar effective september 2016 2 period average 3 includes dominion energy questar customer accounts entire year presented aftertax basis key factors impacting gas infrastructure’s net income contribution 2018 vs 2017 management’s discussion analysis financial condition results operations continued 2017 vs 2016 1 represents portion earnings attributable dominion energy midstream’s public unitholders corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion energy’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources see note 25 consolidated financial statements discussion items detail corporate also includes specific items attributable corporate segment 2018 primarily included 51 million aftertax charges associated early redemption certain debt securities 31 million aftertax transaction transition costs associated dominion energy questar combination scana combination 2017 primarily included 124 million tax benefits resulting remeasurement deferred income taxes new corporate income tax rate 2016 primarily included 53 million aftertax transaction transition costs associated dominion energy questar combination virginia power results operations presented summary virginia power’s consolidated results overview 2018 vs 2017 net income decreased 17 primarily due charge associated virginia legislation enacted march 2018 increase storm damage service restoration costs charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 increase net electric capacity expense partially offset increase heating cooling degree days service territory 2017 vs 2016 net income increased 26 primarily due absence charges related future ash pond landfill closure costs benefit remeasurement deferred income taxes new corporate income tax rate electric capacity benefit analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2018 vs 2017 net revenue decreased 8 primarily reflecting • 238 million decrease regulated generation distribution operations result 2017 tax reform act • 215 million charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers • 94 million increase net electric capacity expense related annual pjm capacity performance market effective june 2017 112 million annual pjm capacity performance market effective june 2018 39 million partially offset benefit related nonutility generators 57 million • 89 million decrease rate adjustment clauses includes impacts 2017 tax reform act partially offset • increase sales retail customers increase heating degree days heating season 2018 71 million increase cooling degree days cooling season 2018 69 million • 46 million increase sales retail customers due customer growth operations maintenance increased 13 primarily reflecting • 102 million increase due storm damage service restoration costs • 81 million increase due charge associated primarily future ash pond landfill closure costs connection enactment virginia legislation april 2018 partially offset • 19 million decrease reduction planned outage days certain generation facilities depreciation amortization substantially consistent decrease due revised depreciation rates regulated nuclear plants comply virginia commission requirements 61 million substantially offset various growth projects placed service 56 million income decreased 71 primarily related lower realized gains including investment income nuclear decommissioning trust funds 23 million electric transmission tower rental portfolio including absence assignment amounts vertical bridge towers ii llc 18 million absence interest income associated settlement state income tax refund claims 11 million partially offset absence charge associated customer settlement 16 million income tax expense decreased 61 primarily due lower pretax income 256 million reduced corporate income tax rate 235 million higher renewable energy investment tax credits 35 million partially offset absence benefits resulting remeasurement deferred income taxes new corporate income tax rate 93 million 2017 vs 2016 net revenue increased 2 primarily reflecting • 97 million electric capacity benefit related nonutility generators 133 million benefit due annual pjm capacity performance market effective june 2016 123 million partially offset annual pjm capacity performance market effective june 2017 159 million • 71 million increase sales retail customers due effect changes customer usage factors including 25 million related customer growth • 46 million increase rate adjustment clauses partially offset • decrease sales retail customers decrease cooling degree days cooling season 2017 53 million reduction heating degree days heating season 2017 28 million operations maintenance decreased 20 primarily reflecting • 197 million decrease due absence charges related future ash pond landfill closure costs certain utility generation facilities • 115 million decrease certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • 46 million decrease storm damage service restoration costs • absence organizational design initiative costs 32 million partially offset • 37 million increase salaries wages benefits general administrative expenses depreciation amortization increased 11 primarily due various growth projects placed service 58 million revised depreciation rates 40 million income increased 36 primarily reflecting • 11 million increase interest income associated settlement state income tax refund claims • 11 million increase assignment virginia power’s electric transmission tower rental portfolio • 8 million increase afudc associated rateregulated projects partially offset • 16 million charge associated customer settlement income tax expense increased 6 primarily due higher pretax income 139 million partially offset benefits resulting remeasurement deferred income taxes new corporate income tax rate 93 million dominion energy gas results operations presented summary dominion energy gas’ consolidated results overview 2018 vs 2017 net income decreased 51 primarily due impairment charge certain gathering processing assets charge disallowance fercregulated plant absence benefits 2017 tax reform act partially offset regulated natural gas transmission activities growth projects placed service increase gains agreements convey shale development rights underneath several natural gas storage fields management’s discussion analysis financial condition results operations continued 2017 vs 2016 net income increased 57 primarily due benefit remeasurement deferred income taxes new corporate income tax rate gas transportation storage activities growth projects placed service analysis consolidated operations presented selected amounts related dominion energy gas’ results operations analysis dominion energy gas’ results operations follows 2018 vs 2017 net revenue increased 6 primarily reflecting • 74 million increase services performed atlantic coast pipeline • 57 million increase due regulated natural gas transmission growth projects placed service • 20 million increase pir program revenues partially offset • 36 million decrease regulated distribution operations result 2017 tax reform act • 25 million decrease scheduled declines certain deti contracts operations maintenance increased 14 primarily reflecting • 73 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 7 million increase salaries wages benefits depreciation amortization increased 7 primarily due increase various growth projects placed service impairment assets related charges increased 330 million primarily due impairment charge certain gathering processing assets 219 million charge disallowance fercregulated plant 127 million partially offset absence charge writeoff balance regulatory asset longer considered probable recovery 15 million gains sales assets increased 70 primarily due increased gains related agreements convey shale development rights natural gas storage fields earnings equity method investee increased 14 primarily due higher earnings unsubscribed capacity result increase heating degree days iroquois income increased 28 primarily due decrease nonservice components pension postretirement employee benefit credits capitalized property plant equipment 2018 24 million partially offset afudc rateregulated projects 5 million interest related charges increased 8 primarily due higher interest expense longterm debt due issuance second quarter 2018 increased interest rates 10 million partially offset increase deferred carrying costs 6 million income tax expense increased 69 primarily due absence benefits resulting remeasurement deferred income taxes new corporate income tax rate 197 million absence settlement state tax authorities 5 million partially offset reduced corporate income tax rate 67 million lower pretax income 98 million 2017 vs 2016 net revenue increased 9 primarily reflecting • 55 million increase due regulated natural gas transmission growth projects placed service • 34 million increase services performed atlantic coast pipeline • 24 million increase pir program revenues • 16 million increase rate recovery low income assistance programs associated regulated natural gas distribution operations maintenance increased 12 primarily reflecting • 33 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 16 million increase bad debt expense regulated natural gas distribution operations primarily related low income assistance programs bad debt expenses recovered rates impact net income • 13 million increase salaries wages benefits general administrative expenses depreciation amortization increased 11 primarily due growth projects placed service impairment assets related charges increased 16 million primarily due charge writeoff balance regulatory asset longer considered probable recovery gains sales assets increased 56 primarily due increased gains agreements convey shale development rights underneath several natural gas storage fields income increased 20 primarily due 12 million increase afudc associated rateregulated projects 8 million increase nonservice cost components pension postretirement employee benefit credits partially offset absence 2016 sale portion dominion energy gas’ interest iroquois 5 million income tax expense decreased 76 primarily due benefits resulting remeasurement deferred income taxes new corporate income tax rate 197 million partially offset higher pretax income 22 million liquidity capital resources dominion energy depends internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2018 dominion energy 56 billion unused capacity credit facility see additional discussion credit facilities shortterm debt summary dominion energy’s cash flows presented operating cash flows net cash provided dominion energy’s operating activities increased 271 million primarily due commencement commercial operations liquefaction project higher merchant generation margin derivative activities favorable impact weather partially offset lower deferred fuel cost recoveries virginia jurisdiction increased interest expense onetime rate credits electric utility customers dominion energy believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares december 2018 dominion energy’s board directors established annual dividend rate 2019 367 per share common stock 100 increase 2018 rate dividends subject declaration board directors january 2019 dominion energy’s board directors declared dividends payable march 2019 9175 cents per share common stock dominion energy’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion energy’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion energy’s credit exposure december 31 2018 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 60 total net credit exposure 2 five largest counterparty exposures combined category represented less 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 2 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 26 total net credit exposure investing cash flows net cash used dominion energy’s investing activities decreased 36 billion primarily due proceeds sale certain merchant generation facilities equity method investments decreases plant construction due commencement commercial operations liquefaction project greensville county financing cash flows liquidity dominion energy relies capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings dominion energy’s ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances dominion energy currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows dominion energy use automatic shelf registration statements register offering securities exchange offers business combination transactions time dominion energy may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions tender offers otherwise net cash used dominion energy’s financing activities 2018 22 billion compared net cash provided financing activities 2017 13 billion primarily due net debt repayments 2018 compared net debt issuances 2017 partially offset issuance common stock management’s discussion analysis financial condition results operations continued credit facilities shortterm debt dominion energy uses shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties connection commodity hedging activities dominion energy required provide collateral counterparties circumstances certain collateral arrangements dominion energy may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time dominion energy may vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates dominion energy issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion energy’s commercial paper letters credit outstanding well capacity available credit facility follows 1 weightedaverage interest rate outstanding commercial paper supported dominion energy’s credit facility 293 december 31 2018 2 credit facility matures march 2023 used support bank borrowings issuance commercial paper well support combined 20 billion letters credit connection scana combination dominion energy intends terminate scana sceg psnc’s existing credit facilities limits 400 million 700 million 200 million respectively add sceg coborrower 60 billion joint revolving credit facility first quarter 2019 certain regulatory approvals obtained january 2019 virginia power sceg coborrowers filed virginia commission south carolina commission respectively approval february 2019 virginia commission approved request sceg required obtain ferc approval issue shortterm indebtedness including commercial paper assume liabilities guarantor february 2019 dominion energy terminated south carolina fuel company inc’s existing credit facility 500 million november 2017 dominion energy filed sec shelf registration statement sale 30 billion variable denomination floating rate demand notes called dominion energy reliability investmentsm registration limits principal amount may outstanding one time 10 billion notes offered continuous basis bear interest floating rate per annum determined dominion energy reliability investment committee designee weekly basis notes stated maturity date nontransferable may redeemed whole part dominion energy investor’s option time balance december 31 2018 10 million notes shortterm debt obligations dominion energy’s consolidated balance sheets proceeds used general corporate purposes repay debt march 2018 dominion energy midstream entered 500 million revolving credit facility credit facility scheduled mature march 2021 bore interest variable rate used support bank borrowings issuance commercial paper well support 250 million letters credit december 31 2018 dominion energy midstream 73 million outstanding credit facility february 2019 dominion energy midstream terminated facility subsequent repaying outstanding balance plus accrued interest october 2018 dominion energy entered credit agreement allows dominion energy issue approximately 21 million letters credit december 31 2018 approximately 21 million letters credit outstanding agreement facility terminates june 2020 february june 2018 dominion energy borrowed 950 million 500 million respectively 364day term loan agreements bore interest variable rate september 2018 principal outstanding plus accrued interest borrowings repaid longterm debt 2018 dominion energy issued following longterm public debt 2018 dominion energy also issued following longterm private debt • january 2018 dominion energy questar pipeline issued private placement 100 million 353 senior notes 150 million 391 senior notes mature 2028 2038 respectively proceeds used repay maturing longterm debt • april 2018 questar gas issued private placement 50 million 330 senior notes 100 million 397 senior notes mature 2030 2047 respectively proceeds used general corporate purposes repay shortterm debt including commercial paper • may 2018 dominion energy issued private placement 500 million variable rate senior notes mature 2020 proceeds used general corporate purposes repay shortterm debt including commercial paper november 2018 notes redeemed principal outstanding plus accrued interest • november 2018 eagle solar issued private placement 362 million 482 senior secured notes mature december 2042 debt nonrecourse dominion energy secured eagle solar’s interest certain merchant solar facilities proceeds used reimbursement equity amounts previously invested dominion energy acquisition development construction projects eagle solar 2018 dominion energy also borrowed following term loan agreement • september 2018 cove point closed 30 billion term loan secured dominion energy’s common equity interest cove point bears interest variable rate matures 2021 accordance terms term loan cove point borrowed 20 billion 10 billion september 2018 december 2018 respectively terms term loan cove point faces certain restrictions issuing additional debt divesting cove point lng facility paying distributions dominion energy taking certain actions without necessary approvals 2018 addition november 2018 redemption described dominion energy redeemed following longterm debt • march 2018 virginia power redeemed 100 million variable rate taxexempt financings would otherwise matured 2024 2026 2027 • december 2018 virginia power redeemed 14 million 560 economic development authority county chesterfield solid waste sewage disposal revenue bonds series 2007a due 2031 principal outstanding plus accrued interest • december 2018 dominion energy redeemed following outstanding series senior notes 2011 series 445 senior notes due 2021 2014 series b 250 senior notes due 2019 2014 series c 3625 senior notes due 2024 aggregate outstanding principal 17 billion plus accrued interest applicable makewhole premium 34 million see note 17 consolidated financial statements description senior note redemptions 2018 dominion energy repaid repurchased 57 billion longterm debt including redemption premiums february 2019 dominion energy midstream repaid 300 million variable rate term loan agreement due december 2019 principal outstanding plus accrued interest february 2019 scana launched tender offer certain medium term notes aggregate purchase price 300 million expires march 2019 also february 2019 sceg launched tender offer certain first mortgage bonds pursuant purchased first mortgage bonds aggregate purchase price 10 billion sceg simultaneously launched tender offer expires march 2019 certain first mortgage bonds aggregate purchase price equal 12 billion less aggregate purchase price paid tender offer noncontrolling interest dominion energy midstream may 2018 subordinated units dominion energy midstream held dominion energy converted common units 11 ratio following payment dominion energy midstream’s distribution first quarter 2018 june 2018 dominion energy general partner exercised incentive distribution right reset defined dominion energy midstream’s partnership agreement received 267 million common units representing limited partner interests dominion energy midstream result increase ownership interest dominion energy midstream dominion energy recorded decrease noncontrolling interest corresponding increase shareholders’ equity 375 million reflecting change carrying value interest net assets dominion energy midstream held others january 2019 dominion energy dominion energy midstream closed agreement plan merger pursuant dominion energy acquired outstanding common unit representing limited partner interests dominion energy midstream already owned dominion energy issuance 225 million shares common stock valued 16 billion terms agreement plan merger publicly held outstanding common unit representing limited partner interests dominion energy midstream converted right receive 02492 shares dominion energy common stock immediately prior closing series preferred unit representing limited partner interests dominion energy midstream converted common units representing limited partner interests dominion energy midstream accordance terms dominion energy midstream’s partnership agreement issuance common stock equity securities dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans currently dominion energy issuing new shares common stock direct stock purchase plans 2018 dominion energy received cash proceeds 25 billion net fees commissions issuance approximately 36 million shares common stock various programs including forward sale agreements described note 19 resulting approximately 681 million shares common stock outstanding december 31 2018 proceeds include cash 315 million issuance 45 million shares dominion energy direct® employee savings plans 2018 dominion energy issued 93 million shares received cash proceeds 692 million net fees commissions paid 7 million atthemarket programs see note 19 description atthemarket programs management’s discussion analysis financial condition results operations continued dominion energy entered march 2018 closed april 2018 separate forward sale agreements goldman sachs co llc credit suisse capital llc forward purchasers underwriting agreement credit suisse securities usa llc goldman sachs co llc representatives several underwriters named therein relating aggregate 200 million shares dominion energy common stock underwriting agreement granted underwriters 30day option purchase additional three million shares dominion energy common stock underwriters exercised respect approximately 21 million shares april 2018 dominion energy entered separate forward sale agreements forward purchasers respect additional shares december 2018 dominion energy received proceeds 14 billion upon physical settlement 221 million shares see note 19 consolidated financial statements description forward sale agreements january 2019 connection scana combination dominion energy issued 956 million shares dominion energy common stock valued 68 billion representing 06690 share dominion energy common stock share scana common stock outstanding closing scana’s outstanding debt totaled 69 billion closing also january 2019 dominion energy issued 225 million shares common stock acquire interests dominion energy midstream noted addition 2019 dominion energy plans issue shares employee savings plans direct stock purchase dividend reinvestment plans repurchase common stock dominion energy repurchase shares 2018 plan repurchase shares 2019 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion energy believes current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion energy may affect ability access funding sources cause increase return required investors dominion energy’s credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion energy affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions december 2018 moody’s standard poor’s affirmed dominion energy’s ratings changed dominion energy’s rating outlook stable negative credit ratings outlooks february 25 2019 follow 1 securities interest deferral feature 2 securities interest deferral feature downgrade individual company’s credit rating necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade could result increase cost borrowing dominion energy works closely fitch moody’s standard poor’s objective achieving targeted credit ratings dominion energy may find necessary modify business plan maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion energy must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion energy typical covenants include • timely payment principal interest • information requirements including submitting financial reports information changes dominion energy’s credit ratings lenders • performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets • compliance collateral minimums requirements related mortgage bonds • limitations liens dominion energy required pay annual commitment fees maintain credit facility addition dominion energy’s credit agreement contains various terms conditions could affect ability borrow facility include maximum debt total capital ratio crossdefault provisions december 31 2018 calculated total debt total capital ratio pursuant terms agreement follows 1 indebtedness defined bank agreements excludes certain junior subordinated remarketable subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets 2 january 1 2019 calculated total debt total capital ratio adjusted scana combination 528 dominion energy material subsidiaries fails make payment various debt obligations excess 100 million lenders could require defaulting company borrower dominion energy’s credit facility accelerate repayment outstanding borrowings lenders could terminate commitments lend funds company credit facility addition defaulting company virginia power dominion energy’s obligations repay outstanding borrowing credit facility could also accelerated lenders’ commitments dominion energy could terminate dominion energy executed rccs connection issuance june 2006 hybrids september 2006 hybrids see note 17 consolidated financial statements additional information including terms rccs december 31 2018 termination dates covered debt rccs associated dominion energy’s hybrids follows dominion energy monitors debt covenants regular basis order ensure events default occur december 31 2018 events default dominion energy’s debt covenants dividend restrictions certain agreements associated dominion energy’s credit facility contain restrictions ratio debt total capitalization limitations restrict dominion energy’s ability pay dividends receive dividends subsidiaries december 31 2018 see note 17 consolidated financial statements description potential restrictions dividend payments dominion energy including connection deferral interest payments contract adjustment payments certain junior subordinated notes equity units initially form corporate units information incorporated herein reference future cash payments contractual obligations planned capital expenditures contractual obligations dominion energy party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion energy party december 31 2018 addition see note 3 consolidated financial statements description significant contractual obligations acquired scana combination purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion energy’s current liabilities paid cash 2019 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes capital leases see note 17 consolidated financial statements information 3 includes interest payments terms debt payments related stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2018 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements reflect dominion energy’s ability defer interest stock purchase contract payments certain junior subordinated notes rsns equity units initially form corporate units 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 includes capital operations maintenance commitments 6 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 29 million income taxes payable associated unrecognized tax management’s discussion analysis financial condition results operations continued benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 7 includes interest rate foreign currency swap agreements planned capital expenditures dominion energy’s planned capital expenditures expected total approximately 63 billion 73 billion 69 billion 2019 2020 2021 respectively dominion energy’s planned expenditures expected include construction expansion electric generation natural gas transmission storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel maintenance expected contributions atlantic coast pipeline dominion energy expects fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors see power delivery power generation gas infrastructure southeast energyproperties item 1 business discussion dominion energy’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion energy’s board directors late 2018 subject continuing review adjustment actual capital expenditures may vary estimates dominion energy may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements leasing arrangement july 2016 dominion energy signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 365 million fund estimated project costs project expected completed mid2019 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 281 million december 31 2018 project terminated certain events default dominion energy could required pay 899 funded amount specific full recourse events dominion energy could required pay 100 funded amount fiveyear lease term commence construction substantially complete facility able occupied end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 87 project costs difference project costs sale proceeds respective transactions structured dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements accordance revised accounting guidance pertaining recognition measurement presentation disclosure leasing arrangements effective january 2019 dominion energy expects recognize rightofuse asset corresponding finance lease liability commencement lease term dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense guarantees dominion energy primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others addition dominion energy provided guarantee support portion atlantic coast pipeline’s obligation 34 billion revolving credit facility see note 22 consolidated financial statements additional information incorporated herein reference future issues matters see item 1 business notes 13 22 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion energy subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion energy incurred 198 million 200 million 394 million expenses including accretion depreciation 2018 2017 2016 respectively connection environmental protection monitoring activities dominion energy expects expenses approximately 191 million 183 million 2019 2020 respectively addition capital expenditures related environmental controls 104 million 201 million 191 million 2018 2017 2016 respectively dominion energy expects expenditures approximately 192 million 203 million 2019 2020 respectively future environmental regulations air august 2018 epa proposed affordable clean energy rule replacement clean power plan affordable clean energy rule applies fossil fuelfired steam electric generating units greater equal 25 mw however apply combustion turbines units burn biomass proposed rule includes unitspecific performance standards based degree emission reduction levels achievable unit efficiency improvements determined permitting agency affordable clean energy rule would require states develop plans within three years final rule implement performance standards state plans must approved epa given developments associated federal state regulatory legal uncertainties dominion energy cannot predict potential financial statement impacts believes potential expenditures comply could material climate change december 2015 paris agreement formally adopted united nations framework convention climate change key element initial us commitment agreement implementation clean power plan epa proposed repeal june 2017 administration announced us intends file withdraw paris agreement 2019 several states including virginia subsequently announced commitment achieving carbon reduction goals paris agreement possible time predict timing impact withdrawal legal requirements us federal state local levels pursuant paris agreement could impact companies’ customers business state actions related air ghg emissions august 2017 ozone transport commission released draft model rule control nox emissions natural gas pipeline compressor fuelfire prime movers states within ozone transport region including states dominion energy natural gas operations expected develop reasonably achievable control technology rules existing sources based ozone transport commission model rule states outside ozone transport commission may also consider model rules setting new reasonably achievable control technology standards january 2018 vdeq published comment proposed state carbon regulation program linked rggi february 2019 vdeq proposed revised rule 28 million ton initial carbon cap 15 lower original proposal based revised modeling uses projections lower natural gas prices additional solar capacity final rule expected mid2019 several states dominion energy operates including pennsylvania new york maryland ohio developing announced plans develop statespecific regulations control ghg emissions including methane dominion energy cannot currently estimate potential financial statement impacts related matters could material impact financial condition andor cash flows phmsa regulation recent reauthorization phmsa included new provisions historical records research maximumallowed operating pressure validation use automated remotecontrolled valves new replaced lines increased civil penalties evaluation expanding integrity management beyond highconsequence areas phmsa yet issued new rulemaking items doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets cea amended title vii doddfrank act requires certain overthe counter derivatives swaps cleared derivatives clearing organization swap subject clearing requirement executed designated contract market swap execution facility nonfinancial entities use swaps hedge mitigate commercial risk often referred end users may elect enduser exception cea’s clearing requirements dominion energy elected exempt swaps cea’s clearing requirements result changes rulemaking process dominion energy’s derivative activities exempted clearing exchange trading margin requirements could subject higher costs due decreased market liquidity increased margin payments addition dominion energy’s swap dealer counterparties may attempt passthrough additional trading costs connection changes elimination rulemaking implements title vii doddfrank act due evolving rulemaking process dominion energy currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows virginia legislation february 2019 legislation passed virginia general assembly awaiting signature governor virginia would require ccr unit located virginia power’s bremo chesapeake chesterfield possum point power stations stop accepting ccr prior july 2019 closed removing ccr approved landfill recycling beneficial reuse legislation would require least 68 million cubic yards ccr beneficially reused costs associated closure ccr units recoverable rate adjustment clause approved virginia commission revenue requirement cannot exceed 225 million 12month period impacts rule could material dominion energy virginia power’s financial condition andor cash flows rate adjustment clause would substantially mitigate impact dominion energy virginia power’s results operations atlantic coast pipeline september 2014 dominion energy along duke southern company gas announced formation atlantic coast pipeline atlantic coast pipeline focused constructing approximately 600mile natural gas pipeline running west virginia north carolina third fourth quarters 2018 ferc stop work order together delays obtaining permits necessary construction delays construction due judicial actions impacted cost schedule project result project management’s discussion analysis financial condition results operations continued cost estimates increased 60 billion 65 billion 70 billion 75 billion excluding financing costs atlantic coast pipeline expects achieve late 2020 inservice date least key segments project remainder may extend early 2021 alternatively takes longer resolve judicial issues appeal supreme court us full inservice could extend end 2021 total project cost estimated increase additional 250 million resulting total project cost estimates 725 billion 775 billion excluding financing costs abnormal weather work delays including due judicial regulatory action conditions may result cost schedule modifications future could result material impact dominion energy’s cash flows financial position andor results operations north anna virginia power considering construction third nuclear unit site located north anna virginia power decides build new unit would require combined construction permit operating license nrc approval virginia commission certain environmental permits approvals june 2017 nrc issued combined construction permit operating license virginia power yet committed building new nuclear unit north anna matters management currently plans may affect carrying value millstone based potential future economic factors including limited market power prices results capacity auctions legislative regulatory solutions ensure nuclear plants fairly compensated carbonfree generation impact potential epa carbon rules risk millstone may evaluated early retirement date management make decision potential early retirement date precise date resulting financial statement impacts could material dominion energy may affected number factors including potential regulatory legislative solutions results transmission system reliability study assessments decommissioning requirements among factors item 7a item 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations mda discusses results operations general financial condition virginia electric power company mda read conjunction consolidated financial statements terms “virginia power” “company” “we” “our” “us” used throughout report depending context use may represent following legal entity virginia electric power company one virginia electric power company’s consolidated subsidiaries operating segments entirety virginia electric power company consolidated subsidiaries whollyowned subsidiary dominion resources inc dominion contents mda consists following information · forwardlooking statements · introduction · accounting matters · results operations · segment results operations · selected informationenergy trading activities · sources uses cash · future issues matters forwardlooking statements report contains statements concerning expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” similar words make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited · unusual weather conditions effect energy sales customers energy commodity prices · extreme weather events including hurricanes winter storms cause outages property damage facilities · state federal legislative regulatory developments including deregulation changes environmental laws regulations subject · cost environmental compliance · risks associated operation nuclear facilities · fluctuations energyrelated commodity prices effect could earnings liquidity position underlying value assets · capital market conditions including price risk due marketable securities held investments nuclear decommissioning benefit plan trusts · fluctuations interest rates · changes rating agency requirements credit ratings effect availability cost capital · changes financial regulatory accounting principles policies imposed governing bodies · employee workforce factors including collective bargaining agreements labor negotiations union employees · risks operating businesses regulated industries subject changing regulatory structures · changes ability recover investments made traditional regulation rates · transitional issues related transfer control electric transmission facilities regional transmission organization · political economic conditions including threat domestic terrorism inflation deflation additionally risks could cause actual results differ predicted results set forth item 1a risk factors forwardlooking statements based beliefs assumptions using information available time statements made caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results undertake obligation update forwardlooking statement reflect developments occurring statement made introduction virginia electric power company virginia public service company whollyowned subsidiary dominion regulated public utility generates transmits distributes electricity within area approximately 30000 square miles virginia northeastern north carolina serve approximately 23 million retail customer accounts including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 virginia’s total land area accounts 80 population december 31 2005 completed transfer indirect whollyowned subsidiary virginia power energy marketing inc vpem dominion series dividend distributions exchange capital contribution vpem provides fuel risk management services us acting agent one indirect whollyowned subsidiaries continue provide services following transfer vpem also engages energy trading activities provides price risk management services dominion affiliates use derivative contracts owned vpem certain derivative contracts required reported fair value consolidated balance sheets changes fair value reflected earnings price risk management activities dominion affiliates generated derivative gains losses turn affected consolidated financial statements result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation businesses managed three primary operating segments delivery energy generation contributions net income primary operating segments determined based measure profit believe represents segments’ core earnings result certain specific items attributable segments included profit measures evaluated management assessing segment performance allocating resources among segments specific items reported corporate segment delivery includes electric distribution customer service business electric distribution operations serve residential commercial industrial governmental customers virginia northeastern north carolina revenue provided electric distribution operations based primarily rates established state regulatory authorities state law profitability business dependent ability rates permitted charge recover costs earn reasonable return capital investments variability earnings relates largely changes volumes primarily weather sensitive changes cost routine maintenance repairs including labor benefits energy includes regulated electric transmission system located virginia northeastern north carolina may 1 2005 electric transmission business became member pjm interconnection llc pjm regional transmission organization rto result integrated control area pjm energy markets revenue provided regulated electric transmission operations based primarily rates established federal energy regulatory commission ferc profitability business dependent ability rates permitted charge recover costs earn reasonable return capital investments variability results changes rates demand services primarily weather dependent operating maintenance expenditures including labor benefits generation includes portfolio electric generating facilities energy supply operations generation mix diversified includes coal nuclear gas oil hydro purchased power electric generation operations serve customers virginia northeastern north carolina generation facilities located virginia west virginia north carolina energy supply operations responsible managing capacity needs utility system resources generation’s earnings result generation sale electricity due 2004 deregulation legislation revenues serving virginia jurisdictional retail load based capped rates 2010 fuel costs utility fleet including power purchases subject fixed rate recovery provisions july 1 2007 onetime prospective adjustment made effective december 2010 changes utility operating costs particularly respect fuel purchased power relative costs used establish rates impact earnings variability also results changes demand primarily weather dependent cost labor benefits timing duration costs outages corporate includes corporate functions net impact vpem specific items attributable primary operating segments excluded profit measures evaluated management assessing segment performance allocating resources among segments accounting matters critical accounting policies estimates identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions discussed development selection disclosure policies board directors also serves audit committee accounting derivative contracts fair value use derivative contracts futures swaps forwards options financial transmission rights ftrs buy sell energyrelated commodities manage commodity financial markets risks derivative contracts certain exceptions subject fair value accounting reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies fair value derivatives based actively quoted market prices available absence actively quoted market prices seek indicative price information external sources including broker quotes industry publications pricing information external sources available must estimate prices based available historical nearterm future price information use statistical methods options contracts optionlike characteristics pricing information available external sources generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different valuation models assumptions could material effect contract’s estimated fair value cash flow hedges forecasted transactions must estimate future cash flows forecasted transactions well evaluate probability occurrence timing transactions changes conditions occurrence unforeseen events could require discontinuance hedge accounting could affect timing reclassification gains andor losses cash flow hedges accumulated comprehensive income loss aoci earnings use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicating impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including selection appropriate discount rate although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors expected use asset including future production sales levels expected fluctuations prices commodities sold consumed 2005 2004 test significant longlived assets asset groups impairment circumstances arose indicated impairment may exist asset retirement obligations recognize liabilities expected cost retiring tangible longlived assets legal obligation exists asset retirement obligations aros recognized fair value incurred capitalized part cost related tangible longlived assets absence quoted market prices estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates aros currently reported consolidated balance sheets measured period historically low interest rates impact measurements new aros using different rates future may significant future revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset record accretion expense increasing aro liability passage time 2005 2004 2003 recognized 44 million 42 million 38 million respectively accretion expense expect incur 47 million 2006 significant portion aros relate future decommissioning nuclear facilities december 31 2005 nuclear decommissioning aros reported generation segment totaled 798 million representing approximately 96 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated nuclear decommissioning obligations obtain thirdparty experts periodic sitespecific “base year” cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods nature highly uncertain may vary significantly actual results addition cost estimates dependent subjective factors including selection cost escalation rates consider critical assumption determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facilities use alternative rates would material liabilities recognized example increased cost escalation rate 05 amount recognized december 31 2005 aros related nuclear decommissioning would 156 million higher accounting regulated operations accounting regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements specifically regulated businesses record assets liabilities nonregulated companies would report accounting principles generally accepted united states america probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred regulatory assets amortized expense regulatory liabilities amortized income recovery period authorized regulator evaluate whether recovery regulatory assets future regulated rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory assets determined less probable regulatory asset written expense recorded period assessment made currently believe recovery regulatory assets probable see notes 2 12 consolidated financial statements income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret differently establish liabilities taxrelated contingencies accordance statement financial accounting standards sfas 5 accounting contingencies review light changing facts circumstances ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material addition deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes evaluate quarterly probability realizing deferred tax assets reviewing forecast future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets newly adopted accounting standards 2005 2004 2003 required adopt several new accounting standards requirements discussed note 3 consolidated financial statements adoption financial accounting standards board fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r december 31 2003 respect special purpose entities affected comparability 2005 2004 consolidated statements income 2003 follows · required consolidate variable interest lessor entity financed leased new power generation project 2005 2004 consolidated statements income reflect depreciation expense net property plant equipment interest expense debt associated variable interest lessor entity whereas 2003 lease payments entity reflected rent expense operations maintenance expense · addition fin 46r report longterm debt junior subordinated notes held capital trust rather trust preferred securities issued trust result 2005 2004 reported interest expense junior subordinated notes rather preferred distribution expense trust preferred securities results operations presented summary contributions operating segments net income overview 2005 vs 2004 combined net income contribution primary operating segments decreased 28 539 million compared 2004 primarily reflecting lower contribution generation segment lower contribution largely due higher fuel purchased power expenses primarily resulting higher commodity prices decrease net income also impacted following items recognized 2005 reported corporate segment · 471 million aftertax losses associated vpem · 47 million aftertax charge resulting termination longterm power purchase agreement · 8 million aftertax charge related sale interest longterm power tolling contract · 4 million aftertax charge cumulative effect accounting change result adoption fasb interpretation 47 accounting conditional asset retirement obligations fin 47 addition decrease net income impacted items recognized 2004 reported corporate segment discussed detail 2004 vs 2003 net income decreased 2 744 million compared 2003 largely reflecting lower contribution generation segment primarily resulting elimination fuel deferral accounting virginia jurisdiction elimination fuel deferral accounting virginia jurisdiction resulted recognition fuel expenses excess amounts recovered fixed fuel rates decrease net income also impacted following items recognized 2004 reported corporate segment · 159 million aftertax losses associated vpem · 112 million aftertax charge related interest longterm power tolling contract divested 2005 connection exit certain energy trading activities · 43 million net aftertax charges resulting termination certain longterm power purchase agreements · 7 million aftertax charge related agreement settle class action lawsuit involving dispute rights lease fiberoptic cable along portion electric transmission corridor partially offset · 11 million aftertax benefit reduction expenses accrued 2003 associated hurricane isabel restoration activities addition decrease net income impacted following items recognized 2003 reported corporate segment · 122 million aftertax incremental restoration expenses associated hurricane isabel · 77 million aftertax charge resulting termination two longterm power purchase agreements restructuring certain electric sales contracts · 21 million net aftertax loss cumulative effect changes accounting principles resulting adoption several new accounting standards · 5 million aftertax severance costs associated workforce reductions partially offset · 26 million aftertax benefit associated vpem analysis consolidated operations presented selected amounts related results operations analysis results operations 2005 compared 2004 compared 2003 follows 2005 vs 2004 operating revenue increased 6 57 billion primarily reflecting · 363 million increase regulated electric sales reflecting 153 million increase sales wholesale customers 99 million increase due impact comparatively higher fuel rate nonvirginia jurisdictional customers 77 million increase primarily due impact comparably favorable weather customer usage 59 million increase associated new customer connections partially offset 25 million decrease due variations seasonal rate premiums discounts fuel rate increase offset increase electric fuel energy purchases expense · 22 million decrease revenue primarily attributable decrease offsystem sales operating expenses items electric fuel energy purchases expense increased 46 26 billion reflecting increase related generation operations primarily resulting higher commodity prices including purchased power congestion costs associated pjm purchased electric capacity expense decreased 13 477 million resulting termination several longterm power purchase agreements connection purchase related generating facilities 2004 2005 operations maintenance expense decreased 24 945 million primarily reflecting · 186 million benefit related ftrs granted pjm us loadserving entity offset congestion costs associated pjm spot market activity included electric fuel energy purchases expense · 54 million gain resulting sale emissions allowances future sales dependent market liquidity factors · net benefit following items recognized 2004 · 184 million charge related sale interest longterm power tolling contract · 71 million charge resulting termination three longterm power purchase agreements partially offset · 18 million benefit reduction accrued expenses associated hurricane isabel restoration activities benefits partially offset following charges 2005 · 77 million charge resulting termination longterm power purchase agreement · 36 million increase salaries wages benefits expense resulting higher incentivebased compensation wages pension benefits · 17 million increase operating expenses related nonutility generating facilities acquired subsequent september 2004 depreciation amortization expense increased 6 527 million due incremental expense resulting property additions income increased 43 70 million primarily reflecting 9 million increase net realized gains including investment income associated nuclear decommissioning trust fund investments 3 million increase rental income 2 million increase interest income interest related charges increased 29 322 million primarily reflecting impact prepayment penalties resulting early redemption debt additional borrowings higher interest rates variable rate debt loss discontinued operations increased result unfavorable price changes unsettled commodity derivative contracts primarily used execute price risk management activities undertaken behalf affiliates 2004 vs operating revenue increased 3 54 billion primarily reflecting · 304 million increase regulated electric sales primarily due 231 million increase result impact comparatively higher fuel rate increased sales volumes 49 million increase customer growth associated new customer connections rate increase resulted settlement virginia fuel rate case december 2003 increase offset increase electric fuel energy purchases expense partially offset · 124 million decrease revenue primarily due 123 million decline trading revenue resulting transfer certain wholesale electric contracts dominion subsidiary 2003 82 million decrease volumes nonregulated coal sales partially offset 58 million increase offsystem sales operating expenses items electric fuel energy purchases expense increased 19 18 billion primarily reflecting · 408 million increase related utility generation operations resulting combined effects increase fixed fuel rate elimination fuel deferral accounting virginia jurisdiction resulted recognition fuel expenses excess amounts recovered fixed fuel rates increase also reflected higher generation volumes current year partially offset · 130 million decrease primarily associated transfer certain wholesale electric contracts dominion subsidiary 2003 purchased electric capacity expense decreased 9 550 million driven termination certain longterm power purchase agreements result purchase related nonutility generating facilities energyrelated commodity purchases expense decreased 69 38 million primarily reflecting decrease cost coal purchased resale depreciation amortization expense increased 8 496 million due incremental expense resulting property additions including consolidation variable interest lessor entity result adopting fin 46r december 31 2003 income decreased 38 49 million primarily reflecting lower net realized gains including investment income associated nuclear decommissioning trust fund investments 12 million decreased interest income 8 million decreased net gains disposition assets 5 million interest related charges decreased 17 249 million primarily due refinancing callable mortgage bonds lower cost unsecured debt december 2003 loss discontinued operations increased result unfavorable price changes unsettled commodity derivative contracts primarily used execute price risk management activities undertaken behalf affiliates outlook believe operating businesses provide stable growth net income 2006 following growth factors impact expected results · continued growth utility customers · losses 2005 related vpem recur growth factors 2006 partially offset · potential decrease regulated electric sales compared 2005 assuming utility service territory experiences return normal weather 2006 · increased pension benefits expense · increased interest expense based projections estimate cash flow operations increase 2006 compared 2005 management believes increase provide sufficient cash flow maintain grow current dividend dominion segment results operations delivery includes electric distribution system customer service operations mwhrs megawatt hours presented aftertax basis key factors impacting delivery segment’s operating results 2005 vs 2004 1 benefit resulting establishment certain regulatory assets connection settlement north carolina rate case first quarter 2005 2 change seasonal allocation electric utility base rate revenue among primary operating segments effective january 1 2005 2004 vs 2003 1 higher reliability expenses primarily due increased tree trimming 2 factors including increase pension expense energy includes electric transmission operations presented aftertax basis key factors impacting energy segment’s operating results 2005 vs 2004 1 writeoff certain previously deferred startup integration costs associated joining rto allocable virginia nonjurisdictional wholesale customers 2004 vs 2003 1 increase due transfer certain wholesale electric contracts another dominion subsidiary 2003 2 lower electric transmission revenue primarily due decreased wheeling revenue resulting lower contractual volumes unfavorable market conditions generation includes portfolio electric generating facilities power purchase agreements energy supply operations generation segment provides electricity primarily nuclear coal oil purchased power natural gas presented summary system’s energy output energy source 1 excludes old dominion electric cooperative’s odec 116 ownership interest north anna power station 2 excludes odec’s 50 ownership interest clover power station 3 includes natural gas used combustion turbines fueled gas 4 excludes offsystem sales presented aftertax basis key factors impacting generation segment’s operating results 2005 vs 2004 1 increase energy supply margin primarily reflects benefit related ftrs 2004 vs 2003 1 increase reflects loss revenue 2003 associated outages related hurricane isabel corporate includes corporate functions specific items presented corporate segment’s aftertax results reported net loss 529 million corporate segment primarily reflecting 471 million aftertax losses 2005 incurred vpem also reported following specific items reported operations maintenance expense attributable primary operating segments · 77 million 47 million aftertax charge connection termination longterm power purchase agreement generation · 13 million 8 million aftertax charge related sale interest longterm power tolling contract generation reported net loss 313 million corporate segment including 159 million losses incurred 2004 related vpem operations well following items · 184 million 112 million aftertax charge related sale interest longterm power tolling contract generation · 71 million 43 million aftertax charges termination three longterm power purchase agreements generation · 12 million 7 million aftertax charge related agreement settle class action lawsuit involving dispute rights lease fiberoptic cable along portion electric transmission corridor energy partially offset · 18 million 11 million aftertax benefit reduction expenses accrued 2003 associated hurricane isabel restoration activities delivery addition 26 million income vpem operations reported following items corporate segment · 122 million aftertax incremental restoration expenses associated hurricane isabel · 77 million aftertax charge resulting termination two longterm power purchase agreements restructuring certain electric sales contracts · 5 million aftertax severance costs associated workforce reductions · 21 million net aftertax charge cumulative effect changes accounting principles resulting adoption following new accounting standards · 139 million aftertax benefitadoption sfas 143 accounting asset retirement obligations · 101 million aftertax chargeadoption sfas 133 implementation issue c20 interpretation meaning “not clearly closely related” paragraph 10b regarding contracts price adjustment feature · 55 million aftertax chargeadoption emerging issues task force issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities · 4 million aftertax chargeadoption fin 46r selected informationenergy trading activities previously engaged energy trading marketing activities vpem december 31 2005 vpem transferred dominion result transfer longer perform energy trading marketing activities summary changes unrealized gains losses recognized energyrelated derivative instruments held trading purposes 2005 follows sources uses cash depend internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operating activities generally satisfied proceeds shortterm borrowings longterm cash needs met sales securities additional longterm financing december 31 2005 cash equivalents 54 million 207 million unused capacity joint credit facility cash flows discontinued operations impact vpem’s operations consolidated statements cash flows presented expect transfer vpem dominion negative impact future liquidity operating cash flows presented consolidated statements cash flows net cash flows operating activities 15 billion 2005 11 billion 2004 12 billion 2003 believe operations provide stable source cash flow sufficient contribute planned levels capital expenditures maintain grow current dividends payable dominion operations subject risks uncertainties may negatively impact timing amounts operating cash flows including · costrecovery shortfalls due capped base rates fixed fuel recovery provisions effect virginia generation operations · unusual weather effect energy sales customers energy commodity prices · extreme weather events could disrupt cause catastrophic damage electric distribution transmission systems · exposure unanticipated changes prices energy commodities purchased sold · effectiveness risk management activities underlying assessment market conditions related factors including energy commodity prices basis liquidity volatility counterparty credit risk availability generation transmission capacity currency exchange rates interest rates · cost replacement electric energy event longerthanexpected unscheduled generation outages · contractual regulatory restrictions transfers funds among us dominion subsidiaries credit risk exposure credit risk concentrated primarily within vpem’s energy commodity trading risk management activities performed behalf dominion affiliates vpem transacted smaller less diverse group counterparties transactions involved large notional volumes volatile commodity prices result transfer vpem december 31 2005 significant exposure credit risk investing cash flows 2005 2004 2003 investing activities resulted net cash outflows 800 million 835 million 11 billion respectively significant investing activities 2005 included 741 million plant construction property additions 111 million nuclear fuel expenditures addition investing activities 2005 included 311 million used purchases securities 257 million proceeds sales securities related investments held nuclear decommissioning trusts investing activities also reflect 56 million proceeds sale emissions allowances financing cash flows liquidity rely banks capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory approvals including authorization virginia state corporation commission virginia commission december 2005 securities exchange commission sec adopted rules modify registration communications offering processes securities act 1933 rules streamline shelf registration process provide registrants timely access capital new rules meet definition wellknown seasoned issuer allows us use automatic shelf registration statement register offering securities business combination transactions 2005 2004 2003 net cash flows used financing activities 644 million 338 million 160 million respectively joint credit facilities shortterm debt use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing level borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations may 2005 entered 25 billion fiveyear revolving credit facility dominion consolidated natural gas company cng whollyowned subsidiary dominion replaced 15 billion threeyear facility dated may 2004 750 million threeyear facility dated may 2002 credit facility also used support 125 billion letters credit financial policy precludes issuing commercial paper excess supporting lines credit december 31 2005 total commercial paper outstanding joint credit facility 14 billion total amount letter credit issuances 892 million leaving approximately 207 million available issuance required pay minimal annual commitment fees maintain credit facility addition joint credit agreement contains various terms conditions could affect ability borrow funds facility include maximum debt total capital ratios material adverse change clauses crossdefault provisions credit facility includes defined maximum total debt total capital ratio debt total capital defined agreement exceed 65 end fiscal quarter december 31 2005 calculated debt total capital ratio 46 agreement’s crossdefault provisions material subsidiaries fail make payment various debt obligations excess 25 million may required lenders accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds us however defaults indebtedness dominion cng material subsidiaries affiliates would affect lenders’ commitment us joint credit agreement longterm debt february 2005 connection acquisition nonutility generating facility panda rosemary lp rosemary assumed 62 million rosemary’s 8625 senior notes mature 2016 addition february april 2005 issued 2 million 6 million respectively 725 promissory notes mature 2025 2032 respectively exchange electric distribution facilities certain military bases connection privatization january 2006 issued 450 million 54 senior notes mature 2016 550 million 60 senior notes mature 2036 used proceeds issuance repay shortterm debt 2005 repaid 532 million longterm debt securities common shareholder’s equity 2005 recorded contributed capital 633 million related transfer investment vpem dominion 200 million connection conversion shortterm borrowings 2004 recorded 11 million paidin capital connection reduction amounts payable dominion 2004 issued 20115 shares common stock dominion cash consideration 500 million used proceeds part pay 345 million affiliated shortterm demand note dominion borrowings parent borrowed funds dominion shortterm longterm borrowing arrangements december 31 2004 vpem borrowings dominion shortterm demand notes totaling 645 million february 2005 outstanding demand note borrowings converted borrowings dominion money pool borrowed additional funds dominion shortterm demand notes september 2005 200 million subsequently converted contributed capital third quarter december 31 2005 remaining outstanding shortterm note borrowings dominion nonregulated subsidiaries outstanding dominion money pool borrowings totaling 12 million december 31 2005 2004 borrowings longterm note totaled 220 million incurred interest charges related shortterm longterm borrowings 9 million 6 million december 31 2005 2004 respectively credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related us may affect ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing credit ratings credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies “event risk” applicable credit ratings february 1 2006 follow credit ratings reflect standard poor’s december 2005 downgrade credit ratings senior unsecured debt securities standard poor’s concluded fuel expenses excess rate recovery caused deterioration financial performance level commensurate bbb rating material improvement credit profile midyear 2007 january 2006 moody’s announced placed credit ratings review possible downgrade citing recent financial performance weaker expected decline funds operations higher expected leverage moody’s review expected completed within three months february 1 2006 fitch ratings ltd fitch standard poor’s maintain stable outlook ratings company generally downgrade credit rating would restrict ability raise shortterm longterm financing long credit rating remains “investment grade” would increase cost borrowing work closely fitch moody’s standard poor’s objective maintaining current credit ratings order maintain current ratings may find necessary modify business plans changes may adversely affect growth debt covenants part borrowing funds issuing debt shortterm longterm preferred securities must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock dominion including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique us typical covenants include · timely payment principal interest · information requirements including submitting financial reports filed sec lenders · performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantial assets · compliance collateral minimums requirements related mortgage bonds · limitations liens monitor covenants regular basis order ensure events default occur december 31 2005 events default covenants future cash payments contractual obligations planned capital expenditures contractual obligations party numerous contracts arrangements obligating us make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services presented table summarizing cash payments may result contracts party december 31 2005 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed market based prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable interest rate swaps majority current liabilities paid cash 2006 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 reflect ability defer distributions related junior subordinated notes payable affiliated trusts 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 primarily includes interest rate swap agreements excludes regulatory liabilities aros contractually fixed timing amount see notes 12 13 consolidated financial statements deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year planned capital expenditures planned capital expenditures 2006 2007 expected total approximately 946 million 11 billion respectively expect fund capital expenditures cash operations combination securities issuances shortterm borrowings included total planned capital expenditures following capacity based available generation capacity current estimates growth customer demand likely need additional baseload generation future however currently definite plans build new baseload generating units nearterm continue evaluate development new plants meet customer demand additional generation needs future 2008 continue meet additional capacity energy requirements pjm market purchases plant equipment annual capital expenditures plant equipment 2006 including environmental upgrades construction improvements expected total approximately follows · generation nuclear fuel 448 million · transmission 122 million · distribution 376 million future issues matters status electric deregulation virginia electric utility restructuring act virginia restructuring act enacted 1999 established plan restructure electric utility industry virginia restructuring act addressed among things capped base rates rto participation retail choice recovery stranded costs functional separation utility’s electric generation electric transmission distribution operations retail choice available virginia regulated electric customers since january 1 2003 also separated generation distribution transmission functions creation divisions state regulatory requirements ensure generation divisions operate independently prevent crosssubsidies generation divisions 2004 virginia restructuring act virginia fuel factor statute amended amendments · extend capped base rates december 31 2010 unless modified terminated earlier virginia restructuring act · lock fuel factor provisions earlier july 1 2007 termination capped rates virginia restructuring act adjustment previously incurred overrecovery underrecovery fuel costs thus eliminating deferred fuel accounting virginia jurisdiction · provide onetime adjustment fuel factor effective july 1 2007 december 31 2010 unless capped rates terminated earlier virginia restructuring act adjustment previously incurred overrecovery underrecovery fuel costs · end wires charges earlier july 1 2007 termination capped rates fuel prices increased considerably since virginia fuel factor provisions frozen resulted fuel expenses significantly excess rate recovery expect fuel expenses continue exceed rate recovery fuel factor adjusted july 2007 adjustment underrecovery fuel costs including purchased power costs date fuel factor adjusted july 2007 remain subject risk fuel factorrelated cost recovery shortfalls may adversely affect margins conversely could experience positive economic impact extent reduce fuel factorrelated costs electric utility generationrelated operations amendments virginia restructuring act also enacted 2004 respect minimum stay exemption program wires charge exemption program development coalfired generating plant southwest virginia serving default service needs minimum stay exemption program large customers load 500 kilowatts greater would exempt twelvemonth minimum stay obligation capped rates return supply service incumbent utility marketbased pricing switched supply service competitive service provider wires charge exemption program would allow large industrial commercial customers well aggregated customers rate classes avoid paying wires charges selecting electricity supply service competitive service provider agreeing marketbased pricing upon return incumbent utility 2006 wires charges set zero rate classes february 2005 joined consortium explore development coalfired electric power station southwest virginia stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market december 31 2005 exposure potential stranded costs included longterm power purchase contracts could ultimately determined market generating plants could possibly become uneconomical deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements believe capped electric retail rates provide opportunity recover potential stranded costs depending market prices electricity factors recovery potential stranded costs remains subject numerous risks even cappedrate environment include among others exposure longterm power purchase commitment losses future environmental compliance requirements changes certain tax laws nuclear decommissioning costs increased fuel costs inflation increased capital costs recovery certain items generationrelated cash flows provided virginia restructuring act intended compensate us continuing provide generation services allow us incur costs restructure operations transition period result transition period earnings may increase extent reduce operating costs utility generationrelated operations conversely risks affecting recovery stranded costs may also adversely impact margins transition period accordingly could realize negative economic impact adverse event using cash flows operations transition period may alter cost structure choose make additional investments business energy policy act 2005 epact august 2005 president united states signed epact key provisions epact include following · repeal 1935 act february 2006 · establishment selfregulating electric reliability organization governed independent board ferc oversight · provision greater regulatory oversight federal state authorities · extension price anderson act 20 years 2025 · provision standby financial support production tax credits new nuclear plants · grant enhanced merger approval authority ferc · provision authority ferc siting certain electric transmission facilities states cannot act timely manner many changes congress enacted must implemented public notice proposed rule making federal agencies affected process ongoing continue evaluate effects epact may business environmental matters subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations historically recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2010 excess level currently included virginia jurisdictional electric retail rates results operations decrease date recovery regulated rates may sought environmental costs related regulated electric transmission distribution operations recovery generation component rates dependent upon market price electricity environmental protection monitoring expenditures incurred approximately 134 million 115 million 100 million expenses including depreciation 2005 2004 2003 respectively connection environmental protection monitoring activities expect expenses approximately 137 million 131 million 2006 2007 addition capital expenditures related environmental controls 42 million 84 million 197 million 2005 2004 2003 respectively expenditures expected approximately 166 million 179 million 2006 2007 clean air act compliance required clean air act reduce air emissions various air pollutants byproducts fossil fuel combustion act’s new clean air interstate rule clean air mercury rule require significant reductions future so2 nox mercury emissions electric generating facilities require capital expenditures act’s existing so2 nox reduction programs already include · issuance limited number so2 emissions allowances allowance permits emission one ton so2 atmosphere · nox emission limitations applicable ozone season months may september annual average basis · so2 nox allowances may transacted third party implementation projects comply so2 nox mercury limitations state emission control programs ongoing influenced changes regulatory environment availability allowances emission control technology response requirements estimate make capital expenditures affected generating facilities approximately 700 million period 2006 2010 future environmental regulations united states us congress considering various legislative proposals would require generating facilities comply stringent air emissions standards emission reduction requirements consideration would phased variety periods 15 years new proposals adopted additional significant expenditures may required 1997 us signed international protocol limit manmade greenhouse emissions united nations framework convention climate change however protocol become binding unless approved us senate currently bush administration indicated pursue ratification protocol set voluntary goal reducing nation’s greenhouse gas emission intensity 18 period 20022012 several legislative proposals include provisions seeking impose mandatory reductions greenhouse gas emissions consideration us congress cost compliance protocol mandatory greenhouse gas reduction obligations could significant given highly uncertain outcome timing future action us federal government issue cannot predict financial impact future climate change actions operations time restructuring contracts nonutility generator october 2005 reached agreement principle restructure three longterm power purchase contracts restructured contracts expire 2015 2017 expected reduce capacity energy payments approximately 44 million 6 million respectively remaining term contracts transaction became effective february 2006 result cash outlay charge earnings item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s virginia power’s results operations general financial condition mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data contents mda consists following information  forwardlooking statements  accounting matters  dominion  results operations  segment results operations  virginia power  results operations  segment results operations  liquidity capital resources  future issues matters forwardlooking statements report contains statements concerning dominion’s virginia power’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words dominion virginia power make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events natural disasters including hurricanes high winds severe storms earthquakes cause outages property damage facilities  federal state local legislative regulatory developments  changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs emissions extensive permitting requirements regulation additional substances  cost environmental compliance including costs related climate change  risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities  unplanned outages companies’ facilities  fluctuations energyrelated commodity prices effect could dominion’s earnings dominion’s virginia power’s liquidity position underlying value assets  counterparty credit performance risk  capital market conditions including availability credit ability obtain financing reasonable terms  risks associated virginia power’s membership participation pjm including risks related obligations created default participants  price risk due investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion  fluctuations interest rates  changes federal state tax laws regulations  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  receipt approvals timing closing dates acquisitions divestitures  changes rules rtos isos dominion virginia power participate including changes rate designs pricing rules involving revenue calculations new evolving capacity models  political economic conditions including inflation deflation  domestic terrorism threats companies’ physical intangible assets well threats cybersecurity  industrial commercial residential growth decline companies’ service areas changes customer growth usage patterns including result energy conservation programs  additional competition electric markets dominion’s merchant generation facilities operate  changes technology particularly respect new developing alternative sources generation smart grid technologies  changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion  timing receipt regulatory approvals necessary planned construction expansion projects  inability complete planned construction projects within terms time frames initially anticipated  adverse outcomes litigation matters additionally risks could cause actual results differ predicted results set forth item 1a risk factors accounting matters critical accounting policies estimates dominion virginia power identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion virginia power discussed development selection disclosure policies audit committees boards directors virginia power’s board directors also serves audit committee accounting regulated operations accounting virginia power’s regulated electric dominion’s regulated gas operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs deferred regulatory assets otherwise would expensed nonregulated companies likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made see notes 13 14 consolidated financial statements additional information asset retirement obligations dominion virginia power recognize liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices companies estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant companies revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset companies accrete aro liability reflect passage time 2011 2010 2009 dominion recognized 84 million 85 million 89 million respectively accretion expects recognize 75 million 2012 2011 2010 2009 virginia power recognized 36 million 35 million 35 million respectively accretion expects recognize 35 million 2012 virginia power records accretion depreciation associated utility nuclear decommissioning aros adjustment regulatory liability nuclear decommissioning significant portion companies’ aros relates future decommissioning dominion’s merchant virginia power’s utility nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2011 dominion’s nuclear decommissioning aros totaled 12 billion representing approximately 83 total aros december 31 2011 virginia power’s nuclear decommissioning aros totaled 559 million representing approximately 89 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated companies’ nuclear decommissioning obligations companies obtain thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition companies’ cost estimates include cost escalation rates applied base year costs companies determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumption december 2011 dominion recorded decrease 290 million nuclear decommissioning aros units virginia power recorded decrease 95 million nuclear decommissioning aros units aro revision driven reduction anticipated future decommissioning costs due expected future recovery doe certain spent fuel costs based companies’ contracts doe disposal spent nuclear fuel well updated escalation rates 2009 result updated decommissioning cost studies applicable escalation rates dominion recorded decrease 309 million nuclear decommissioning aros units including 103 million 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service virginia power recorded decrease 119 million nuclear decommissioning aros units income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikely thannot recognition threshold assuming position management’s discussion analysis financial condition results operations continued examined tax authorities full knowledge relevant information december 31 2011 dominion 347 million virginia power 114 million unrecognized tax benefits deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power evaluate quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets companies establish valuation allowance morelikelythannot portion deferred tax asset realized december 31 2011 dominion established 96 million valuation allowances virginia power valuation allowances accounting derivative contracts instruments fair value dominion virginia power use derivative contracts futures swaps forwards options ftrs manage commodity financial market risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s virginia power’s nuclear decommissioning dominion’s rabbi benefit plan trust funds also subject fair value accounting see notes 7 22 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing information indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2011 dominion reported 31 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2011 2010 2009 annual tests interim tests result recognition goodwill impairment general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies dominion’s appalachian ep operations peoples hope operations negotiated sales prices used fair value tests conducted 2010 2009 fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 12 consolidated financial statements additional information use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing selection appropriate discount rate although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed see note 7 consolidated financial statements discussion impairments related certain longlived assets employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination  expected inflation riskfree interest rate assumptions  historical return analysis determine long term historic returns well historic risk premiums various asset classes  expected future risk premiums asset volatilities correlations  forwardlooking return expectations derived yield longterm bonds price earnings ratios major stock market indices  investment allocation plan assets strategic target asset allocation dominion’s pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion develops assumptions compared forecasts independent investment advisors ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 850 2011 2010 2009 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 775 2011 2010 2009 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost 59 2011 660 2010 2009 dominion selected discount rate 550 determining december 31 2011 projected pension postretirement benefit obligations dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2011 7 expected gradually decrease 460 2060 continue rate years thereafter following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2011 025 decrease discount rate would increase dominion’s projected pension benefit obligation 163 million accumulated postretirement benefit obligation 43 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 174 million see note 22 consolidated financial statements additional information revenue recognitionunbilled revenue virginia power recognizes records revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amount electric energy delivered customers yet billed estimated recorded unbilled revenue estimate reversed following month actual revenue recorded based meter readings virginia power’s customer receivables included 360 million 397 million accrued unbilled revenue december 31 2011 2010 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes generation patterns customer usage patterns factors basis estimates unbilled revenues could significant effect calculation therefore virginia power’s results operations financial condition management’s discussion analysis financial condition results operations continued accounting standards policies 2009 dominion virginia power required adopt several new accounting standards discussed note 3 consolidated financial statements dominion results operations presented summary dominion’s consolidated results overview vs 2010 net income attributable dominion decreased 50 unfavorable drivers include absence gain sale dominion’s appalachian ep operations lower margins merchant generation operations impact less favorable weather including hurricane irene electric utility operations favorable drivers include absence charges related workforce reduction program absence loss sale peoples higher earnings rate adjustment clauses 2010 vs 2009 net income attributable dominion increased 118 favorable drivers include gain sale dominion’s appalachian ep operations lower ceiling test impairment charges related properties absence charge connection settlement virginia power’s 2009 base rate case proceedings impact favorable weather electric utility operations unfavorable drivers include charges related workforce reduction program loss sale peoples lower margins merchant generation operations impairment charges related certain merchant generation facilities analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2011 vs 2010 net revenue decreased 7 primarily reflecting  519 million decrease merchant generation operations primarily due decrease realized prices 347 million lower generation 163 million  125 million decrease reflecting sale substantially dominion’s appalachian ep operations april 2010 decreases partially offset  32 million increase dominion’s gas transmission business primarily related increase revenue ngls  28 million increase producer services primarily related higher physical margins favorable price changes economic hedging positions associated natural gas aggregation marketing trading activities  13 million increase electric utility operations primarily reflecting  impact rate adjustment clauses 169 million  decrease net capacity expenses 44 million partially offset  impact 120 million decrease sales retail customers primarily due decrease heating cooling degree days 220 million partially offset increase sales due effect favorable economic conditions customer usage factors 100 million  decrease due charge based biennial review order refund revenues customers 81 million operations maintenance decreased 6 primarily reflecting  441 million decrease salaries wages benefits primarily related 2010 workforce reduction program partially offset  96 million increase due restoration costs associated damage caused hurricane irene  89 million net increase impairment charges related certain utility merchant coalfired generating units gain sale appalachian ep operations reflects gain sale operations described note 4 consolidated financial statements interest related charges increased 4 primarily due absence benefit recorded 2010 resulting discontinuance hedge accounting certain interest rate derivatives 73 million increase debt issuances 2011 18 million partially offset recognition hedging gains previously deferred regulatory liabilities result biennial review order 50 million income tax expense decreased 13 billion primarily reflecting lower federal state taxes largely due absence gain sale dominion’s appalachian ep operations recorded 2010 loss discontinued operations reflects sale peoples 2010 vs 2009 net revenue increased 8 primarily reflecting  11 billion increase electric utility operations primarily reflecting  absence charge settlement virginia power’s 2009 base rate case proceedings 570 million  impact rate adjustment clauses 279 million  increase sales retail customers primarily due increase cooling degree days 248 million  increase ancillary revenues received pjm 78 million primarily reflecting increase scheduled dispatch gas oilfired generation units meet higher demand partially offset  decrease primarily due impact unfavorable economic conditions customer usage factors 75 million  98 million increase regulated natural gas distribution operations primarily reflecting increased rider revenue associated recovery bad debt expense 60 million increase base rates 40 million  46 million increase related natural gas transmission operations largely due completion cove point expansion project increases partially offset  356 million decrease merchant generation operations due decrease certain nuclear generating facilities 237 million primarily due lower realized prices decline margins certain fossil generation facilities 70 million primarily due increase fuel prices expiration certain requirementsbased power sales contracts december 2009 49 million  222 million decrease reflecting sale substantially dominion’s appalachian ep operations april 2010  40 million decrease producer services primarily related unfavorable price changes economic hedging positions lower physical margins associated natural gas aggregation marketing trading activities operations maintenance increased 12 million primarily reflecting  240 million net increase salaries wages benefits primarily related workforce reduction program  impairment charges related certain merchant generating facilities 194 million  103 million increase due absence benefit 2009 downward revision nuclear decommissioning aro unit longer service  56 million increase bad debt expense regulated natural gas distribution operations primarily related low income assistance programs 60 million expenses recovered rates impact net income  42 million increase certain electric transmissionrelated expenditures increases partially offset  434 million decrease ceiling test impairment charges related carrying value dominion’s ep properties  absence 142 million writeoff previously deferred rto costs connection settlement virginia power’s 2009 base rate case proceedings  48 million decrease outage costs due decrease scheduled outage days primarily certain merchant generation facilities dda decreased 7 primarily due sale dominion’s appalachian ep operations 45 million lower amortization due decreased cost emissions allowances consumed 37 million taxes increased 10 primarily due additional property tax increased investments higher rates 16 million increase gross receipts tax due new nonregulated retail energy customers 14 million higher payroll taxes associated workforce reduction program 12 million gain sale appalachian ep operations reflects gain sale operations described note 4 consolidated financial statements income decreased 13 primarily reflecting increase charitable contributions 46 million decrease interest income 15 million partially offset absence impairment loss equity method investment 30 million higher realized gains including investment income nuclear decommissioning trust funds 12 million interest related charges decreased 6 primarily due benefit resulting net effect discontinuance hedge accounting certain interest rate hedges subsequent changes fair value interest rate derivatives 73 million partially offset increase interest expense associated june 2009 hybrid issuance 26 million management’s discussion analysis financial condition results operations continued income tax expense increased 15 billion primarily reflecting higher federal state taxes largely due gain sale dominion’s appalachian ep business loss discontinued operations primarily reflects loss sale peoples outlook dominion’s strategy continue focusing regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide earnings per share growth growing dividend maintain stable credit profile dominion’s 2011 results negatively impacted lower margins merchant generation operations less favorable weather electric utility operations 2012 dominion expected experience increase net income per share basis compared 2011 dominion’s anticipated 2012 results reflect following significant factors  absence charges incurred 2011 related expected plant retirements impairment emissions allowances hurricane irene  construction operation growth projects electric utility operations associated rate adjustment clause revenue well growth projects gas transmission distribution operations  growth weathernormalized electric utility sales 225 resulting recovering economy rising energy demand  reductions certain operations maintenance expenses  reduction interest expense partially offset  lower realized margins merchant generation operations due lower commodity prices retirement certain coal units  increase dda dominion expects bonus depreciation provisions tax legislation enacted us congress 2010 discussed note 6 consolidated financial statements reduce income taxes otherwise payable resulting cash savings 2012 2013 approximately 475 million 700 million respectively segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion dvp presented operating statistics related dvp’s operations 1 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2011 vs 2010 1 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses 2010 vs 2009 1 primarily reflects 2010 implementation cost containment measures including workforce reduction program dominion generation presented operating statistics related dominion generation’s operations presented aftertax basis key factors impacting dominion generation’s net income contribution 2011 vs 2010 1 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses 2 kewaunee’s 2011 results operations reflected corporate segment due dominion’s decision first quarter 2011 pursue sale power station 2010 vs 2009 1 primarily reflects 2010 implementation cost containment measures including workforce reduction program dominion energy presented selected operating statistics related dominion energy’s operations discussed note 4 april 2010 dominion completed sale substantially appa lachian ep operations result productionrelated operating statistics dominion energy segment longer significant 1 thirteenmonth average presented aftertax basis key factors impacting dominion energy’s net income contribution 2011 vs 2010 1 primarily reflects increase revenue ngls 2 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses 2010 vs 2009 1 primarily reflects allowed return investment amr pir programs 2 reflects east ohio’s sale 3 bcf base gas december 2010 company determined could operate storage system meet existing anticipated contractual commitments less base gas management’s discussion analysis financial condition results operations continued corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 26 consolidated financial statements discussion items virginia power results operations presented summary virginia power’s consolidated results overview vs 2010 net income decreased 4 primarily reflecting less favorable weather including hurricane irene impairment charge related certain coalfired power stations partially offset higher earnings rate adjustment clauses absence charges related workforce reduction program 2010 vs 2009 net income increased 139 primarily reflecting absence charge connection settlement 2009 base rate case proceedings favorable weather benefit rate adjustment clauses partially offset charges related workforce reduction program analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2011 vs 2010 net revenue increased 13 million primarily reflecting  impact rate adjustment clauses 169 million  decrease net capacity expenses 44 million partially offset  impact 120 million decrease sales retail customers primarily due decrease heating cooling degree days 220 million partially offset increase sales due effect favorable economic conditions customer usage factors 100 million  decrease due charge based biennial review order refund revenues customers 81 million operations maintenance decreased 2 million primarily reflecting  267 million decrease salaries wages benefits well certain administrative general costs primarily due 2010 workforce reduction program  54 million decrease planned outage costs primarily due fewer scheduled outage days certain generation facilities partially offset  228 million impairment charge related certain coalfired generating units  96 million increase due restoration costs associated damage caused hurricane irene depreciation amortization expense increased 7 primarily due property additions income decreased 12 primarily due decrease equity component afudc 17 million partially offset increase amounts collectible customers taxes connection contributions aid construction 5 million 2010 vs 2009 net revenue increased 33 primarily reflecting  absence charge settlement 2009 base rate case proceedings 570 million  impact rate adjustment clauses 279 million  increase sales retail customers primarily due increase cooling degree days 248 million  increase ancillary revenues received pjm 78 million primarily reflecting increase scheduled dispatch gas oilfired generation units meet higher demand increases partially offset  decrease primarily due impact unfavorable economic conditions customer usage factors 75 million operations maintenance increased 8 primarily reflecting  177 million net increase salaries wages benefits primarily due workforce reduction program  42 million increase certain electric transmissionrelated expenditures  19 million increase storm damage service restoration costs increases partially offset  absence 130 million writeoff previously deferred rto costs connection settlement virginia power’s 2009 base rate case proceedings depreciation amortization expense increased 5 primarily due property additions taxes increased 14 primarily reflecting additional property tax due increased investments higher rates 12 million incremental use tax recoverable customer surcharge 8 million higher payroll taxes associated workforce reduction program 7 million income tax expense increased 395 million primarily reflecting higher pretax income 2010 outlook virginia power expects provide growth net income 2012 virginia power’s anticipated 2012 results reflect following significant factors  absence charges incurred 2011 related expected plant retirements impairment emissions allowances hurricane irene  growth weathernormalized electric sales 225 resulting recovering economy rising energy demand  construction operation growth projects associated rate adjustment clause revenue partially offset  increase planned outages certain nuclear facilities virginia power expects bonus depreciation provisions tax legislation enacted us congress 2010 discussed note 6 consolidated financial statements reduce income taxes otherwise payable resulting cash savings approximately 500 million 2012 segment results operations presented summary contributions virginia power’s operating segments net income dvp presented operating statistics related virginia power’s dvp segment 1 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2011 vs 2010 1 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses 2010 vs 2009 1 primarily reflects 2010 implementation cost containment measures including workforce reduction program management’s discussion analysis financial condition results operations continued dominion generation presented operating statistics related virginia power’s dominion generation segment presented aftertax basis key factors impacting dominion generation’s net income contribution 2011 vs 2010 vs 2009 1 primarily reflects reduced benefit ftrs due crediting certain ftrs allocated virginia power virginia jurisdictional fuel factor expenses subject deferral accounting beginning july 1 2009 corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate primarily includes specific items attributable virginia power’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 26 consolidated financial statements discussion items liquidity capital resources dominion virginia power depend internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2011 dominion 17 billion unused capacity credit facilities including 341 million unused capacity joint credit facilities available virginia power see additional discussion credit facilities shortterm debt summary dominion’s cash flows presented 1 2009 amount includes 5 million cash classified held sale dominion’s consolidated balance sheet 2 2009 amount includes 2 million cash classified held sale dominion’s consolidated balance sheet summary virginia power’s cash flows presented operating cash flows 2011 net cash provided dominion’s operating activities increased 12 billion primarily due lower income tax payments lower payments related virginia settlement approval order absence contributions pension plans made 2010 partially offset lower merchant generation margins impact less favorable weather electric utility operations 2011 net cash provided virginia power’s operating activities increased 615 million primarily due higher deferred fuel cost recoveries virginia jurisdiction lower payments related virginia settlement approval order absence contributions dominion’s pension plans made 2010 increase partially offset impact less favorable weather higher restoration costs due hurricane irene net changes working capital items dominion believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares 2010 dominion’s board directors adopted new dividend policy raised target payout ratio 2012 board affirmed dividend policy established annual dividend rate 211 per share common stock 71 increase 2011 rate declarations dividends subject board approval virginia power believes operations provide stable source cash flow contribute planned levels capital expenditures provide dividends dominion companies’ operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2011 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 33 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 8 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 12 total net credit exposure virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers considered material december 31 2011 investing cash flows 2011 net cash used dominion’s investing activities 33 billion compared net cash provided investing activities 419 million 2010 primarily reflecting absence proceeds received 2010 sale dominion’s appalachian ep operations sale peoples 2011 net cash used virginia power’s investing activities decreased 478 million primarily due lower capital expenditures restricted funds spent 2011 compared restricted funds deposited 2010 purpose funding certain qualifying construction projects financing cash flows liquidity dominion virginia power rely capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings companies’ ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances case virginia power approval virginia commission companies currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows companies use automatic shelf registration statements register offering securities business combination transactions 2011 net cash provided dominion’s financing activities 378 million compared net cash used financing activities 22 billion 2010 primarily due net debt issuances 2011 compared net debt repayments 2010 reflecting part use proceeds 2010 sales dominion’s appalachian ep operations peoples repay debt 2011 net cash used virginia power’s financing activities 53 million compared net cash provided financing activities 10 billion 2010 primarily reflecting lower net debt issuances 2011 compared 2010 result higher cash flow operations credit facilities shortterm debt dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties connection commodity hedging activities companies required provide collateral counterparties circumstances certain collateral arrangements companies may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time companies vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates companies issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives management’s discussion analysis financial condition results operations continued dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 047 december 31 2011 virginia power virginia power’s shortterm financing supported two joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion follows 1 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year 2 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rates outstanding commercial paper supported credit facilities 046 december 31 2011 addition credit facility commitments mentioned virginia power also 120 million credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 facility supports certain taxexempt financings virginia power longterm debt 2011 dominion issued following longterm debt virginia power issue senior notes 2011 december 2010 brayton point borrowed approximately 160 million approximately 75 million connection massachusetts development finance agency recovery zone facility bonds series 2010 solid waste disposal revenue bonds series 2010 b respectively mature 2041 proceeds used finance certain qualifying facilities brayton point due unfavorable market conditions dominion acquired bonds upon issuance december 2010 intention remarketing third parties later time december 31 2010 bonds remarketed thus reflected consolidated balance sheet july 2011 series 2010 b bonds remarketed third party using remarketing process bear interest variable rate first five years bear interest market rate determined time august 2011 series 2010 bonds remarketed third parties using remarketing process bear interest coupon rate 225 first five years bear interest market rate determined time december 2010 september 2009 virginia power borrowed 100 million 60 million respectively connection 160 million industrial development authority wise county solid waste sewage disposal revenue bonds series 2009 mature 2040 proceeds used finance certain qualifying facilities virginia city hybrid energy center due unfavorable market conditions virginia power acquired bonds upon issuance intention remarketing third parties later time december 31 2010 bonds remarketed thus reflected consolidated balance sheets march 2011 bonds remarketed third party bear interest variable rate first five years bear interest market rate determined time december 2011 virginia power borrowed 75 million connection economic development authority county chesterfield pollution control refunding revenue bonds series 2011 mature 2017 bear interest initial period variable rate first five years bear interest market rate determined time using remarketing process proceeds used refund principal amount industrial development authority county chesterfield virginia money market municipals™ pollution control revenue bonds series 1987 series 1987 b would otherwise matured june 2017 2011 dominion virginia power repaid repurchased 637 million 91 million respectively longterm debt notes payable issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested company’s common stock shares may either newly issued purchased open market proceeds contributed plans 2011 dominion direct® dominion employee savings plans purchased dominion common stock open market proceeds received programs rather additional new common shares issued january 2012 dominion began issuing new common shares plans 2011 dominion issued approximately 12 million shares common stock received cash proceeds 38 million exercise employee stock options january 2012 dominion filed new sec shelf registration sale debt equity securities including ability sell common stock market program company entered four separate sales agency agreements bny mellon capital markets llc merrill lynch pierce fenner smith incorporated morgan stanley co llc goldman sachs co effect sales program however exception issuing approximately 320 million equity employee savings plans direct stock purchase dividend reinvestment plans employee director benefit plans dominion anticipate issuing common stock 2012 2011 virginia power issue shares common stock dominion repurchase common stock 2011 dominion announced intended repurchase 600 million 700 million common stock cash tax savings resulting extension bonus depreciation allowance 2011 dominion repurchased approximately 13 million shares common stock approximately 601 million open market program average price 4637 per share dominion plan repurchase additional shares program 2012 borrowings parent virginia power ability borrow funds dominion shortterm longterm borrowing arrangements december 31 2011 nonregulated subsidiaries outstanding borrowings net repayments dominion money pool 187 million credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion virginia power believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion virginia power may affect ability access funding sources cause increase return required investors dominion’s virginia power’s credit ratings may affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion virginia power affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions credit ratings february 23 2012 follow february 23 2012 fitch moody’s standard poor’s maintained stable outlook respective ratings dominion virginia power downgrade individual company’s credit rating would necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade would likely increase cost borrowing dominion virginia power work closely fitch moody’s standard poor’s objective maintaining current credit ratings companies may find necessary modify business plans maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion virginia power must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion virginia power typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec information changes dominion’s virginia power’s credit ratings lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters management’s discussion analysis financial condition results operations continued related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens dominion virginia power required pay annual commitment fees maintain credit facilities addition credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2011 calculated total debt total capital ratio pursuant terms agreements follows 1 indebtedness defined bank agreements excludes junior subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets provisions apply separately dominion virginia power dominion virginia power either company’s material subsidiaries fails make payment various debt obligations excess 100 million lenders could require company accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds company accordingly default dominion affect lenders’ commitment virginia power however default virginia power would affect lenders’ commitment dominion joint credit agreements dominion executed rccs connection issuance following hybrid securities  june 2006 hybrids  september 2006 hybrids  june 2009 hybrids see note 18 consolidated financial statements terms rccs december 31 2011 termination dates covered debt rccs associated dominion’s hybrids follows 1 automatically extended set forth rcc additional quarterly periods extent maturity date extended dominion virginia power monitor debt covenants regular basis order ensure events default occur december 31 2011 events default changes dominion’s virginia power’s debt covenants dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying divi dend affiliate found detrimental public interest december 31 2011 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion virginia power’s ability pay dividends receive dividends subsidiaries december 31 2011 see note 18 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes information incorporated herein reference future cash payments contractual obligations planned capital expenditures contractual obligations dominion virginia power party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion virginia power parties december 31 2011 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s virginia power’s current liabilities paid cash 2012 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt interest calculated using applicable interest rate forward interest rate curve december 31 2011 outstanding principal instrument terms ending instrument’s stated maturity see note 18 consolidated financial statements reflect dominion’s ability defer interest payments junior subordinated notes 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 represents summation settlement amounts contracts due dominion physical financial transactions among counterparties dominion liquidated terminated 6 includes capital operations maintenance commitments 7 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 13 15 22 consolidated financial statements due uncertainty timing amounts ultimately paid 256 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 6 consolidated financial statements 8 includes interest rate swap agreements 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt interest calculated using applicable interest rate forward interest rate curve december 31 2011 outstanding principal instrument terms ending instrument’s stated maturity see note 18 consolidated financial statements 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 13 15 22 consolidated financial statements due uncertainty timing amounts ultimately paid 75 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 6 consolidated financial statements planned capital expenditures dominion’s planned capital expenditures expected total approximately 43 billion 48 billion 39 billion 2012 2013 2014 respectively dominion’s expenditures expected include construction expansion electric generation natural gas transmission processing storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel buyout lease fairless 2013 virginia power’s planned capital expenditures expected total approximately 26 billion 30 billion 26 billion 2012 2013 2014 respectively virginia power’s expenditures expected include construction expansion electric generation facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel dominion virginia power expect fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators respective company’s board directors based available generation capacity current estimates growth customer demand virginia power need additional generation future see dvp dominion generation dominion energyproperties item 1 business discussion dominion’s virginia power’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion’s board directors late 2011 subject continuing review adjustment actual capital expenditures may vary estimates companies may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others see note 23 consolidated financial statements additional information incorporated herein reference leasing arrangement dominion leases fairless generating facility pennsylvania juniper lessor began commercial operations june 2004 september 30 2011 juniper held various power plant leases including fairless october 2011 last lease fairless expired related asset sold juniper fairless sole remaining asset juniper longer qualified business scope exception october 2011 required dominion determine whether juniper vie dominion concluded juniper vie entity’s capitalization insufficient support operations power direct significant activities entity performed equity holders dominion residual value guarantee discussed guarantees portion residual value fairless activities significantly impact juniper’s economic performance relate operation fairless decisions related operations fairless made dominion considered primary beneficiary primary beneficiary dominion began consolidating juniper fourth quarter 2011 result leasing arrangement longer considered offbalance sheet arrangement see note 16 consolidated financial statements additional information management’s discussion analysis financial condition results operations continued future issues matters see item 1 business item 3 legal proceedings notes 14 23 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations andor financial condition environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred approximately 184 million 228 million 252 million expenses including depreciation 2011 2010 2009 respectively connection environmental protection monitoring activities expects expenses approximately 223 million 250 million 2012 2013 respectively addition capital expenditures related environmental controls 403 million 351 million 266 million 2011 2010 2009 respectively expenditures expected approximately 228 million 103 million 2012 2013 respectively virginia power incurred approximately 129 million 144 million 134 million expenses including depreciation 2011 2010 2009 respectively connection environmental protection monitoring activities expects expenses approximately 149 million 164 million 2012 2013 respectively addition capital expenditures related environmental controls 77 million 101 million 109 million 2011 2010 2009 respectively expenditures expected approximately 42 million 65 million 2012 2013 respectively future environmental regulations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements epa finalized rules establishing new 1hour naaqs no2 new 1hour naaqs so2 could require additional nox so2 controls certain areas companies operate states developed implementation plans standards impact dominion’s virginia power’s facilities emit nox so2 uncertain january 2010 epa also proposed new stringent naaqs ozone planned finalize rule 2011 september 2011 epa announced delay 2011 2014 rulemaking therefore nox controls may required rulemaking also expected delayed however epa’s decision delay rulemaking challenged federal court length delay possible nox controls depend outcome litigation interim epa proceeding implementation current ozone standard expected make final attainmentnonattainment designations june 2012 litigation final states developed implementation plans new nox so2 ozone standards possible determine impact dominion’s virginia power’s facilities emit nox so2 companies cannot currently predict certainty whether extent new rules ultimately require additional controls however significant expenditures required could adversely affect dominion’s results operations dominion’s virginia power’s cash flows june 2005 epa finalized amendments regional haze rule also known clean air visibility rule requires states implement best available retrofit technology requirements sources address impacts visual air quality regional haze state implementation plans allows alternative options epa recently announced schedule complete rulemakings regional haze state implementation plans 2012 although dominion virginia power anticipate emission reductions achieved compliance caa required programs generally address rule additional emission reduction requirements may imposed companies’ facilities water cwa comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply aspects cwa programs operating facilities july 2004 epa published regulations cwa section 316b govern existing utilities employ cooling water intake structure flow levels exceeding minimum threshold april 2008 us supreme court granted industry request review question whether section 316b authorizes epa compare costs benefits determining best technology available minimizing “adverse environmental impact” cooling water intake structures us supreme court ruled april 2009 epa authority consider costs versus environmental benefits selecting best technology available reducing impacts cooling water intakes power stations currently unknown epa interpret ruling ongoing rulemaking activity addressing cooling water intakes well states implement decision april 2011 epa published proposed rule related section 316b federal register agreed publish final rule later july 27 2012 rule proposed form seeks establish uniform national standard impingement forgoes creation single technology standard entrainment instead epa proposes delegate entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination nine facilityspecific factors including social costbenefit test proposed rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd proposal dominion 18 facilities may subject proposed regulations finalized proposed dominion anticipates install impingement control technologies many stations oncethrough cooling systems dominion virginia power cannot estimate need potential entrainment controls proposed rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies however impacts proposed rule may material results operations financial condition andor cash flows solid hazardous waste june 2010 epa proposed federal regulations rcra management coal combustion byproducts generated power plants epa considering two possible options regulation coal combustion byproducts fall rcra first proposal epa would classify byproducts special wastes subject regulation subtitle c hazardous waste provisions rcra destined disposal landfills surface impoundments second proposal epa would regulate coal combustion byproducts subtitle rcra section nonhazardous wastes companies cannot currently predict outcome matter regulation either option affect dominion’s virginia power’s onsite disposal facilities coal combustion byproduct management practices potentially require material investments climate change legislation regulation december 2009 epa issued final endangerment cause contribute findings greenhouse gases section 202a clean air act finding ghgs “endanger public health public welfare current future generations” april 1 2010 epa department transportation’s national highway safety administration announced joint final rule establishing program dramatically reduce ghg emissions improve fuel economy new cars trucks sold united states rules took effect january 2011 established ghg emissions regulated pollutants caa may 2010 epa issued final prevention significant deterioration title v greenhouse gas tailoring rule combined prior actions require dominion virginia power obtain permits ghg emissions new modified facilities certain size thresholds meet best available control technology ghg emissions epa issued draft guidance ghg permitting including best available control technology epa also announced schedule proposing standards regulate ghg emissions nsps would apply new modified existing fossilfired electric generating units august 2011 epa announced delay schedule proposing regulations expected proposed july 2011 finalized may 2012 schedule proposed rulemaking governing ghg nsps existing sources delayed beyond january 2012 proposed nsps governing new modified units expected released early 2012 legislative proposals may considered would indirect impact ghg emissions potential us congress consider mandatory clean energy standard addition possible federal action regions states dominion virginia power operate already adopted may adopt ghg emission reduction programs new contemplated regulations may affect capital costs create significant permitting delays new modified facilities emit ghgs july 2008 massachusetts passed gwsa among provisions gwsa sets economywide ghg emissions reduction goals massachusetts including reductions 25 1990 levels 2020 interim goals 2030 2040 reductions 80 1990 levels 2050 regulations impacting dominion gwsa proposed dominion operates two coaloilfired generating power stations massachusetts acts retail electric supplier massachusetts subject implementation gwsa december 2009 governors 11 northeast midatlantic states including connecticut maryland massachusetts new york pennsylvania rhode island rggi states plus pennsylvania signed memorandum understanding committing states toward developing low carbon fuel standard reduce ghg emissions vehicles memorandum understanding established process develop regional framework 2011 examine economic impacts low carbon fuel standard program although economic studies policy options examined 2011 definitive framework yet established doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets doddfrank act includes provisions require certain overthecounter derivatives swaps centrally cleared executed exchange approved trading platform nonfinancial entities use swaps hedge mitigate commercial risk often referred end users choose exempt hedging transactions clearing exchange trading requirements addition doddfrank act allows applicable regulators including cftc sec impose initial variation margin requirements entities execute swaps end users expressly exempted requirements noncleared swaps rules proposed address margin obligations imposed noncleared swaps entered end users final rules overthecounter derivativerelated provisions doddfrank act including clearing exchange trading margin requirements established ongoing rulemaking process applicable regulators june 2011 cftc sec confirmed would complete required rulemakings july 2011 deadline doddfrank act agency granted temporary relief derivativerelated provisions doddfrank act effective date applicable rules currently cftc’s temporary relief management’s discussion analysis financial condition results operations continued would expire later july 16 2012 extended result rulemaking process dominion’s virginia power’s derivative activities exempted clearing exchange trading margin requirements companies could subject higher costs including higher margin requirements derivative activities addition implementation compliance overthecounter derivative provisions doddfrank act companies’ swap counterparties could result increased costs related companies’ derivative activities due ongoing rulemaking process companies currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups inpo like us nuclear operators dominion gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff provided views prioritization recommendations suggested several additional measures december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards expeditiously possible nrc anticipates issuance orders information requests requiring specific reviews actions first anniversary earthquake tsunami march 2012 actions adopted could require nuclear plant modifications may impact future operations andor capital requirements us nuclear facilities including owned dominion virginia power august 2011 magnitude 58 earthquake near mineral virginia caused two reactors north anna shut immediately designed earthquake’s vibrations briefly exceeded north anna’s licensing design basis certain frequencies however virginia power’s inspections shown significant damage equipment station earthquake reactors placed cold shutdown condition pending completion nrc inspection review north anna returned full service november 2011 following receipt nrc approval restart two reactors cove point export reexport projects september 2011 cove point filed first part twopart domestic export authorization request doe approved request october 2011 approval allows longterm multicontract authority liquefy export domesticallyproduced lng cove point terminal equivalent approximately 1 bcf natural gas per day twentyfive year period approval also allows cove point act agent third parties liquefy export domesticallyproduced lng countries free trade agreement us includes natural gas ii possess capacity import lng via oceangoing carriers cove point filed second part domestic export authorization application october 2011 application cove point requested authority export domesticallyproduced lng countries us prohibit free trade free trade agreement includes natural gas ii possess capacity import lng via oceangoing carriers cove point yet committed operating lng export facility cove point intends secure customer commitments deciding whether proceed regulatory approvals also required subject final decision pursuing project well securing applicable regulatory approvals construction liquefaction facilities convert natural gas lng could begin 2014 addition domestic export project august 2011 cove point filed application doe seeking blanket authority reexport foreignsourced lng cove point terminal january 2012 doe approved request reexport equivalent 150 bcf natural gas twoyear period approval allows cove point act agent third parties reexport lng countries us prohibits free trade ii possess capacity import lng via oceangoing carriers cove point must also obtain ferc approval prior undertaking minimal construction required reexport brayton point salem harbor caa section 114 request may 2010 dominion received request information pursuant section 114 caa epa request concerns historical operating changes capital improvements undertaken brayton point salem harbor dominion submitted response request november 2010 cannot predict outcome matter pipeline safety act january 2012 pipeline safety act signed law pipeline safety act intended address pipeline safety issues received national attention following series significant incidents involving pipelines act provides us dot enhanced safety review authority requires pipeline owners operators confirm records testing maximum allowable operating pressure certain gas pipelines populated certain high consequence areas operators fail confirm maximum allowable operating pressure identified locations within six months enactment must conduct new testing pipeline safety act also requires us dot pipeline hazardous materials safety administration consider certain factors appropriate issue regulations requiring automatic shutoff valves new replaced pipelines economically technically operationally feasible establish time limits accident incident notification addition act doubles maximum civil penalty violations us dot’s compliance safety rules 100000 200000 individual violation 1000000 2000000 series violations dominion cannot estimate potential financial statement impacts pipeline safety act additional operations maintenance expenses andor capital expenditures required comply new rules expected material item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s virginia power’s results operations general financial condition mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data contents mda consists following information  forwardlooking statements  accounting matters  dominion  results operations  segment results operations  virginia power  results operations  segment results operations  selected informationenergy trading activities  liquidity capital resources  future issues matters forwardlooking statements report contains statements concerning dominion’s virginia power’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words dominion virginia power make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events natural disasters including hurricanes high winds severe storms earthquakes changes water temperature availability cause outages property damage facilities  federal state local legislative regulatory developments  changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs emissions extensive permitting requirements regulation additional substances  cost environmental compliance including costs related climate change  risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities  unplanned outages companies’ facilities  fluctuations energyrelated commodity prices effect could dominion’s earnings dominion’s virginia power’s liquidity position underlying value assets  counterparty credit performance risk  capital market conditions including availability credit ability obtain financing reasonable terms  risks associated virginia power’s membership participation pjm including risks related obligations created default participants  price risk due investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion  fluctuations interest rates  changes federal state tax laws regulations  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  impacts acquisitions divestitures retirements assets based asset portfolio reviews  receipt approvals timing closing dates acquisitions divestitures  changes rules rtos isos dominion virginia power participate including changes rate designs new evolving capacity models  political economic conditions including inflation deflation  domestic terrorism threats companies’ physical intangible assets well threats cybersecurity  changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes customer growth usage patterns including result energy conservation programs changes demand dominion’s natural gas services  additional competition electric industry including electric markets dominion’s merchant generation facilities operate competition construction ownership electric transmission facilities virginia power’s service territory connection ferc order 1000  changes technology particularly respect new developing alternative sources generation smart grid technologies  changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion  timing receipt regulatory approvals necessary planned construction expansion projects  inability complete planned construction projects within terms time frames initially anticipated  adverse outcomes litigation matters regulatory proceedings additionally risks could cause actual results differ predicted results set forth item 1a risk factors management’s discussion analysis financial condition results operations continued accounting matters critical accounting policies estimates dominion virginia power identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion virginia power discussed development selection disclosure policies audit committees boards directors virginia power’s board directors also serves audit committee accounting regulated operations accounting virginia power’s regulated electric dominion’s regulated gas operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs deferred regulatory assets otherwise would expensed nonregulated companies likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion virginia power recognize liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices companies estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant companies revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset companies accrete aro liability reflect passage time 2012 2011 2010 dominion recognized 77 million 84 million 85 million respectively accretion expects recognize 88 million 2013 2012 2011 2010 virginia power recognized 34 million 36 million 35 million respectively accretion expects recognize 38 million 2013 virginia power records accretion depreciation associated utility nuclear decommissioning aros adjustment regulatory liability nuclear decommissioning significant portion companies’ aros relates future decommissioning dominion’s merchant virginia power’s utility nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2012 dominion’s nuclear decommissioning aros totaled 15 billion representing approximately 86 total aros december 31 2012 virginia power’s nuclear decommissioning aros totaled 633 million representing approximately 90 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated companies’ nuclear decommissioning obligations companies obtain thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition companies’ cost estimates include cost escalation rates applied base year costs companies determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumption september 2012 dominion recorded increase 246 million nuclear decommissioning aros units aro revision primarily driven management’s decision cease operations begin decommissioning kewaunee 2013 virginia power recorded increase 43 million nuclear decommissioning aros units aro revision driven increase estimated costs december 2011 dominion recorded decrease 290 million nuclear decommissioning aros units virginia power recorded decrease 95 million nuclear decommissioning aros units aro revision 2011 driven reduction anticipated future decommissioning costs due expected future recovery doe certain spent fuel costs based companies’ contracts doe disposal spent nuclear fuel well updated escalation rates income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2012 dominion 293 million virginia power 57 million unrecognized tax benefits deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power evaluate quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets companies establish valuation allowance morelikelythannot portion deferred tax asset realized december 31 2012 dominion established 93 million valuation allowances virginia power valuation allowances accounting derivative contracts instruments fair value dominion virginia power use derivative contracts futures swaps forwards options ftrs manage commodity financial market risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s virginia power’s nuclear decommissioning dominion’s rabbi benefit plan trust funds also subject fair value accounting see notes 6 21 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing information indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2012 dominion reported 31 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2012 2011 2010 annual tests interim tests result recognition goodwill impairment general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies dominion’s appalachian ep operations peoples hope operations negotiated sales prices used fair value tests conducted 2010 fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operating longlived assets management’s discussion analysis financial condition results operations continued selection appropriate discount rate although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see note 6 consolidated financial statements discussion impairments related certain longlived assets employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination  expected inflation riskfree interest rate assumptions  historical return analysis determine long term historic returns well historic risk premiums various asset classes  expected future risk premiums asset volatilities correlations  forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices  investment allocation plan assets strategic target asset allocation dominion’s pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future asset liability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion develops assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 850 2012 2011 2010 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 775 2012 2011 2010 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost 550 2012 590 2011 660 2010 dominion selected discount rate 440 determining december 31 2012 projected pension postretirement benefit obligations dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2012 7 expected gradually decrease 460 2061 continue rate years thereafter following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2012 025 decrease discount rate would increase dominion’s projected pension benefit obligation 219 million accumulated postretirement benefit obligation 54 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 218 million see note 21 consolidated financial statements additional information revenue recognitionunbilled revenue virginia power recognizes records revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amount electric energy delivered customers yet billed estimated recorded unbilled revenue estimate reversed following month actual revenue recorded based meter readings virginia power’s customer receivables included 348 million 360 million accrued unbilled revenue december 31 2012 2011 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes customer usage patterns factors basis estimates unbilled revenues could significant effect calculation therefore virginia power’s results operations financial condition dominion results operations presented summary dominion’s consolidated results overview vs 2011 net income attributable dominion decreased 79 unfavorable drivers include impairment charges related bids received brayton point kincaid management’s decision cease operations begin decommissioning kewaunee 2013 favorable drivers include absence impairment charge related certain utility coalfired power stations absence restoration costs associated damage caused hurricane irene recorded 2011 vs 2010 net income attributable dominion decreased 50 unfavorable drivers include absence gain sale dominion’s appalachian ep operations lower margins merchant generation operations impact less favorable weather including hurricane irene electric utility operations favorable drivers include absence charges related workforce reduction program absence loss sale peoples higher earnings rate adjustment clauses analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2012 vs 2011 net revenue decreased 1 primarily reflecting  161 million decrease merchant generation operations primarily reflecting decrease realized prices  144 million decrease regulated natural gas distribution operations primarily reflecting decreased rider revenue 117 million related low income assistance programs decreases partially offset  184 million increase electric utility operations primarily reflecting  impact rate adjustment clauses 138 million  absence charge recorded 2011 based biennial review order refund revenues customers 81 million  decrease net capacity expenses 31 million partially offset  impact 58 million decrease sales retail customers primarily due decrease cooling heating degree days 184 million partially offset increase sales due effect favorable economic conditions customer usage factors 126 million  57 million increase retail energy marketing activities primarily due price risk management activities  6 million increase regulated natural gas transmission operations primarily due new transportation assets placed service management’s discussion analysis financial condition results operations continued operations maintenance increased 47 primarily reflecting  16 billion impairment charge due bids received brayton point kincaid  415 million impairment charge due management’s decision cease operations begin decommissioning kewaunee 2013  107 million increase salaries wages benefits increases partially offset  absence impairment charge recorded 2011 related certain utility coalfired generating units 228 million  117 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs expenses recovered rates impact net income  absence restoration costs recorded 2011 associated damages caused hurricane irene 96 million depreciation depletion amortization increased 11 primarily due property additions income increased 25 primarily due higher realized gains including investment income nuclear decommissioning trust funds income tax expense decreased 81 primarily reflecting lower pretax income 2012 2011 vs 2010 net revenue decreased 7 primarily reflecting  504 million decrease merchant generation operations primarily due decrease realized prices 340 million lower generation 153 million  125 million decrease reflecting sale substantially dominion’s appalachian ep operations april 2010 decreases partially offset  32 million increase dominion’s gas transmission business primarily related increase revenue ngls  28 million increase producer services primarily related higher physical margins favorable price changes economic hedging positions associated natural gas aggregation marketing trading activities  13 million increase electric utility operations primarily reflecting  impact rate adjustment clauses 169 million  decrease net capacity expenses 44 million partially offset  impact 120 million decrease sales retail customers primarily due decrease heating cooling degree days 220 million partially offset increase sales due effect favorable economic conditions customer usage factors 100 million  decrease due charge based biennial review order refund revenues customers 81 million operations maintenance decreased 4 primarily reflecting  434 million decrease salaries wages benefits primarily related 2010 workforce reduction program partially offset  228 million impairment charge related certain utility coalfired generating units  96 million increase due restoration costs associated damage caused hurricane irene gain sale appalachian ep operations reflects gain sale operations described note 3 consolidated financial statements interest related charges increased 5 primarily due absence benefit recorded 2010 resulting discontinuance hedge accounting certain interest rate derivatives 73 million increase debt issuances 2011 18 million partially offset recognition hedging gains previously deferred regulatory liabilities result biennial review order 50 million income tax expense decreased 64 primarily reflecting lower federal state taxes largely due absence gain sale dominion’s appalachian ep operations recorded 2010 loss discontinued operations reflects sale peoples 2010 well losses associated state line salem harbor reclassified discontinued operations result sale 2012 outlook dominion’s strategy continue focusing regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide earnings per share growth growing dividend maintain stable credit profile dominion process transitioning regulated earnings mix targeting 8090 percent earnings come regulated businesses 2013 beyond evidenced dominion’s capital investments regulated infrastructure well disposition certain merchant generation facilities 2012 announcement certain merchant generation facilities expected sold decommissioned 2013 dominion expected experience increase net income per share basis compared 2012 dominion’s anticipated 2013 results reflect following significant factors  absence impairment charges incurred 2012 associated certain merchant generating facilities  return normal weather electric utility operations  construction operation growth projects electric utility operations associated rate adjustment clause revenue well fullyear earnings gas transmission gas distribution projects placed service 2012  growth weathernormalized electric utility sales approximately 2 resulting recovering economy rising energy demand partially offset  increase interest expense  increases certain operations maintenance expense  increase depreciation depletion amortization january 2 2013 us federal legislation enacted provides extension 50 percent bonus depreciation allowance qualifying capital expenditures incurred 2013 discussed note 5 consolidated financial statements dominion expects bonus depreciation provisions reduce income taxes otherwise payable resulting cash savings 2013 2014 approximately 250 million 350 million respectively segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion dvp presented operating statistics related dvp’s operations 1 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2012 vs 2011 1 excludes restoration costs associated damage caused severe storms 2012 2011 reflected corporate segment 2011 vs 2010 1 excludes restoration costs associated damage caused hurricane irene reflected corporate segment 2 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses dominion generation presented operating statistics related dominion generation’s operations 1 includes 132 173 227 million mwh years ended december 31 2012 2011 2010 respectively related kewaunee state line salem harbor brayton point kincaid dominion’s 50 interest elwood presented aftertax basis key factors impacting dominion generation’s net income contribution 2012 vs 2011 1 brayton point’s kincaid’s elwood’s third fourth quarter 2012 results operations reflected corporate segment due dominion’s decision third quarter 2012 pursue sale brayton point kincaid 50 interest elwood management’s discussion analysis financial condition results operations continued 2011 vs 2010 1 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses 2 kewaunee’s 2011 results operations reflected corporate segment due dominion’s decision first quarter 2011 pursue sale power station 2012 dominion decided cease operations begin decommissioning facility 2013 dominion energy presented selected operating statistics related dominion energy’s operations discussed note 3 april 2010 dominion completed sale substantially appalachian ep operations result productionrelated operating statistics dominion energy segment longer significant 1 thirteenmonth average presented aftertax basis key factors impacting dominion energy’s net income contribution 2012 vs 2011 1 primarily reflects placing appalachian gateway project service 2011 vs 2010 1 primarily reflects increase revenue ngls 2 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 consolidated financial statements discussion items virginia power results operations presented summary virginia power’s consolidated results overview vs 2011 net income increased 28 favorable drivers include absence impairment charge related certain coalfired power stations recorded 2011 impact rate adjustment clauses absence restoration costs associated damage caused hurricane irene recorded 2011 unfavorable drivers include impact less favorable weather restoration costs associated damage caused severe storms vs 2010 net income decreased 4 primarily reflecting less favorable weather including hurricane irene impairment charge related certain coalfired power stations partially offset higher earnings rate adjustment clauses absence charges related workforce reduction program analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2012 vs 2011 net revenue increased 4 primarily reflecting  impact rate adjustment clauses 138 million  absence charge recorded 2011 based biennial review order refund revenues customers 81 million  decrease net capacity expenses 31 million partially offset  impact 58 million decrease sales retail customers primarily due decrease cooling heating degree days 184 million partially offset increase sales due effect favorable economic conditions customer usage factors 126 million operations maintenance decreased 16 primarily reflecting  absence impairment charge recorded 2011 related certain coalfired generating units 228 million  absence restoration costs recorded 2011 associated damage caused hurricane irene 96 million partially offset  64 million increase storm damage service restoration costs primarily due damage caused severe storms 2012 interest related charges increased 16 primarily due absence recognition hedging gains income 2011 deferred regulatory liabilities result biennial review order income tax expense increased 21 primarily reflecting higher pretax income 2012 2011 vs net revenue increased 13 million primarily reflecting  impact rate adjustment clauses 169 million  decrease net capacity expenses 44 million partially offset  impact 120 million decrease sales retail customers primarily due decrease heating cooling degree days 220 million partially offset increase sales due effect favorable economic conditions customer usage factors 100 million  decrease due charge based biennial review order refund revenues customers 81 million operations maintenance decreased 2 million primarily reflecting  267 million decrease salaries wages benefits well certain administrative general costs primarily due 2010 workforce reduction program  54 million decrease planned outage costs primarily due fewer scheduled outage days certain generation facilities partially offset  228 million impairment charge related certain coalfired generating units  96 million increase due restoration costs associated damage caused hurricane irene income decreased 12 primarily due decrease equity component afudc 17 million partially offset increase amounts collectible customers taxes connection contributions aid construction 5 million outlook virginia power expects provide growth net income 2013 virginia power’s anticipated 2013 results reflect following significant factors  return normal weather  growth weathernormalized electric sales approximately 2 resulting recovering economy rising energy demand  construction operation growth projects associated rate adjustment clause revenue partially offset  increases certain operations maintenance expense  increase depreciation depletion amortization january 2 2013 us federal legislation enacted provides extension 50 percent bonus depreciation allowance qualifying capital expenditures incurred 2013 discussed note 5 consolidated financial management’s discussion analysis financial condition results operations continued statements virginia power expects bonus depreciation provisions reduce income taxes otherwise payable resulting cash savings 2013 2014 approximately 200 million 250 million respectively segment results operations presented summary contributions virginia power’s operating segments net income dvp presented operating statistics related virginia power’s dvp segment 1 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2012 vs 2011 1 excludes restoration costs associated damage caused severe storms 2012 2011 reflected corporate segment 2011 vs 2010 1 excludes restoration costs associated damage caused hurricane irene reflected corporate segment 2 primarily reflects 2010 implementation cost containment measures including workforce reduction program lower salaries wages expenses dominion generation presented operating statistics related virginia power’s dominion generation segment presented aftertax basis key factors impacting dominion generation’s net income contribution 2012 vs 2011 vs 2010 corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate primarily includes specific items attributable virginia power’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 consolidated financial statements discussion items selected informationenergy trading activities dominion engages energy trading marketing hedging activities complement businesses facilitate price risk management activities part operations dominion enters contracts purchases sales energyrelated commodities including electricity natural gas energyrelated products settlements contracts may require physical delivery underlying commodity cash settlement dominion also enters contracts objective benefiting changes prices example entering contract purchase commodity dominion typically enters sales contract combination sales contracts quantities delivery settlement terms identical similar purchase contract purchase sales contracts settled either physical delivery underlying commodity net cash settlement dominion may receive net cash margin realized gain may pay net cash margin realized loss dominion continually monitors contract positions considering location timing delivery settlement energy commodity relation market price activity summary changes unrealized gains losses recognized dominion’s energyrelated derivative instruments held trading purposes follows balance net unrealized gains losses recognized dominion’s energyrelated derivative instruments held trading purposes december 31 2012 summarized following table based approach used determine fair value 1 values represent observable unadjusted quoted prices traded instruments active markets 2 values inputs observable directly indirectly instrument qualify level 1 3 values significant amount inputs observable instrument liquidity capital resources dominion virginia power depend internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2012 dominion 11 billion unused capacity credit facilities including 256 million unused capacity joint credit facilities available virginia power see additional discussion credit facilities shortterm debt disposition certain merchant generation facilities 2012 expected sale decommissioning certain merchant generation facilities 2013 expected negatively impact dominion’s liquidity summary dominion’s cash flows presented management’s discussion analysis financial condition results operations continued summary virginia power’s cash flows presented operating cash flows 2012 net cash provided dominion’s operating activities increased approximately 12 billion primarily due higher deferred fuel cost recoveries virginia jurisdiction lower margin collateral requirements changes working capital items income tax refunds 2012 compared income tax payments 2011 increase partially offset lower merchant generation margins impact less favorable weather 2012 net cash provided virginia power’s operating activities increased 682 million primarily due higher deferred fuel cost recoveries virginia jurisdiction net changes working capital items partially offset income tax payments 2012 compared income tax refunds 2011 impact less favorable weather dominion believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares 2012 dominion’s board directors adopted new dividend policy raised target payout ratio 6570 established annual dividend rate 2013 225 per share common stock 66 increase 2012 rate declarations dividends subject board directors approval virginia power believes operations provide stable source cash flow contribute planned levels capital expenditures provide dividends dominion companies’ operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2012 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 28 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 13 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 15 total net credit exposure virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers considered material december 31 2012 investing cash flows 2012 net cash used dominion’s investing activities increased 519 million primarily due higher capital expenditures mainly related investments growth projects lower restricted cash reimbursements purpose funding certain qualifying construction projects partially offset proceeds sale assets primarily related blue racer 2012 net cash used virginia power’s investing activities increased 335 million primarily due higher capital expenditures lower restricted cash reimbursements purpose funding certain qualifying construction projects financing cash flows liquidity dominion virginia power rely capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings companies’ ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances case virginia power approval virginia commission companies currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows companies use automatic shelf registra tion statements register offering securities exchange offers business combination transactions 2012 net cash used dominion’s financing activities 151 million compared net cash provided financing activities 378 million 2011 primarily reflecting lower net debt issuances 2012 compared 2011 result higher cash flow operations partially offset absence repurchases common stock recorded 2011 2012 net cash used virginia power’s financing activities increased 372 million primarily reflecting lower net debt issuances 2012 compared 2011 result higher cash flow operations credit facilities shortterm debt dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties connection commodity hedging activities companies required provide collateral counterparties circumstances certain collateral arrangements companies may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time companies vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates companies issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 effective september 2012 maturity date extended september 2016 september 2017 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 effective september 2012 maturity date 400 million 500 million committed capacity credit facility extended september 2016 september 2017 remaining 100 million continues maturity date september 2016 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rate outstanding commercial paper supported dominion’s credit facilities 049 december 31 2012 virginia power virginia power’s shortterm financing supported two joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion follows 1 effective september 2012 maturity date extended september 2016 september 2017 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year 2 effective september 2012 maturity date 400 million 500 million committed capacity credit facility extended september 2016 september 2017 remaining 100 million continues maturity date september 2016 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rate outstanding commercial paper supported credit facilities 047 december 31 2012 addition credit facility commitments mentioned virginia power also 120 million credit facility effective september 2012 maturity date extended september 2016 september 2017 facility supports certain taxexempt financings virginia power shortterm notes november december 2012 dominion issued 250 million 150 million respectively private placement shortterm notes mature november 2013 bear interest variable rate proceeds used general corporate purposes longterm debt 2012 dominion virginia power issued following longterm debt december 2011 virginia power borrowed 75 million connection economic development authority county chesterfield pollution control refunding revenue management’s discussion analysis financial condition results operations continued bonds series 2011 mature 2017 bear interest initial period variable rate first five years bear interest market rate determined time using remarketing process proceeds used refund principal amount industrial development authority county chesterfield virginia money market municipalstm pollution control revenue bonds series 1987 series 1987 b would otherwise matured june 2017 2012 dominion virginia power repaid repurchased 17 billion 641 million respectively longterm debt issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2012 dominion began issuing new common shares direct stock purchase plans 2012 dominion issued approximately 64 million shares common stock various programs dominion received cash proceeds 265 million issuance 53 million shares dominion direct employee savings plans exercise employee stock options january 2012 dominion filed new sec shelf registration sale debt equity securities including ability sell common stock market program dominion entered four separate sales agency agreements effect sales program however exception issuing approximately 318 million equity employee savings plans direct stock purchase dividend reinvestment plans converted securities employee director benefit plans dominion issue common stock 2012 virginia power issue shares common stock dominion repurchase common stock dominion repurchase shares 2012 plan repurchase shares 2013 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization borrowings parent virginia power ability borrow funds dominion shortterm longterm borrowing arrangements virginia power’s shortterm demand note borrowings dominion 243 million december 31 2012 longterm borrowings dominion december 31 2012 december 31 2012 virginia power’s nonregulated subsidiaries outstanding borrowings net repayments dominion money pool 192 million credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion virginia power believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion virginia power may affect ability access funding sources cause increase return required investors dominion’s virginia power’s credit ratings may affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion virginia power affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions credit ratings february 22 2013 follow february 22 2013 fitch moody’s standard poor’s maintained stable outlook respective ratings dominion virginia power downgrade individual company’s credit rating would necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade would likely increase cost borrowing dominion virginia power work closely fitch moody’s standard poor’s objective maintaining current credit ratings companies may find necessary modify business plans maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion virginia power must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion virginia power typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec information changes dominion’s virginia power’s credit ratings lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens dominion virginia power required pay annual commitment fees maintain credit facilities addition credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2012 calculated total debt total capital ratio pursuant terms agreements follows 1 indebtedness defined bank agreements excludes junior subordinated notes reflected longterm debt securities due within one year well aoci reflected equity consolidated balance sheets provisions apply separately dominion virginia power dominion virginia power either company’s material subsidiaries fails make payment various debt obligations excess 100 million lenders could require company accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds company accordingly default dominion affect lenders’ commitment virginia power however default virginia power would affect lenders’ commitment dominion joint credit agreements dominion executed rccs connection issuance following hybrid securities  june 2006 hybrids  september 2006 hybrids  june 2009 hybrids see note 17 consolidated financial statements terms rccs december 31 2012 termination dates covered debt rccs associated dominion’s hybrids follows 1 automatically extended set forth rcc additional quarterly periods extent maturity date extended dominion virginia power monitor debt covenants regular basis order ensure events default occur december 31 2012 events default changes dominion’s virginia power’s debt covenants virginia power mortgage supplement substantially virginia power’s property subject lien indenture mortgage securing first refunding mortgage bonds july 2012 virginia power entered supplement indenture order amend various terms conditions incorporate certain new provisions supplement reduces virginia power’s overall compliance responsibilities associated indenture limiting maximum principal amount bonds may outstanding indenture 10 million unless otherwise provided supplement modifying eliminating altogether certain compliance requirements bonds outstanding supplement also provides virginia power flexibility determine certain newly recently acquired properties pledged collateral indenture bonds outstanding december 31 2012 however leaving indenture open virginia power expects retain flexibility issue mortgage bonds future dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2012 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion virginia power’s ability pay dividends receive dividends subsidiaries december 31 2012 see note 17 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes information incorporated herein reference future cash payments contractual obligations planned capital expenditures contractual obligations dominion virginia power party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion virginia power parties december 31 2012 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts management’s discussion analysis financial condition results operations continued presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s virginia power’s current liabilities paid cash 2013 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt interest calculated using applicable interest rate forward interest rate curve december 31 2012 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements reflect dominion’s ability defer interest payments junior subordinated notes 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 represents summation settlement amounts contracts due dominion physical financial transactions among counterparties dominion liquidated terminated 6 includes capital operations maintenance commitments 7 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 233 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 8 includes interest rate swap agreements 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 includes interest payments terms debt interest calculated using applicable interest rate forward interest rate curve december 31 2012 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 includes capital operations maintenance commitments 6 excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 57 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements planned capital expenditures dominion’s planned capital expenditures expected total approximately 47 billion 42 billion 33 billion 2013 2014 2015 respectively dominion’s expenditures expected include construction expansion electric generation natural gas transmission storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel buyout lease fairless 2013 virginia power’s planned capital expenditures expected total approximately 26 billion 30 billion 23 billion 2013 2014 2015 respectively virginia power’s expenditures expected include construction expansion electric generation facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel dominion virginia power expect fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators respective company’s board directors based available generation capacity current estimates growth customer demand virginia power need additional generation future see dvp dominion generation dominion energyproperties item 1 business discussion dominion’s virginia power’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion’s board directors late 2012 subject continuing review adjustment actual capital expenditures may vary estimates companies may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others see note 22 consolidated financial statements additional information incorporated herein reference future issues matters see item 1 business item 3 legal proceedings notes 13 22 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred approximately 189 million 184 million 228 million expenses including depreciation 2012 2011 2010 respectively connection environmental protection monitoring activities expects expenses approximately 193 million 181 million 2013 2014 respectively addition capital expenditures related environmental controls 213 million 403 million 351 million 2012 2011 2010 respectively expenditures expected approximately 75 million 115 million 2013 2014 respectively virginia power incurred approximately 120 million 129 million 144 million expenses including depreciation 2012 2011 2010 respectively connection environmental protection monitoring activities expects expenses approximately 148 million 157 million 2013 2014 respectively addition capital expenditures related environmental controls 34 million 77 million 101 million 2012 2011 2010 respectively expenditures expected approximately 20 million 99 million 2013 2014 respectively future environmental regulations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements december 2012 epa issued final rule set stringent annual air quality standard fine particulate matter epa expected complete final air quality designations december 2014 states 2020 meet revised standard extent revised particulate matter standard impact dominion uncertain time expected material epa finalized rules establishing new 1hour naaqs no2 new 1hour naaqs so2 could require additional nox so2 controls certain areas companies operate states developed implementation plans standards impact dominion’s virginia power’s facilities emit nox so2 uncertain january 2010 epa also proposed new stringent naaqs ozone planned finalize rule 2011 september 2011 epa announced delay 2011 2014 rulemaking therefore nox controls may required rulemaking also expected delayed interim epa proceeding implementation current ozone standard made final attainmentnonattainment designations may 2012 several dominion electric generating facilities located areas impacted standard states developed implementation plans new nox so2 ozone standards possible determine impact dominion’s virginia power’s facilities emit nox so2 companies cannot currently predict certainty whether extent new rules ultimately require additional controls however significant expenditures required could adversely affect dominion’s results operations dominion’s virginia power’s cash flows june 2005 epa finalized amendments regional haze rule also known clean air visibility rule requires states implement best available retrofit technology requirements sources address impacts visual air quality regional haze state implementation plans allows alternative options epa process completing rulemakings regional haze state implementation plans although dominion virginia power anticipate emission reductions achieved compliance caarequired programs generally address rule additional emission reduction requirements may imposed companies’ facilities water cwa comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply aspects cwa programs operating facilities july 2004 epa published regulations cwa section 316b govern existing utilities employ cooling water intake structure flow levels exceeding minimum threshold april 2008 us supreme court granted industry management’s discussion analysis financial condition results operations continued request review question whether section 316b authorizes epa compare costs benefits determining best technology available minimizing “adverse environmental impact” cooling water intake structures us supreme court ruled april 2009 epa authority consider costs versus environmental benefits selecting best technology available reducing impacts cooling water intakes power stations currently unknown epa interpret ruling ongoing rulemaking activity addressing cooling water intakes well states implement decision april 2011 epa published proposed rule related section 316b federal register agreed publish final rule later july 27 2012 july 2012 epa announced delay later june 27 2013 impending rulemaking related section 316b rule proposed form seeks establish uniform national standard impingement forgoes creation single technology standard entrainment instead epa proposes delegate entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination nine facilityspecific factors including social costbenefit test proposed rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd proposal dominion 16 facilities may subject proposed regulations finalized proposed dominion anticipates install impingement control technologies many stations oncethrough cooling systems dominion virginia power cannot estimate need potential entrainment controls proposed rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies however impacts proposed rule may material results operations financial condition andor cash flows solid hazardous waste june 2010 epa proposed federal regulations rcra management coal combustion byproducts generated power plants epa considering two possible options regulation coal combustion byproducts fall rcra first proposal epa would classify byproducts special wastes subject regulation subtitle c hazardous waste provisions rcra destined disposal landfills surface impoundments second proposal epa would regulate coal combustion byproducts subtitle rcra section nonhazardous wastes companies cannot currently predict outcome matter regulation either option affect dominion’s virginia power’s onsite disposal facilities coal combustion byproduct management practices potentially require material investments climate change legislation regulation december 2009 epa issued final endangerment cause contribute findings greenhouse gases section 202a clean air act finding ghgs “endanger public health public welfare current future generations” april 1 2010 epa department transportation’s national highway safety administration announced joint final rule establishing program dramatically reduce ghg emissions improve fuel economy new cars trucks sold united states rules took effect january 2011 established ghg emissions regulated pollutants caa may 2010 epa issued final prevention significant deterioration title v greenhouse gas tailoring rule combined prior actions require dominion virginia power obtain permits ghg emissions new modified facilities certain size thresholds meet best available control technology ghg emissions epa issued draft guidance ghg permitting including best available control technology april 2012 epa published proposed nsps ghg emissions new electric generating units proposed rule sets national emission standards new coal oil integrated gasification combined cycle combined cycle units larger 25mw rule expected finalized spring 2013 covers co2 apply existing sources new natural gas combined cycle units including brunswick county expected able meet standard rule also apply new existing simple cycle combustion turbine units biomass units schedule final rulemaking governing ghg nsps existing sources uncertain legislative proposals may considered would indirect impact ghg emissions potential us congress consider mandatory clean energy standard addition possible federal action regions states dominion virginia power operate already adopted may adopt ghg emission reduction programs new contemplated regulations may affect capital costs create significant permitting delays new modified facilities emit ghgs july 2008 massachusetts passed gwsa among provisions gwsa sets economywide ghg emissions reduction goals massachusetts including reductions 25 1990 levels 2020 interim goals 2030 2040 reductions 80 1990 levels 2050 regulations impacting dominion gwsa proposed dominion operates brayton point massachusetts acts retail electric supplier massachusetts subject implementation gwsa december 2009 governors 11 northeast midatlantic states including connecticut maryland massachusetts new york pennsylvania rhode island rggi states plus pennsylvania signed memorandum understanding committing states toward developing low carbon fuel standard reduce ghg emissions vehicles memorandum understanding established process develop regional framework 2011 examine economic impacts low carbon fuel standard program although economic studies policy options examined 2011 definitive framework yet established doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets doddfrank act includes provisions require certain overthecounter derivatives swaps centrally cleared executed exchange approved trading platform nonfinancial entities use swaps hedge mitigate commercial risk often referred end users choose exempt hedging transactions clearing exchange trading requirements final rules overthecounter derivativerelated provisions doddfrank act continue established ongoing rulemaking process applicable regulators result rulemaking process dominion’s virginia power’s derivative activities exempted clearing exchange trading margin requirements companies could subject higher costs including higher margin requirements derivative activities addition implementation compliance overthecounter derivative provisions doddfrank act companies’ swap counterparties could result increased costs related companies’ derivative activities due ongoing rulemaking process companies currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows cove point export project dominion pursuing liquefaction project cove point would enable facility liquefy domesticallyproduced natural gas export lng project expected cost approximately 34 billion 38 billion exclusive financing costs planned capacity approximately 750 million cubic feet per day inlet approximately 45 5 million metric tons per annum outlet 2011 cove point requested authorization doe export lng countries free trade agreement requiring trade natural gas us well countries free trade agreement october 2011 cove point received authorization doe export lng free trade agreement countries cove point expects receive authorization doe export lng nonfree trade agreement countries 2013 june 2012 ferc approved cove point’s request initiate prefiling process environmental review project commenced approval project could take two years prefiling approval date march 2012 cove point entered precedent agreements two major companies one sumitomo corporation pursuant cove point would provide liquefaction storage loading services would directly export lng october 2012 cove point unnamed company terminated precedent agreement mutual consent december 2012 cove point entered 20year terminal services agreement pacific summit energy llc us subsidiary sumitomo corporation half planned project capacity agreement contains final terms subject certain conditions precedent include conditions related customer contracting cove point active negotiations company definitive terminal services agreement remaining half planned project capacity may 2012 response claims sierra club cove point filed complaint declaratory judgment confirm right construct project january 2013 maryland circuit court issued declaratory judgment confirming cove point’s right build liquefaction facilities february 2013 sierra club filed notice appeal maryland court special appeals subject final decision pursuing project execution binding terminal service agreements receipt regulatory approvals successful completion engineering studies construction liquefaction facilities could begin 2014 inservice date 2017 cove point reexport project august 2011 cove point filed application doe seeking blanket authority reexport equivalent 150 bcf foreignsourced lng cove point terminal twoyear period january 2012 doe conditionally approved cove point’s application due lack customer interest reexport cove point made filings ferc doe reexport authorization automatically terminated january 2013 regulation act legislation january 2013 legislation introduced virginia general assembly would amend regulation act legislation passed virginia house delegates senate virginia signed law governor february 2013 among things amendments eliminate 50 basis points rps roe incentive prospectively well new generation roe incentives future projects except nuclear offshore wind projects instead reduced current 200 basis points roe incentive 100 basis points roe incentives previously approved well filed unconstructed projects remain place addition performance incentive provision regulation act authorizing virginia commission increase decrease utility’s authorized roe 100 basis points based operating comparisons certain nationally recognized standards removed virginia commission discretion increase decrease utility’s authorized roe based commission precedent existed prior enactment regulation act legislation includes changes earnings test parameters defined regulation act allow wider band 70 basis points authorized roe determining whether utility’s earned roe either insufficient excessive beginning biennial review 20132014 filed 2015 additionally utility deemed overearned customer refund share excess earnings increases 70 current 60 level beginning biennial review 20132014 filed 2015 legislation also provides guidance virginia commission ratemaking treatment severe weather events natural disasters asset impairments related early retirements utility generation plants decision retire made december 31 2012 guidance ratemaking treatment applies virginia power’s upcoming biennial review 20112012 filed 2013 additionally provision regulation act requiring virginia commission combine transmissionrelated rider costs base rates eliminated transmission costs con management’s discussion analysis financial condition results operations continued tinue segregated recovered separately legislation requires utility seeking approval construct generating facility demonstrate considered weighed alternative options selection process virginia offshore wind lease march 2012 virginia power filed notice boem interest obtaining leases virginia coast area sufficient construction offshore wind turbines potential generate approximately 15002000 mw electricity enough electricity serve approximately 500000 homes peak demand december 2012 boem announced would auction approximately 113000 acres virginia coast single lease 2013 item 7a item 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations mda discusses results operations general financial condition virginia electric power company mda read conjunction consolidated financial statements terms “virginia power” “company” “we” “our” “us” used throughout report depending context use may represent following legal entity virginia electric power company one virginia electric power company’s consolidated subsidiaries operating segments entirety virginia electric power company consolidated subsidiaries whollyowned subsidiary dominion resources inc dominion contents mda consists following information n forwardlooking statements n introduction n accounting matters n results operations n segment results operations n liquidity capital resources n future issues matters forwardlooking statements report contains statements concerning expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “target” similar words make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited n unusual weather conditions effect energy sales customers energy commodity prices n extreme weather events including hurricanes winter storms cause outages property damage facilities n state federal legislative regulatory developments including movement towards hybrid form regulation changes environmental laws regulations subject n cost environmental compliance n risks associated operation nuclear facilities n fluctuations energyrelated commodity prices effect could earnings liquidity position underlying value assets n capital market conditions including price risk due marketable securities held investments nuclear decommissioning trusts n fluctuations interest rates n changes rating agency requirements credit ratings effect availability cost capital n changes financial regulatory accounting principles policies imposed governing bodies n employee workforce factors including collective bargaining agreements labor negotiations union employees n risks operating businesses regulated industries subject changing regulatory structures n changes rules regional transmission organizations rtos participate including changes rate designs new evolving capacity models n changes ability recover investments made traditional regulation rates n political economic conditions including threat domestic terrorism inflation deflation additionally risks could cause actual results differ predicted results set forth item 1a risk factors forwardlooking statements based beliefs assumptions using information available time statements made caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results undertake obligation update forwardlooking statement reflect developments occurring statement made introduction virginia electric power company virginia public service company whollyowned subsidiary dominion regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina serve approximately 23 million retail customer accounts including governmental agencies wholesale customers rural electric cooperatives municipalities businesses managed three primary operating segments delivery energy generation contributions net income primary operating segments determined based measure profit believe represents segments’ core earnings result certain specific items attributable segments included profit measures evaluated management assessing segment performance allocating resources among segments specific items reported corporate segment delivery includes regulated electric distribution customer service businesses electric distribution operations serve residential commercial industrial governmental customers virginia northeastern north carolina revenue provided electric distribution operations based primarily rates established state regulatory authorities state law profitability business dependent ability rates permitted charge recover costs earn reasonable return capital investments variability earnings relates largely changes volumes primarily weather sensitive changes cost routine maintenance repairs including labor benefits energy includes regulated electric transmission system serving virginia northeastern north carolina 2005 became member pjm interconnection llc pjm rto integrated electric transmission facilities pjm wholesale electricity markets revenue provided regulated electric transmission operations based primarily rates established federal energy regulatory commission ferc profitability business dependent ability rates permitted charge recover costs earn reasonable return capital investments variability earnings results changes rates demand services primarily weather dependent generation includes portfolio electric generating facilities power purchase agreements energy supply operations generation mix diversified includes coal nuclear gas oil hydro purchased power electric generation operations serve customers virginia northeastern north carolina generation facilities located virginia west virginia north carolina energy supply operations responsible managing energy capacity needs utility system resources generation’s earnings primarily result generation sale electricity due 2004 deregulation legislation revenues serving virginia jurisdictional retail load based capped rates 2010 fuel costs utility fleet including power purchases subject fixed rate recovery provisions july 1 2007 time fuel rates adjusted annually discussed status electric restructuring virginia future issues matters changes utility operating costs particularly respect fuel purchased power relative costs used establish capped rates impact earnings variability earnings also results changes demand primarily weather dependent cost labor benefits timing duration costs outages corporate includes corporate functions specific items attributable primary operating segments excluded profit measures evaluated management either assessing segment performance allocating resources among segments including net impact virginia power energy marketing inc vpem prior transfer dominion december 31 2005 completed transfer indirect whollyowned subsidiary vpem dominion series dividend distributions exchange capital contribution vpem provides fuel risk management services us acting agent one indirect whollyowned subsidiaries vpem also engages energy trading activities provides price risk management services dominion affiliates use derivative contracts owned vpem certain derivative contracts required reported fair value consolidated balance sheets changes fair value reflected earnings price risk management activities dominion affiliates generated derivative gains losses turn affected consolidated financial statements result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation accounting matters critical accounting policies estimates identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions discussed development selection disclosure policies board directors also serves audit committee asset retirement obligations recognize liabilities expected cost retiring tangible longlived assets legal obligation exists asset retirement obligations aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates aros currently reported consolidated balance sheets measured period historically low interest rates impact measurements new aros remeasurements existing aros using different rates future may significant revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset accrete aro liability reflect passage time 2006 2005 2004 recognized 40 million 44 million 42 million respectively accretion expect incur 36 million 2007 significant portion aros relate future decommissioning nuclear facilities december 31 2006 nuclear decommissioning aros reported generation segment totaled 603 million representing approximately 94 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated nuclear decommissioning obligations obtain thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants obtained updated cost studies nuclear plants 2006 reflected increases base year costs cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition cost estimates include cost escalation rates applied base year costs selection cost escalation rates dependent subjective factors consider critical assumption determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facilities 2006 lowered cost escalation rate assumptions used aro calculation 085 due projected reductions general decommissioning specific inflation rates resulting 201 million decrease nuclear decommissioning aros accounting regulated operations accounting regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred regulatory assets amortized expense regulatory liabilities amortized income recovery period authorized regulator evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made currently believe recovery regulatory assets probable see notes 2 12 consolidated financial statements revenue recognition unbilled revenue recognize record revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amounts electric energy delivered customers yet billed estimated recorded unbilled revenue estimate reversed following month actual revenue recorded based meter readings customer receivables included 233 million 263 million accrued unbilled revenue december 31 2006 2005 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes generation patterns customer usage patterns meter accuracy factors basis estimates unbilled revenues could significant effect calculation therefore results operations financial condition income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material december 31 2006 established liabilities taxrelated contingencies accordance statement financial accounting standards sfas 5 accounting contingencies reviewed light changing facts circumstances however discussed note 4 consolidated financial statements effective january 1 2007 adopted financial accounting standards board interpretation 48 fin 48 accounting uncertainty income taxes taking consideration uncertainty judgment involved determination filing income taxes fin 48 establishes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined taxing authorities full knowledge relevant information deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes evaluate quarterly probability realizing deferred tax assets reviewing forecast future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets accounting standards 2006 2005 required adopt several new accounting standards discussed note 3 consolidated financial statements see note 4 consolidated financial statements discussion recently issued accounting standards adopted future results operations presented summary consolidated results overview 2006 vs 2005 net income increased 478 million favorable drivers include absence 471 million aftertax losses incurred 2005 discontinued operations vpem absence 2005 charge resulting termination longterm power purchase agreement results also positively impacted decreased consumption fossil fuel due milder weather increase gains realized sale emissions allowances unfavorable drivers include decrease regulated electric sales resulting milder weather factors reduced benefit financial transmission rights ftrs excess congestion costs major storm damage service restoration costs associated tropical storm ernesto september 2006 2005 vs 2004 net income decreased 10 million unfavorable drivers include 471 million aftertax losses incurred discontinued operations vpem charge resulting termination longterm power purchase agreement results also negatively affected impact higher commodity prices fuel purchased power expenses analysis consolidated operations presented selected amounts related results operations analysis results operations 2006 compared 2005 compared 2004 follows 2006 vs 2005 operating revenue decreased 2 56 billion reflecting combined effects n 218 million decrease associated milder weather compared prior year experienced 9 decline cooling degree days 16 decline heating degree days n 53 million decrease sales wholesale customers primarily resulting milder weather partially offset n 81 million increase due new customer connections primarily residential commercial customer classes n 56 million increase attributable rate variations resulting changes customer usage patterns sales mix factors n 18 million increase ancillary service revenue pjm n 13 million increase due collection new virginia sales use tax surcharge customers n 9 million increase primarily due impact comparatively higher fuel rate certain customer jurisdictions offset comparable increase electric fuel energy purchases expense operating expenses items electric fuel energy purchases expense decreased 7 24 billion primarily due lower commodity prices including purchased power decreased consumption fossil fuel reflecting effects milder weather demand partially offset increase purchased power volumes purchased electric capacity expense decreased 5 453 million primarily due scheduled capacity reductions certain longterm power purchase contracts well termination longterm power purchase agreement connection purchase related generating facility february 2005 energyrelated commodity purchases expense increased 65 56 million primarily reflecting increase nonutility coal purchased resale operations maintenance expense increased 9 10 billion primarily reflecting n 41 million increase due reduced benefit ftrs granted pjm used offset congestion costs associated pjm spot market activity included electric fuel energy purchases expense n 29 million increase related major storm damage service restoration costs associated distribution operations primarily resulting tropical storm ernesto september 2006 n 15 million increase resulting higher salaries wages pension medical benefits n 12 million increase outage costs primarily due increase number scheduled outages certain electric generating facilities n 9 million increase due amortization regulatory asset associated amounts subject collection virginia sales use tax surcharge net credits resulting additions regulatory asset period n 7 million increase related services provided dominion resources services inc n 7 million charge resulting writeoff certain assets longer use one electric generating facilities n 4 million increase pjm ancillary service charges partially offset n 20 million increase gains sale emissions allowances n net benefit absence following items recognized 2005 n 77 million charge resulting termination longterm power purchase agreement partially offset n 25 million net benefit resulting establishment certain regulatory assets connection settlement north carolina rate case interest related charges decreased 8 296 million primarily reflecting absence prepayment penalties resulting early redemption debt 2005 partially offset additional borrowings higher interest rates variable rate debt loss discontinued operations reflects absence losses incurred discontinued operations vpem prior disposition december 2005 vs 2004 operating revenue increased 6 57 billion primarily reflecting n 153 million increase sales wholesale customers n 99 million increase due impact comparatively higher fuel rate certain customer jurisdictions offset increase electric fuel energy purchases expense n 77 million increase primarily due impact comparably favorable weather customer usage compared prior year experienced 8 increase cooling degree days 3 increase heating degree days n 59 million increase associated new customer connections primarily residential commercial customer classes partially offset n 25 million decrease attributable rate variations resulting changes customer usage patterns sales mix factors n 22 million decrease revenue primarily attributable decrease offsystem sales operating expenses items electric fuel energy purchases expense increased 46 26 billion primarily resulting higher commodity prices including purchased power congestion costs associated pjm purchased electric capacity expense decreased 13 477 million resulting termination several longterm power purchase agreements connection purchase related generating facilities 2004 2005 operations maintenance expense decreased 24 945 million primarily reflecting n 186 million benefit related ftrs n 54 million gain resulting sale emissions allowances n net benefit absence following items recognized 2004 n 184 million charge related sale interest longterm power tolling contract n 71 million charge resulting termination certain longterm power purchase agreements partially offset n 18 million benefit reduction accrued expenses associated hurricane isabel restoration activities n benefits partially offset following charges 2005 n 77 million charge resulting termination longterm power purchase agreement n 36 million increase salaries wages benefits expense resulting higher incentivebased compensation wages pension benefits n 17 million increase operating expenses related nonutility generating facilities acquired subsequent september 2004 depreciation amortization expense increased 6 527 million due incremental expense resulting property additions income increased 43 70 million primarily reflecting 9 million increase net realized gains including investment income associated nuclear decommissioning trust fund investments 3 million increase rental income 2 million increase interest income interest related charges increased 29 322 million primarily reflecting impact prepayment penalties resulting early redemption debt additional borrowings higher interest rates variable rate debt loss discontinued operations increased result unfavorable price changes unsettled commodity derivative contracts primarily used execute price risk management activities undertaken behalf affiliates outlook believe operating businesses provide stable growth net income 2007 following growth factors impact expected results n decrease unrecovered virginia fuel expenses result annual adjustments fuel factor beginning july 1 2007 n potential increase regulated electric sales compared 2006 assuming utility service territory experiences return normal weather 2007 n continued growth utility customers growth factors 2007 expected partially offset n decrease gains sales emissions allowances n increased salaries wages benefits expense n increased interest expense important development impacting future company passage legislation virginia would reregulate certain elements business discussed status electric restructuring virginia future issues matters since competitive markets developed virginia supporting legislation passed virginia general assembly early 2007 would create hybrid regulatory model designed modify traditional regulatory method better suit financial realities undertaking major new generation infrastructure projects believe model would continue provide customers comparatively low rates ensure ability build new generation infrastructure needed keep pace growing demand electricity virginia governor march 26 2007 sign propose amendments veto proposed legislation governor’s signature legislation would become law effective july 1 2007 time cannot predict outcome legislation segment results operations presented summary contributions operating segments net income delivery presented operating statistics related delivery operations mwhrs megawatt hours 1 includes electricity delivered retail choice program virginia jurisdictional electric customers 2 cooling degree days cdds units measuring extent average daily temperature greater 65 degrees cdds calculated difference average temperature day 65 degrees 3 heating degree days hdds units measuring extent average temperature less 65 degrees hdds calculated difference average temperature 65 degrees 4 thirteenmonth average thousands presented aftertax basis key factors impacting delivery’s net income contribution 2006 vs 2005 1 attributable rate variations changes customer usage patterns sales mix factors 2005 vs 2004 1 change seasonal allocation electric utility base rate revenue among primary operating segments effective january 1 2005 energy presented aftertax basis key factors impacting energy’s net income contribution 2006 vs 2005 1 reflects absence charge incurred 2005 writeoff certain previously deferred startup integration costs associated joining rto 2005 vs 2004 generation presented operating statistics related generation operations generation segment provides electricity primarily nuclear coal oil purchased power natural gas presented summary system’s output energy source 1 excludes old dominion electric cooperative’s odec 116 ownership interest north anna power station 2 excludes odec’s 50 ownership interest clover power station average cost coal 2006 virginia insystem generation 2735 per mwhr 3 includes natural gas used combustion turbines fueled gas 4 excludes offsystem sales presented aftertax basis key factors impacting generation’s net income contribution 2006 vs 2005 1 primarily attributable rate variations changes customer usage patterns sales mix factors 2 primarily reflects reduced benefit ftrs excess congestion costs 2005 vs 2004 1 reflects higher commodity prices including purchased power 2 increase energy supply margin reflects benefit related ftrs corporate presented corporate segment’s aftertax results specific items attributable operating segments corporate includes specific items attributable primary operating segments excluded profit measures evaluated management either assessing segment performance allocating resources among segments see note 25 consolidated financial statements discussion items liquidity capital resources depend internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met sales securities additional longterm financing december 31 2006 10 billion unused capacity joint credit facility see discussion joint credit facilities shortterm debt summary cash flows 2006 2005 2004 presented operating cash flows 2006 net cash provided operating activities decreased 416 million compared 2005 primarily reflecting absence cash provided vpem prior disposition december 2005 believe operations provide stable source cash flow sufficient contribute planned levels capital expenditures provide dividends dominion however operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk exposure potential concentrations credit risk results primarily sales wholesale customers presented summary gross exposure december 31 2006 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral held collateral transactions december 31 2006 1 designations investment grade based minimum credit ratings assigned moody’s investors service moody’s standard poor’s ratings services standard poor’s five largest counterparty exposures combined category represented approximately 6 total gross credit exposure 2 five largest counterparty exposures combined category represented approximately 94 total gross credit exposure investing cash flows significant investing activities 2006 included n 925 million environmental upgrades routine capital improvements generation facilities construction improvements electric transmission distribution assets n 550 million purchases securities held investments nuclear decommissioning trusts n 122 million nuclear fuel expenditures partially offset n 533 million proceeds sales securities held investments nuclear decommissioning trusts n 75 million proceeds sale emissions allowances financing cash flows liquidity rely banks capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory approvals including authorization virginia state corporation commission virginia commission december 2005 securities exchange commission sec adopted rules modify registration communications offering processes securities act 1933 rules streamline shelf registration process provide registrants timely access capital new rules meet definition wellknown seasoned issuer allows us use automatic shelf registration statement register offering securities business combination transactions significant financing activities 2006 included n 624 million repayment longterm debt n 349 million common dividend payments n 287 million net repayment shortterm debt partially offset n 1 billion issuance longterm debt n 129 million net issuance affiliated current borrowings joint credit facilities shortterm debt use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing level borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations shortterm financing supported 30 billion fiveyear joint revolving credit facility dated february 2006 dominion consolidated natural gas company cng whollyowned subsidiary dominion scheduled terminate february 2011 credit facility used working capital support combined commercial paper programs dominion cng us general corporate purposes credit facility also used support 15 billion letters credit financial policy precludes issuing commercial paper excess supporting lines credit december 31 2006 total commercial paper outstanding supported joint credit facility 176 billion total amount letter credit issuances 236 million leaving approximately 10 billion available issuance longterm debt 2006 issued following longterm debt 2006 repaid 624 million longterm debt securities common shareholder’s equity 2005 recorded contributed capital 633 million related transfer investment vpem dominion 200 million connection conversion shortterm borrowings 2004 recorded 11 million paidin capital connection reduction amounts payable dominion 2004 issued 20115 shares common stock dominion cash consideration 500 million used proceeds part pay 345 million affiliated shortterm demand note dominion borrowings parent borrowed funds dominion shortterm longterm borrowing arrangements nonregulated subsidiaries outstanding dominion money pool borrowings totaling 140 million 12 million december 31 2006 2005 respectively december 31 2006 2005 borrowings longterm note totaled 220 million incurred interest charges related borrowings 10 million 9 million december 31 2006 2005 respectively credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related us may affect ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing credit ratings credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies “event risk” applicable credit ratings parent company dominion credit ratings february 1 2007 follow february 1 2007 fitch ratings ltd fitch moody’s maintain stable outlook standard poor’s maintains positive outlook ratings company generally downgrade credit rating would restrict ability raise shortterm longterm financing long credit rating remains “investment grade” would increase cost borrowing work closely fitch moody’s standard poor’s objective maintaining current credit ratings order maintain current ratings may find necessary modify business plans changes may adversely affect growth debt covenants part borrowing funds issuing debt shortterm longterm preferred securities must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock dominion including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique us typical covenants include n timely payment principal interest n information requirements including submitting financial reports filed sec lenders n performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets n compliance collateral minimums requirements related mortgage bonds n limitations liens required pay minimal annual commitment fees maintain joint credit facility addition joint credit agreement contains various terms conditions could affect ability borrow funds facility include maximum debt total capital ratio crossdefault provisions ratio debt total capital defined agreement exceed 65 end fiscal quarter december 31 2006 calculated debt total capital ratio 47 agreement’s crossdefault provisions material subsidiaries fail make payment various debt obligations excess 35 million may required lenders accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds us however defaults indebtedness dominion cng material subsidiaries affiliates would affect lenders’ commitment us joint credit agreement monitor covenants regular basis order ensure events default occur december 31 2006 events default covenants dividend restrictions virginia commission may prohibit public service company declaring paying dividend affiliate found detrimental public interest december 31 2006 virginia commission restricted payment dividends certain agreements associated joint credit facility dominion cng contain restrictions ratio debt total capitalization limitations restrict ability pay dividends dominion december 31 2006 see note 16 consolidated financial statements description potential restrictions dividend payments connection deferral distribution payments trust preferred securities cash flows discontinued operations impact vpem’s operations consolidated statements cash flows presented transfer vpem dominion negative impact liquidity future cash payments contractual obligations planned capital expenditures contractual obligations party numerous contracts arrangements obligating us make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services presented table summarizing cash payments may result contracts party december 31 2006 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable interest rate swaps majority current liabilities paid cash 2007 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 reflect ability defer payments related trust preferred securities 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 primarily includes interest rate swap agreements excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 12 13 20 consolidated financial statements deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year planned capital expenditures planned capital expenditures expected total approximately 12 billion annually 2007 2008 expect fund capital expenditures cash operations combination securities issuances shortterm borrowings annual capital expenditures plant equipment 2007 including environmental upgrades construction improvements expected total approximately follows n generation nuclear fuel 654 million n transmission 168 million n distribution 390 million based available generation capacity current estimates growth customer demand need additional generation future currently plans restart hopewell plant 2007 63megawatt mw net summer capability coal burning plant located hopewell virginia service since 2002 evaluating 290mw net summer capability expansion ladysmith site ladysmith virginia also leading consortium companies considering building 500 600mw coalfired plant southwest virginia continue evaluate development new plants meet customer demand additional generation needs future 2009 continue meet additional capacity requirements market purchases future issues matters status electric restructuring virginia 1999 virginia restructuring act virginia electric utility restructuring act enacted 1999 virginia restructuring act established plan restructure electric utility industry virginia general legislation provided transition bundled costbased rates regulated electric service unbundled costbased rates transmission distribution services market pricing generation services including retail choice customers 1999 virginia restructuring act addressed capped base rates rto participation retail choice stranded costs recovery functional separation electric utility’s generation transmission distribution operations retail choice made available virginia regulated electric customers since january 1 2003 separated generation distribution transmission functions creation divisions state regulatory requirements ensure generation division divisions operate independently prevent crosssubsidies generation division divisions additionally 2005 became member pjm rto integrated electric transmission facilities pjm wholesale electricity markets 1999 virginia restructuring act base rates capped december 31 2010 unless modified earlier 2004 amendments 1999 virginia restructuring act addressed minimum stay exemption program wires charge exemption program development coalfired generating plant southwest virginia fuel expenses may 2006 virginia law amended modify way virginia jurisdictional fuel factor set three onehalf year period beginning july 1 2007 bill became law effective july 1 2006 n allows annual fuel rate adjustments three twelvemonth periods beginning july 1 2007 one sixmonth period beginning july 1 2010 unless capped rates terminated earlier 1999 virginia restructuring act n allows adjustment end twelvemonth periods account differences projections actual recovery fuel costs prior twelve months n authorizes virginia commission defer 40 fuel factor increase approved first twelvemonth period recovery deferred amount two onehalf year period beginning july 1 2008 prior law deferral possible fuel prices increased considerably since virginia fuel factor provisions frozen 2004 resulted fuel expenses significantly excess rate recovery expect fuel expenses continue exceed rate recovery fuel factor adjusted july 2007 2006 amendments allow us collect unrecovered fuel expenses incurred prior july 1 2007 fuel factor adjusted risk underrecovery prudently incurred fuel costs july 1 2010 greatly diminished stranded costs stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market december 31 2006 exposure potential stranded costs included longterm power purchase contracts could ultimately determined market prices generating plants could possibly become uneconomical deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits believe capped electric retail rates provide opportunity recover potential stranded costs depending market prices electricity factors recovery potential stranded costs remains subject numerous risks even cappedrate environment risks include among others exposure longterm power purchase commitment losses future environmental compliance requirements changes certain tax laws nuclear decommissioning costs increased fuel costs inflation increased capital costs recovery certain items generationrelated cash flows provided 1999 virginia restructuring act intended compensate us continuing provide generation services allow us incur costs restructure operations transition period result transition period earnings may increase extent reduce operating costs utility generationrelated operations conversely risks affecting recovery stranded costs may also adversely impact margins transition period accordingly could realize negative economic impact adverse event using cash flows operations transition period may alter cost structure choose make additional investments business 2007 virginia restructuring act amendments february 2007 houses virginia general assembly passed identical bills would significantly change electricity restructuring virginia bills would end capped rates two years early december 31 2008 capped rates end retail choice would eliminated individual retail customers demand 5mw limited number nonresidential retail customers whose aggregated load would exceed 5mw also end capped rates virginia commis sion would set base rates investorowned electric utilities modified costofservice model among features currently proposed model would provide virginia commission n initiate base rate case utility first six months 2009 result virginia commission n establishes return equity roe lower reported group utilities within southeastern united states us certain limitations earnings rate adjustments n shall increase base rates needed allow utility opportunity recover costs earn fair rate return utility found earnings 50 basis points established roe n may reduce rates alternatively order credit customers utility found earnings 50 basis points established roe n may authorize performance incentives appropriate n initial rate case review base rates biennially result virginia commission n establishes roe lower reported group utilities within southeastern us certain limitations earnings rate adjustments however virginia commission finds roe limit time exceeds roe set time initial base rate case 2009 percentage increase consumer price index interim may reduce lower roe limit level increases initial roe much change consumer price index n shall increase base rates needed allow utility opportunity recover costs earn fair rate return utility found earnings 50 basis points established roe n may order credit customers utility found earnings 50 basis points established roe reduce rates utility found excess earnings two consecutive biennial review periods n may authorize performance incentives appropriate n authorize standalone rate adjustments recovery certain costs including new generation projects major generating unit modifications environmental compliance projects fercapproved costs transmission service energy efficiency conservation programs renewable energy programs n authorize enhanced roe financial incentive construction major baseload generation projects renewable energy portfolio standard programs bills would also continue statutory provisions directing us file annual fuel cost recovery cases virginia commission beginning 2007 continuing thereafter however fuel factor increase july 1 2007 would limited amount results residential customers receiving increase 4 total rates date remainder would deferred collected three years follows n calendar year 2008 deferral portion collected limited amount results residential customers receiv ing increase 4 total rates january 1 2008 n calendar year 2009 deferral portion collected limited amount results residential customers receiving increase 4 total rates january 1 2009 n remainder deferral balance would collected fuel factor calendar year 2010 govenor march 26 2007 sign propose amendments veto bills govenor’s signature bills would become law effective july 1 2007 time cannot predict outcome legislative proposals transmission expansion plan year part pjm’s regional transmission expansion plan rtep process reliability projects authorized june 2006 pjm rtep process authorized construction numerous electric transmission upgrades 2011 involved two major construction projects first project approximately 270mile 500kilovolt kv transmission line southwestern pennsylvania virginia construct approximately 70 miles virginia subsidiary allegheny energy inc construct remainder second project approximately 56mile 500kv transmission line construct southeastern virginia transmission upgrades designed improve reliability service customers region siting construction transmission lines subject applicable state federal permits approvals environmental matters subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2010 excess level currently included virginia jurisdictional electric retail rates results operations decrease date recovery regulated rates may sought environmental costs related regulated electric transmission distribution operations recovery generation component rates dependent upon market price electricity however foregoing risks subject change upon adoption proposed 2007 virginia restructuring act amendments environmental protection monitoring expenditures incurred approximately 102 million 134 million 115 million expenses including depreciation 2006 2005 2004 respectively connection environmental protection monitoring activities expect expenses approximately 133 million 134 million 2007 2008 addition capital expenditures related environmental controls 170 million 42 million 84 million 2006 2005 2004 respectively expenditures expected approximately 197 million 142 million 2007 2008 clean air act compliance march 2005 environmental protection agency epa administrator signed clean air interstate rule cair clean air mercury rule camr rules implemented require significant reductions sulfur dioxide so2 nitrogen oxide nox mercury emissions electric generating facilities so2 nox emission reduction requirements imposed two phases initial reduction levels targeted 2009 nox 2010 so2 second phase reductions targeted 2015 so2 nox mercury emission reduction requirements also two phases initial reduction levels targeted 2010 second phase reductions targeted 2018 new rules allow use capandtrade programs states currently developing implementation plans determine levels timing required emission reductions states within operate affected generating facilities several states issued proposed regulations implementation cair camr west virginia adopted final rules april 2006 legislation titled air emissions control addresses many requirements cair camr adopted virginia strict federal requirements legislation however serve virginia’s final plan implementation cair camr regulatory legislative actions require additional reductions emissions fossil fuelfired generating facilities already addressed current compliance planning june 2005 epa finalized amendments regional haze rule also known clean air visibility rule cavr states yet finalized regulations implement cavr although anticipate emission reductions achieved compliance cair camr address cavr time cannot predict certainty additional financial impacts regional haze regulations operations implementation projects comply so2 nox mercury limitations state emission control programs ongoing influenced changes regulatory environment availability emission allowances emission control technology response requirements estimate make capital expenditures affected generating facilities approximately 451 million period 2007 2011 march 2004 state north carolina filed petition epa section 126 caa seeking additional nox so2 reductions electrical generating units thir teen states claiming emissions units contributing air quality problems north carolina electrical generating units two thirteen states march 2006 epa issued final rulemaking denied north carolina petition basis implementation cair adequately addresses air quality issues identified north carolina therefore anticipate additional expenditures relation matter clean water act compliance july 2004 epa published regulations govern existing utilities employ cooling water intake structure flow levels exceeding minimum threshold epa’s rule presents several compliance options evaluating information certain existing power stations expected spend approximately 4 million next two years conducting studies technical evaluations however january 2007 us court appeals second circuit issued decision appeal regulations remanding rule epa cannot predict outcome epa regulatory process determine certainty specific controls may required future environmental regulations time us congress considers various legislative proposals would require generating facilities comply stringent air emissions standards emission reduction requirements consideration would phased periods ten fifteen years new proposals adopted additional significant expenditures may required 1997 us signed international protocol limit manmade greenhouse emissions united nations framework convention climate change however protocol become binding unless approved us senate bush administration indicated pursue ratification protocol set voluntary goal reducing nation’s greenhouse gas emission intensity 18 period 2002 2012 expect continuing legislative efforts us congress seeking target reductions greenhouse gas emissions cost compliance protocol greenhouse gas reduction programs could significant given highly uncertain outcome timing future action us federal government issue cannot predict financial impact future climate change actions operations time item 7a item 7 management’s discussion analysis financial condition results operations introduction mda explains results operations general financial condition virginia electric power company virginia power mda read conjunction consolidated financial statements “the company” used throughout mda depending context use may represent following legal entity virginia electric power company one virginia power’s consolidated subsidiaries entirety virginia power consolidated subsidiaries company whollyowned subsidiary dominion resources inc cautionary statements regarding forwardlooking information time company makes statements concerning expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “expect” “forecast” “believe” “should” “could” “plan” “may” similar words forwardlooking statements made company full knowledge risks uncertainties exist may cause actual results materially different results predicted factors could cause actual results differ materially often presented forwardlooking statements addition factors could cause actual results differ materially indicated forwardlooking statement factors include limited • unusual weather conditions effect energy sales customers energy commodity prices • extreme weather events could disrupt cause catastrophic damage company’s electric distribution transmission systems • exposure unanticipated changes prices energy commodities purchased sold • state federal legislative regulatory developments including deregulation restructuring electric utility industry changes environmental laws regulations company subject • timing implementation company’s business separation plan • effects competition including extent timing entry additional competitors electric market • company’s pursuit potential business strategies including acquisitions dispositions assets • regulatory factors changes policies procedures set rates changes company’s ability recover investments made traditional regulation rates changes frequency timing rate increases • financial regulatory accounting principles policies imposed governing bodies • political legal economic conditions developments us would include threat domestic terrorism inflation rates monetary fluctuations • changing market conditions factors related physical financial energy trading activities including energy commodity price basis counterparty credit risk liquidity volatility capacity transmission currency exchange rates interest rates warranty risks • financial market conditions including availability cost capital company’s ability obtain financing favorable terms • performance company’s projects success efforts invest develop new opportunities including development power generation facilities • cost replacement electric energy event unscheduled generation outages • employee workforce factors including collective bargaining agreements union employees company based forwardlooking statements management’s beliefs assumptions using information available time statements made company cautions reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often materially differ actual results company undertakes obligation update forwardlooking statements reflect developments occurring statements made interested parties also consider risks identified time company’s reports registration statements filed securities exchange commission operating segments general management’s discussion company’s results operations focuses contributions operating segments however discussion company’s financial condition liquidity capital resources entire company’s two primary operating segments energy manages company’s portfolio generating facilities power purchase contracts energy trading marketing hedging arbitrage activities energy’s operating results reflect impact weather demand electricity customer growth influenced overall economic conditions changes prices commodities primarily electricity natural gas segment actively markets trades uses hedging purposes consumes generation activities cost fuel used generation operations electric energy purchases incurred company serve virginia north carolina retail customers generally recoverable rates charged customers delivery manages company’s electric distribution transmission systems well customer service delivery’s operating results reflect impact weather demand electricity customer growth influenced overall economic conditions segment subject costofservice rate regulation base rates currently capped virginia north carolina addition company also reports corporate segment company includes certain expenses allocated energy delivery segments corporate information company’s operating segments see note 23 consolidated financial statements critical accounting policies company identified following accounting policies result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions accounting risk management energy trading contracts fair valuethe company uses derivatives manage commodity financial market currency exchange risks addition company purchases sells commoditybased contracts natural gas electricity oil markets trading purposes accounting requirements derivatives hedging activities complex interpretation requirements standardsetting bodies ongoing derivatives specific exceptions reported consolidated balance sheet fair value beginning 2001 energy trading contracts also reported consolidated balance sheet fair value changes fair value except related derivative instruments designated cash flow hedges generally included determination company’s net income financial reporting date contracts ultimately settled measurement fair value based actively quoted market prices available absence actively quoted market prices company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available measurement involves judgment estimates based valuation methodologies deemed appropriate company’s management individual contracts use different assumptions could material effect contract’s estimated fair value addition hedges forecasted transactions company must estimate expected future cash flows forecasted transactions well evaluate probability occurrence timing transactions changes conditions occurrence unforeseen events could affect timing recognition changes fair value certain hedging derivatives see selected informationenergy trading activities market rate sensitive instruments risk management mda notes 2 9 20 consolidated financial statements accounting regulated operationsmethods allocating costs accounting periods operations subject federal state costofservice rate regulation may differ accounting methods generally applied nonregulated companies timing cost recovery prescribed regulatory authorities differs timing expense recognition used accounting purposes company’s consolidated financial statements may recognize regulatory asset expenditures otherwise would expensed regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process regulatory liabilities represent probable future reductions revenues associated amounts credited customers ratemaking process see notes 2 6 10 consolidated financial statements results operations company’s discussion results operations includes overview operating revenue operating results 2001 2000 consolidated basis sections followed detailed discussion results operations operating segments additional information company’s operating segments see note 23 consolidated financial statements overview results overview operating revenueconsolidated following general discussion factors affect operating revenue energy delivery segments majority company’s operating revenue provided bundled rate tariffs regulated electric sales consist primarily sales retail customers rates authorized state corporation commission virginia commission north carolina utilities commission north carolina commission sales cooperatives municipalities wholesale rates authorized federal energy regulatory commission ferc also included regulated electric sales amounts received others use company’s transmission system transport electric energy tariffs authorized ferc electric sales vary seasonally response weather resulting impact may significant regulated electric sales impact weather electric sales measured terms heating degreedays cooling degreedays mild summer winter significant impact revenue electric sales also impacted number customers company serves continues increase regulated electric sales also include recovery cost fuel used generating electricity customers served regulated tariffs fuel rates approved regulatory authorities fluctuations amounts recovered affect amounts reported regulated electric sales overview 2001 results operating revenue operating revenue increased 153 million 49 billion 2001 compared 2000 increase due primarily higher fuel rate recoveries growth numbers retail customers increased wholesale sales cooperatives municipalities requirements contracts factors offset milder weather conditions 2001 6 percent cooling degreedays 2001 compared 2000 10 percent decline heating degreedays offset benefit experienced summer company served average 40000 retail customers 2001 results company’s trading marketing operations recorded revenue net cost sales also contributed slightly overall increase operating revenue operating expenses operating expenses increased 240 million 39 billion 2001 compared 2000 higher prices commodities consumed contributed increased electric fuel energy purchases net purchased electric capacity expense decreased company terminated certain contracts early 2001 see note 19 consolidated financial statements depreciation amortization decreased primarily due change estimated useful lives company’s nuclear plants connection expected relicensing plants offset additional expense related recent capital expenditures company incurred restructuring costs 2001 2000 primarily associated dominion’s acquisition cng subsequent integration combined companies’ operations maintenance expenses increased primarily due costs associated termination certain longterm power purchase contracts taxes decreased reflecting change virginia whereby company became subject state income taxes rather gross receipts taxes effective january 2001 factors affecting net income company’s effective income tax rate increased 2001 due utility operations virginia becoming subject state income taxes lieu gross receipts taxes overview 2000 results operating revenue total operating revenue increased 200 million 48 billion 2000 compared 1999 regulated electric sales increased result customer growth higher fuel rates charge rate refunds taken 1999 regulated electric sales revenue also increased 2000 compared 1999 reflecting higher customer usage response colder fall winter weather offset somewhat lower customer usage resulting milder summer weather 2000 compared 1999 12 increase heating degreedays largely offset 12 decrease cooling degreedays revenue electric transmission services change significantly revenue decreased 2000 compared 1999 reflecting lower offsystem electric sales resulting primarily expiration two major longterm power purchase contracts late 1999 operating expenses operating expenses increased 121 million 37 billion 2000 compared 1999 electric fuel energy purchases net increased 2000 due increased generation activity higher costs fossil fuels consumed energy purchases operations maintenance expenses approximately 2000 1999 higher corporate administrative costs offset lower service restoration costs purchased electric capacity expense decreased due expiration two major longterm power purchase contracts late 1999 company incurred restructuring charges 2000 primarily associated dominion’s integration cng consolidated operations factors affecting net income interest expense related charges increased 7 million 296 million reflecting additional borrowings 2000 also 2000 cumulative effect change method accounting certain components pension cost increased company’s net income 21 million net income taxes 11 million see note 3 consolidated financial statements 1999 company recorded extraordinary item 255 million net income taxes 197 million reflecting primarily writeoff certain regulatory assets see note 6 consolidated financial statements segment results energy segment company provides electricity primarily following fuel sources nuclear coal oil purchased power system energy output energy source average fuel cost shown fuel cost presented mills one tenth one cent per kilowatthour 1 excludes old dominion electric cooperative’s odec 116 percent ownership interest north anna power station 2 excludes odec’s 50 percent ownership interest clover power station 2001 results operating revenue see overview operating revenueconsolidated operating expenses operating expenses increased 53 million 2001 compared 2000 electric fuel energy purchases net higher 2001 reflecting higher fuel prices coal oil consumed well higher levels recovery previously deferred fuel costs effect expenses net income mitigated increased fuel rate revenue purchased electric capacity costs decreased result termination longterm power purchase agreements first quarter 2001 decrease depreciation amortization expense primarily reflects change estimated useful lives company’s nuclear plants resulted 72 million decrease depreciation expense change based company’s expectation 20year extensions operating licenses nuclear facilities granted application filed nuclear regulatory commission may 2001 decrease depreciation partially offset additional depreciation expense related recent generationrelated capital expenditures operations maintenance increased due scheduled outages nuclear fossil plants taxes decreased reflecting change virginia whereby company became subject state income taxes rather gross receipts taxes effective january 2001 2000 results operating revenue see overview operating revenueconsolidated operating expenses operating expenses increased 54 million 29 billion 2000 compared 1999 electric fuel energy purchases net increased 2000 due higher overall production company’s generation units increased costs fossil fuels consumed increased energy purchases purchased electric capacity costs decreased due expiration two major longterm power purchase contracts late 1999 operations maintenance expenses increased reflecting primarily higher overall corporate administrative costs taxes decreased due recognition tax refund 2000 selected informationenergy trading activities energy manages company’s energy trading hedging arbitrage activities dominion energy clearinghouse company believes operations complement integrated energy businesses facilitate risk management activities part operations clearinghouse enters contracts purchases sales energyrelated commodities including natural gas electricity oil settlement contract may require physical delivery underlying commodity cases exchange cash contracts classified energy trading contracts financial accounting purposes included consolidated balance sheets components current noncurrent derivative energy trading assets liabilities accordance generally accepted accounting principles company reports energy trading contracts financial statements fair value realized unrealized changes contracts’ fair value included net income discussion company determines fair value energy trading contracts see critical accounting policies presented earlier mda arbitrage activities constitute substantial portion clearinghouse’s activities accordingly clearinghouse enters contract purchase commodity typically enters sales contract combination sales contracts quantities delivery settlement terms identical similar purchase contract purchase sales contracts settled either physical delivery underlying commodity net cash settlement clearinghouse may receive net cash margin realized gain sometimes pay net cash margin realized loss contracts settled however company must record monthly changes fair value contracts changes fair value represent unrealized gains losses extent purchase sales contracts identical similar terms held clearinghouse changes fair values generally offset one another although clearinghouse may hold purchase sales contracts delivery commodities particular locations times offset exposures monitored actively managed daily basis dominion’s risk management policy procedures designed ensure company’s exposure commodity price changes limited additional discussion trading activities see market rate sensitive instruments risk management notes 2 9 20 consolidated financial statements summary changes unrealized gains losses company’s portfolio energy contracts held trading purposes 2001 follows unrealized gains losses company’s portfolio energy trading contracts december 31 2001 summarized following table based approach used determine fair value contract settlement delivery dates delivery segment 2001 results operating revenue see overview operating revenueconsolidated operating expenses operating expenses 713 million 2001 compared 718 million 2000 addition effect weather sales delivery’s operating expenses also significantly impacted severe weather hurricanes major thunderstorms ice storms cause damage company’s distribution transmission systems 2001 2000 unusual levels storm restoration activities depreciation amortization increased slightly result routine property additions operations maintenance expenses included moderate increase provisions uncollectible customer accounts taxes decreased reflecting change virginia whereby company became subject state income taxes rather gross receipts taxes effective january 2001 2000 results operating revenue see overview operating revenueconsolidated operating expenses operating expenses 718 million 2000 compared 740 million 1999 decrease primarily attributable higher operations maintenance expenses 1999 compared 2000 result significant service restoration costs 1999 associated ice storm hurricane damage corporate 2001 results corporate operations reported expenses net related taxes 164 million 2001 increase 128 million compared 2000 results include following unusual charges allocated company’s operating segments pretax restructuring costs 48 million pretax charge 220 million related costs associated purchase three nonutility generating plants termination certain longterm power purchase contracts see notes 5 19 consolidated financial statements 2000 results corporate operations reported expenses net related taxes 36 million 2000 decrease 219 million compared 1999 results include pretax restructuring charges 71 million 2000 offset 21 million gain net income taxes 11 million cumulative effect change company’s method accounting pensions 1999 company recorded extraordinary item 255 million net income taxes 197 million reflecting primarily writeoff certain net regulatory assets see notes 3 5 6 consolidated financial statements liquidity capital resources company depends internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash flow operations generally satisfied proceeds shortterm borrowings longterm cash needs met sales securities additional longterm debt financing internal sources liquidity cash flow operating activities provided 11 billion year 2001 2000 1999 three years 1999 2001 cash flow operating activities dividend payments sufficient cover 92 percent capital nuclear fuel expenditures average approximately 69 percent total cash requirements cash requirements met timing amount cash flow operations generally satisfied proceeds sale securities shortterm borrowings company’s operations subject risks uncertainties may negatively impact cash flows operations risks uncertainties include limited following • unusual weather effect energy sales customers energy commodity prices • extreme weather events could disrupt cause catastrophic damage company’s electric distribution transmission systems • exposure unanticipated changes prices energy commodities purchased sold • effectiveness dominion’s risk management activities underlying assessment market conditions related factors including energy commodity prices basis counterparty credit risk liquidity volatility capacity transmission currency exchange rates interest rates • cost replacement electric energy event unscheduled generation outages • timeliness recovery costs subject costofservice utility rate regulation external sources liquidity company relies access bank capital markets significant source liquidity capital requirements satisfied cash provided company’s operations company’s ability borrow funds issue securities return demanded investors affected company’s credit ratings addition raising external capital subject certain regulatory approvals including sec virginia state corporation commission virginia commission credit ratings intended provide banks capital market participants framework comparing credit quality securities management believes current credit ratings company provide sufficient access capital markets however disruptions bank capital markets specifically related company may affect company’s ability access funding sources cause increase return required investors quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing company’s credit ratings credit ratings company affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies credit ratings company march 1 2002 follow downgrade company’s credit rating would generally restrict ability raise shortterm longterm financing long credit rating still “investment grade” would increase cost borrowing company’s management proactively manages financial condition operations effort maintain current credit ratings part borrowing funds issuing debt shortterm longterm preferred securities company must enter enabling agreements contain covenants event default could trigger acceleration principal interest payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique company typical covenants include • timely payment principal interest • information requirements including submittal financial reports filed sec lenders • keeping books records accordance generally accepted accounting principles • payment taxes maintaining insurance • performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantial assets • financial covenants limit total funded debt total capitalization • compliance collateral minimums requirements related mortgage bonds see note 14 consolidated financial statements • limitations liens company monitors covenants regular basis order provide assurance events default occur december 31 2001 events default company’s covenants 2001 company issued longterm debt totaling 770 million discussed proceeds used primarily fund repayment shortterm debt purchase three generation facilities nonutility generators termination related longterm power purchase agreements repayment longterm debt maturities company’s capital expenditures 2001shortterm borrowings company participates credit facility supports combined commercial paper programs dominion company cng facility established may 2001 175 billion matures second quarter 2002 expected replaced although company access full amount 175 billion facility company operates internal allocation may vary depending upon needs participating entities company’s net borrowings commercial paper program 436 million december 31 2001 decrease 278 million amounts outstanding december 31 2000 commercial paper borrowings used primarily fund working capital requirements may vary significantly course year depending upon timing amount cash requirements satisfied cash provided operations addition commercial paper company may also issue 200 million aggregate outstanding principal extendible commercial notes ecns meet working capital requirements ecns unsecured notes expected sold private placements ecns issued company would stated maturity 390 days issuance may redeemed company’s option within 90 days less issuance ecns outstanding december 31 2001 2001other securities issuances repayments 2001 company issued following securities • 50 million series 2001a variable rate taxexempt pollution control revenue bonds due march 1 2031 revenue bonds • 600 million 575 percent senior notes due march 31 2006 senior notes • 120 million variable rate mediumterm notes series g due december 16 2003 mtns net proceeds revenue bonds used finance qualifying expenditures made construction facilities north anna power station net proceeds senior notes used general corporate purposes including repayment commercial paper payments associated purchase three generation facilities nonutility generators termination related longterm power purchase agreements net proceeds mtns used general corporate purposes including repayment commercial paper 2001 company repaid approximately 341 million longterm debt securities • 141 million mtns various series matured various dates 2001 • 100 million 1991a 875 percent mortgage bonds originally due april 1 2021 • 100 million 1993e 6 percent mortgage bonds due august 1 2001 also 2001 company purchased redeemed par outstanding shares money market preferred mmp series january 1987 june 1987 preferred stock 125 million january 2002 company called 200 million 675 percent 1997a mortgage bonds due february 1 2007 redemption february 2002 company funded redemption issuing 650 million 5375 percent senior notes due 2007 company used remaining proceeds general corporate purposes repay debt amounts available shelf registrations december 31 2001 company approximately 900 million remaining principal amount currently effective shelf registrations reduced january 2002 issuance 650 million senior notes due 2007 investing activities 2001 company’s investing activities resulted net cash outflow 733 million activities included capital expenditures 668 million nuclear fuel expenditures 83 million generationrelated projects totaled approximately 311 million included environmental upgrades construction combustion turbine plants routine capital improvements company spent approximately 312 million transmission distributionrelated projects reflecting routine capital improvements expenditures associated new connections general information technology projects represented remaining capital expenditures 45 million capital requirements company expects fund capital requirements debt maturities cash flow operations combination sales securities shortterm borrowings capacity company anticipates retail peak demand grow approximately 22 percent year 2004 company expects future additional capacity energy requirements met combination market purchases companyconstructed generation plant equipment company’s generation construction nuclear fuel expenditures planned 2002 2003 2004 expected total 526 million 543 million 376 million respectively company’s transmission distribution capital expenditures 2002 2003 2004 expected total 370 million 360 million 362 million respectively expenditures primarily provide customer growth reliability initiatives routine replacements company installing sulfur dioxide so2 emission control equipment two coalfired generating units expected completion date early 2002 total cost project estimated 114 million 110 million incurred december 31 2001 response clean air act requirements company installing nitrogen oxide nox reduction equipment affected facilities estimated capital cost 565 million 189 million incurred december 31 2001 installations scheduled completion midyear 2004 company also discontinuing use coal possum point station prince william county virginia next three years oilfired units retired two coalfired units converted gas estimated capital cost 15 million expenditures incurred december 31 2001 material see environmental matters additional discussion clean air act matters maturities company require 535 million meet maturities securities 2002 see note 14 consolidated financial statements schedule maturities beyond 2002 contractual cash obligations commitments planned capital expenditures company contractual cash obligations commitments associated following repayment longterm debt mandatorily redeemable preferred securities subsidiary trusts see notes 14 15 consolidated financial statements power purchase contracts fuel purchase contracts leases see note 19 consolidated financial statements company expects fund obligations commitments cash flow operations combination sales securities shortterm borrowings contractual cash obligations commitments december 31 2001 follow 200217 billion 200313 billion 200412 billion 2005811 million 200614 billion years 2006104 billion amount 2002 includes 535 million associated repayment previously issued securities scheduled mature totals include amounts working capital commitments including repayment shortterm debt see note 13 consolidated financial statements settlement derivative energy trading contracts see note 9 consolidated financial statements addition company entered agreements another dominion subsidiary order develop construct finance lease new power generation facility company’s possum point station prince william county virginia project scheduled completion 2003 estimated cost 370 million upon completion company operate new generating facility operating lease estimated annual lease payments 26 million see note 19 consolidated financial statements future issues outlook regulated electric operations electric deregulation legislationvirginia 1999 virginia enacted comprehensive restructuring legislation virginia electric utility restructuring act virginia restructuring act established plan restructure virginia’s electric utility industry provided phasein choice retail customers january 1 2002 january 1 2004 virginia commission ordered retail choice fully implemented virginia january 1 2003 customers company virginia restructuring act generation portion company’s virginia jurisdictional operations longer subject costbased rate regulation effective january 1 2002 company’s base rates excluding fuel costs certain allowable adjustments remain capped july 2007 unless terminated sooner otherwise modified consistent virginia restructuring act recovery generationrelated costs continue capped rates applicable wires charge assessed customers opting alternative suppliers company may petition virginia commission terminate capped rates january 1 2004 company request capped rates terminated virginia commission may terminate capped rates finds competitive generation services market exists within company’s service area company’s wires charge excess capped unbundled rate generation projected market price generation wires charge intended compensate company investment commitments generationrelated utility assets prior enactment restructuring legislation company’s methodology calculating wires charge applicable market price approved virginia commission additionally virginia restructuring act provides end capped rate period default service provided company based upon competitive market prices electric generation services company began phasein retail choice january 1 2002 phasein completed january 1 2003 company able accommodate schedule result experience gained retail access pilot program well extensive testing processes systems support customers switching retail access additionally pilot program demonstrated company’s ability sell energy displaced shopping customers wholesale market capped rate period company may require 12month minimum stay period electricity customers annual peak demand 500 kilowatts greater request electricity supply service receiving electricity supply service competitive service provider measure mitigate practice large commercial industrial customers returning company’s capped rate service periods higher market prices leaving periods lower market pricesa practice known “seasonal gaming” discussed separation generation delivery operations virginia alliance rto sections virginia restructuring act also calls functional separation generation transmission distribution electric deregulation legislationnorth carolina north carolina general assembly exploring future electric service north carolina development competitive wholesale market retail competition however little recent activity separation generation delivery operations virginia restructuring act addressed divestiture functional separation corporate relationships act required virginia’s electric utilities file virginia commission plans separate generation transmission distribution operations company’s proposed separation plan included transferring generation assets operations including nonutility power purchase contracts separate affiliated company december 2001 virginia commission directed company separate generation distribution transmission functions creation divisions within company rather transfer generation assets separate affiliate virginia commission’s december 2001 order preclude consideration company’s proposed corporate reorganization asset transfer pending virginia commission’s view developments needed market structures competitive retail electric generation markets company filed notice appeal virginia commission’s order assessment made time concerning future developments company’s operations largely functionally separated existing corporate structure implementation plan ordered virginia commission require changes company’s operations company continue provide electric service customers capped rates july 1 2007 unless capped rates terminated january 1 2004 provided virginia restructuring act company continue serving customers select alternative energy suppliers delivering electric energy collect wires charge applicable discussed company also permitted continue activities wholesale energy markets however effective january 1 2002 virginia codes conduct became effective governing certain transactions communications company’s electric distribution transmission operations generation division codes conduct designed prevent crosssubsidies generation divisions ensure generation divisions operate independently alliance rto virginia restructuring act ferc merger conditions require company join regional transmission organization rto joining rto company would transfer operational control transmission assets rto separate entity company together eight member companies alliance companies filed ferc approval proposed “alliance rto” company also filed application transfer control transmission facilities alliance rto virginia commission north carolina utilities commission december 2001 ferc concluded alliance companies lack sufficient scope rto also ordered alliance companies determine could fit within midwest independent system operator company also examine possibility joining rtos representing midwest utilities directed ferc result ferc decision north carolina application dismissed virginia application stayed company expects refile amend state applications despite delays company remains committed supporting electric deregulation becoming member rto formation rtos important enhancing wholesale electric competition creation standardized market rules tariffs interconnection agreements rtos put suppliers equal footing enhance access nondiscriminatory delivery services membership rto regionalization electric markets provide opportunities company expand business providing generation services customers new regional authority make major operational decisions operate entire grid company continue ensure local systems operate reliably 2001 company focused new systems business processes regulatory filings contractual relationships necessary implement electric deregulation regional transmission operations wholesale competition company sells electricity wholesale market marketbased sales tariff authorized ferc agreed make wholesale power sales tariff loads located within service territory january 2002 company filed ferc approval tariff sell wholesale power capped rates based company’s embedded cost generation costbased sales tariff could used sell loads within outside company’s service territory sales would voluntary company expects ferc approve tariff first quarter 2002 company’s sales natural gas oil wholesale markets regulated ferc exposure potentially stranded costs stranded costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market december 31 2001 company’s exposure potentially stranded costs consisted longterm power purchase contracts could ultimately determined market generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements company believes capped electric retail rates applicable wire charges provided virginia restructuring act provide reasonable opportunity recover substantial portion potentially stranded costs based estimates march 31 1999 company would otherwise exposed pretax basis estimated 32 billion potential losses related longterm power purchase commitments without recoveries provided capped rates recovery company’s potentially stranded costs remains subject numerous risks even cappedrate environment including among others exposure longterm power purchase commitment losses future environmental compliance requirements changes tax laws nuclear decommissioning costs inflation increased capital costs recovery certain items see notes 6 8 19 consolidated financial statements rate mattersvirginia company’s separation plan described separation generation delivery operations virginia proposed indexbased fuel cost recovery mechanism based forecasted generation fuel types projected fuel price indices effective january 1 2002 company subsequently withdrew indexbased fuel cost recovery mechanism continue develop alternative methodology company’s current virginia jurisdictional fuel factor remain effect december 31 2002 proceedings initiated 2002 determine fuel factor date company filed virginia commissionapproved unbundled rates reflecting functional separation generation transmission distribution january 2002 previously discussed company phase retail choice customers service territory january 1 2003 applicable wires charges effective january 1 2002 subject annual adjustment paid company’s virginia jurisdictional retail customers choose alternative generation supplier capped rate period rate mattersnorth carolina company cannot request increase north carolina jurisdictional base rates 2006 except certain events would significant financial impact fuel rates however still subject change annual proceedings electric retail access pilot program december 31 2001 approximately 24000 customers using competitive energy supplier beginning january 1 2002 customers volunteered participate pilot program became eligible participate full retail access ferc policy developments ferc’s significant nearterm policy initiative regarding interstate gas pipelines may also impact company’s interstate electric transmission operations ferc proposes eliminate existing separate code conduct regulations natural gas pipelines electric transmission utilities replace requirements uniform standards applicable interstate “transmission providers” natural gas electricity proposed standards would redefine scope affiliates covered standards conduct fercregulated companies proposed policy adopted supersede existing broad standards company supports ferc’s policy goal ensure competitive interstate energy market however company advocates certain adjustments recognize significant operational differences gas pipelines electric transmission companies company anticipates action ferc mid2002 company expects outcome final rule improve ability compete similarlysituated transmission providers company expect final rule shortterm material impact results operations financial position cash flows environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs utility rates however extent environmental costs incurred connection operations regulated virginia commission period ending june 30 2007 excess level currently included virginia jurisdictional electric retail rates company’s results operations decrease date recovery regulated rates may sought environmental costs related regulated electric transmission distribution operations environmental protection monitoring expenditures company incurred approximately 109 million 90 million 78 million expenses including depreciation 2001 2000 1999 respectively connection environmental protection monitoring activities expects expenses approximately 113 million 2002 addition capital expenditures related environmental controls 197 million 207 million 74 million 2001 2000 1999 respectively amount estimated 2002 expenditures 263 million clean air act compliance clean air act requires company reduce emissions sulfur dioxide so2 nitrogen oxide nox gaseous byproducts fossil fuel combustion obtain operating permits major emissionsemitting facilities permit applications submitted company’s affected facilities clean air act’s so2 reduction program based issuance limited number so2 emission allowances may used permit emit one ton so2 atmosphere may sold third party evaluation planning future projects comply so2 nox limitations ongoing influenced changes regulatory environment availability so2 allowances various state federal so2 nox control programs emission control technology response nox reduction requirements mandated environmental protection agency epa states operates company plans install nox reduction equipment affected facilities estimated capital cost approximately 565 million next several years near future bush administration united states congress may consider various “multipollutant” legislative proposals would require fossilfuel fired generating units comply stringent pollution control standards nox so2 mercury many proposals would rely upon flexible cap trade programs compliance would exempt covered facilities clean air act requirements proposals would phasein emission reduction requirements variety timeframes 16 years company’s management cannot predict whether proposals pass year future however stringent emissions standards ultimately imposed company’s generating units new perhaps significant expenditures could required 2000 company received notice violation epa alleging failed obtain new source review permits clean air act prior undertaking specified construction projects mt storm power station west virginia attorney general new york filed suit company alleging similar violations clean air act mt storm power station company also received notices attorneys general connecticut new jersey intentions file suit similar violations management believes company obtained necessary permits generating facilities company reached agreement principle federal government state new york resolve situation agreement principle includes payment 5 million civil penalty commitment 14 million environmental projects virginia west virginia connecticut new jersey new york 12year 12 billion capital investment program environmental improvements companys coalfired generating stations virginia west virginia company already committed substantial portion 12 billion expenditures so2 nox emissions controls negotiations terms binding settlement expanded beyond basic agreement principle ongoing global climate change 1997 united states signed international protocol limit manmade greenhouse emissions however protocol become binding unless approved united states senate currently bush administration indicated pursue ratification protocol work establish new “voluntary” approaches achieve reductions greenhouse gas emissions however united states congress may consider legislation would implement mandatory reductions greenhouse gas emissions cost compliance protocol similar mandatory greenhouse gas reduction obligations could significant given uncertainties future action federal government issue company cannot predict likely future impact operations time accounting matters recently issued accounting standards 2001 financial accounting standards board fasb issued statement financial accounting standards sfas 141 business combinations sfas 142 goodwill intangible assets sfas 143 accounting asset retirement obligations sfas 144 accounting impairment disposal longlived assets see note 4 consolidated financial statements discussion impact adopting new standards restructuring charges completing transition period fully integrating cng dominion’s existing organization operations management initiated focused review dominion’s combined operations fourth quarter 2001 objective review identify activities resources longer necessary since end transition period result restructuring charges 48 million recognized fourth quarter 2001 items employee severance termination benefits cancellation modification leases eliminate office space longer needed see note 5 consolidated financial statements company’s 2001 2000 restructuring plans reduce future annualized operating costs approximately 9 million 34 million respectively would otherwise incurred business opportunities operations nuclear relicensing company filed applications 20year lifeextensions north anna surry units may 2001 nuclear regulatory commission nrc accepted reviewing applications next two years nrc perform site visits review applications detail nuclear insurance price anderson act expires august 2002 operating nuclear reactors would continue covered law would channel cap claims nuclear accident occur act renewed three times since 1957 congress currently holding hearings reauthorizing legislation effect changes commodity prices company’s operations impacted changes energy commodity prices extent energy commodities sold company sales subject costofservice rate regulation commodity costs generally recovered rates market price changes impact company’s revenues commodity sales unregulated subsidiaries company established enterprise risk management function reduce price risk exposure market rate sensitive instruments risk management company’s financial instruments derivative financial instruments derivative commodity contracts exposed potential losses due adverse changes interest rates foreign currency exchange rates commodity prices equity security prices described interest rate risk generally related company’s outstanding debt company exposed foreign exchange risk associated certain purchases denominated foreign currencies commodity price risk present company’s electric operations energy marketing trading operations due exposure market shifts prices received paid natural gas electricity commodities company uses derivative commodity contracts manage price risk exposures operations company exposed equity price risk primarily result equity securities held nuclear decommissioning trusts company’s sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 percent unfavorable change interest rates foreign exchange rates commodity prices commodity price risktrading activities part strategy market energy manage related risks company manages portfolio derivative commodity contracts held trading purposes contracts sensitive changes prices natural gas electricity certain commodities company uses established policies procedures manage risks associated price fluctuations uses various commodity instruments futures forwards swaps options reduce risk creating offsetting market positions addition company seeks use generation capacity needed serve customers service territory satisfy commitments sell energy hypothetical 10 percent unfavorable change commodity prices would resulted decrease approximately 7 million 3 million fair value commodity contracts held trading purposes december 31 2001 2000 respectively interest rate risk company manages interest rate risk exposure predominantly maintaining balance fixed variable rate debt company also enters interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2001 hypothetical 10 percent increase market interest rates would decrease annual earnings approximately 2 million hypothetical 10 percent increase market interest rates determined december 31 2000 would resulted decrease annual earnings approximately 9 million foreign exchange risk company manages foreign exchange risk exposure associated anticipated future purchases nuclear fuel related services denominated foreign currencies utilizing currency forward contracts currency forwards outstanding december 31 2001 hypothetical 10 percent unfavorable change relevant foreign exchange rates would decrease annual earnings approximately 5 million hypothetical 10 percent unfavorable change relevant foreign exchange rates determined december 31 2000 would resulted decrease annual earnings approximately 4 million equity price risk company subject equity price risk due marketable equity securities held investments nuclear decommissioning trusts marketable equity securities reported balance sheet fair value following table presents marketable equity securities held company december 31 2001 2000 risk management policies company operating procedures place administered experienced management help ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance price risk management policies subsidiaries dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis management believes based dominion’s credit policies company’s december 31 2001 provision credit losses unlikely material adverse effect company’s financial position results operations cash flows would occur result counterparty nonperformance item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s results operations general financial condition virginia power’s dominion gas’ results operations mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data virginia power dominion gas meet conditions file reduced disclosure format therefore omitted certain sections mda contents mda consists following information • forwardlooking statements • accounting mattersdominion • dominion • results operations • segment results operations • virginia power • results operations • dominion gas • results operations • liquidity capital resourcesdominion • future issues mattersdominion forwardlooking statements report contains statements concerning companies’ expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words companies make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited • unusual weather conditions effect energy sales customers energy commodity prices • extreme weather events natural disasters including hurricanes high winds severe storms earthquakes flooding changes water temperatures availability cause outages property damage facilities • federal state local legislative regulatory developments including changes federal state tax laws regulations • changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs emissions extensive permitting requirements regulation additional substances • cost environmental compliance including costs related climate change • changes enforcement practices regulators relating environmental standards litigation exposure remedial activities • changes regulator implementation environmental standards litigation exposure remedial activities • difficulty anticipating mitigation requirements associated environmental regulatory approvals • risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities • unplanned outages facilities companies ownership interest • fluctuations energyrelated commodity prices effect could dominion’s dominion gas’ earnings companies’ liquidity position underlying value assets • counterparty credit performance risk • capital market conditions including availability credit ability obtain financing reasonable terms • risks associated virginia power’s membership participation pjm including risks related obligations created default participants • fluctuations value investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion gas • fluctuations interest rates • changes rating agency requirements credit ratings effect availability cost capital • changes financial regulatory accounting principles policies imposed governing bodies • employee workforce factors including collective bargaining agreements labor negotiations union employees • risks operating businesses regulated industries subject changing regulatory structures • impacts acquisitions divestitures transfers assets joint ventures dominion midstream retirements assets based asset portfolio reviews • expected timing likelihood completion proposed acquisition questar including ability obtain requisite approvals questar’s shareholders terms conditions required regulatory approvals • receipt approvals timing closing dates acquisitions divestitures • timing execution dominion midstream’s growth strategy • changes rules rtos isos dominion virginia power participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models • political economic conditions including inflation deflation • domestic terrorism threats companies’ physical intangible assets well threats cybersecurity • changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes supplies natural gas delivered dominion gas’ pipeline processing systems failure maintain replace customer contracts favorable terms changes customer growth usage patterns including result energy conservation programs availability energy efficient devices use distributed generation methods • additional competition industries companies operate including electric markets dominion’s merchant generation facilities operate competition development construction ownership certain electric transmission facilities virginia power’s service territory connection ferc order 1000 • changes technology particularly respect new developing alternative sources generation smart grid technologies • changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion gas • changes operating maintenance construction costs • timing receipt regulatory approvals necessary planned construction expansion projects compliance conditions associated regulatory approvals • inability complete planned construction conversion expansion projects outcomes within terms time frames initially anticipated • adverse outcomes litigation matters regulatory proceedings • impact operational hazards including adverse developments respect pipeline plant safety integrity equipment loss malfunction failure operator error catastrophic events additionally risks could cause actual results differ predicted results set forth item 1a risk factors companies’ forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results companies undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion discussed development selection disclosure policies audit committee board directors accounting regulated operations accounting dominion’s regulated electric gas operations differs accounting nonregulated operations dominion required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator dominion evaluates whether recovery regulatory assets future rates probable makes various assumptions analysis expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices dominion estimates fair value aros using present value techniques makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant dominion revises assumptions used calculate fair value existing aros adjusts carrying amount aro liability related longlived asset assets service assets ceased operations dominion adjusts carrying amount aro liability changes recognized income dominion accretes aro liability reflect passage time 2015 dominion recorded increase aros 403 million primarily related future ash pond landfill closure costs certain utility generation facilities see note 22 consolidated financial statements additional information 2015 2014 2013 dominion recognized 93 million 81 million 86 million respectively accretion expects recognize 99 million 2016 dominion records accretion depreciation associated utility nuclear decommissioning aros adjustment regulatory liability related nuclear decommissioning trust management’s discussion analysis financial condition results operations continued significant portion dominion’s aros relates future decommissioning merchant utility nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2015 dominion’s nuclear decommissioning aros totaled 15 billion representing approximately 70 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated dominion’s nuclear decommissioning obligations dominion obtains thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition dominion’s cost estimates include cost escalation rates applied base year costs dominion determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions primarily result shift delayed planned date doe expected begin accepting spent nuclear fuel 2014 dominion recorded increase 95 million nuclear decommissioning aros income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2015 dominion 103 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion evaluates quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets dominion establishes valuation allowance morelikelythannot portion deferred tax asset realized december 31 2015 dominion established 73 million valuation allowances accounting derivative contracts instruments fair value dominion uses derivative contracts futures swaps forwards options ftrs manage commodity financial market risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s nuclear decommissioning rabbi benefit plan trust funds also subject fair value accounting see notes 6 21 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services dominion considers whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available dominion believes observable pricing information indicative fair value judgment required develop estimates fair value cases dominion must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions dominion maximizes use observable inputs minimizes use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2015 dominion reported 33 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2015 2014 2013 annual tests interim tests result recognition goodwill impairment general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operating longlived assets selection appropriate discount rate determining whether asset group impaired management groups assets lowest level identifiable cash flows although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see note 6 consolidated financial statements discussion impairments related certain longlived assets employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations mortality rates anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine longterm historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forecasts independent investment advisor • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets strategic target asset allocation dominion’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion develops assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 875 2015 2014 850 2013 2016 expected longterm rate return pension cost assumption 875 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 850 2015 2014 775 2013 2016 expected longterm rate return postretirement benefit cost assumption 850 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost 440 2015 ranged 520 530 pension plans 500 510 postretirement benefit plans 2014 ranged 440 480 2013 dominion selected discount rate ranging 496 499 pension plans ranging 493 494 postretirement benefit plans determining december 31 2015 projected benefit obligations management’s discussion analysis financial condition results operations continued dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2015 700 expected gradually decrease 500 2019 continue rate years thereafter dominion develops mortality assumption using planspecific studies projects mortality improvement using scales developed society actuaries following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2015 025 decrease discount rate would increase dominion’s projected pension benefit obligation 212 million accumulated postretirement benefit obligation 40 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 157 million see note 21 consolidated financial statements additional information dominion’s employee benefit plans new accounting standards see note 2 consolidated financial statements discussion new accounting standards dominion results operations presented summary dominion’s consolidated results overview vs 2014 net income attributable dominion increased 45 primarily due absence charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities absence losses related repositioning dominion’s producer services business first quarter 2014 absence charges related dominion’s liability manage ment exercise see note 13 consolidated financial statements information legislation related north anna offshore wind facilities see liquidity capital resources information liability management exercise 2014 vs 2013 net income attributable dominion decreased 23 primarily due charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities charges associated dominion’s liability management exercise repositioning dominion’s producer services business completed first quarter 2014 see note 13 consolidated financial statements information legislation related north anna offshore wind facilities see liquidity capital resources information liability management exercise decreases partially offset increase investment tax credits received primarily new solar projects analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2015 vs 2014 net revenue increased 10 primarily reflecting • absence losses related repositioning dominion’s producer services business first quarter 2014 reflecting termination natural gas trading certain energy marketing activities 313 million • 159 million increase electric utility operations primarily reflecting • increase rate adjustment clauses 225 million • increase sales retail customers primarily due net increase cooling degree days 38 million • decrease capacity related expenses 33 million partially offset • 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 • decrease sales customers due effect changes customer usage factors 24 million • decrease due charge based 2015 biennial review order refund revenues customers 20 million • absence losses related retail electric energy marketing business sold first quarter 2014 129 million • 77 million increase merchant generation operations primarily due increased generation output reflecting absence planned outages certain merchant generation facilities 83 million additional solar generating facilities placed service 53 million partially offset lower realized prices 58 million • 38 million increase regulated natural gas distribution operations primarily due increase rate adjustment clause revenue related low income assistance programs 12 million increase amr pir program revenues 24 million various expansion projects placed service 22 million partially offset decrease gathering revenues 9 million • 30 million increase regulated natural gas transmission operations primarily reflecting • 61 million increase gas transportation storage activities primarily due addition dcg 62 million decreased fuel costs 24 million various expansion projects placed service 24 million partially offset decreased regulated gas sales 46 million • 46 million net increase primarily due services performed atlantic coast pipeline blue racer partially offset • 61 million decrease ngl activities primarily due decreased prices operations maintenance decreased 6 primarily reflecting • absence charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities 370 million • increase gains agreements convey shale development rights underneath several natural gas storage fields 63 million • 97 million decrease planned outage costs primarily due decrease scheduled outage days certain merchant generation facilities 59 million nonnuclear utility generation facilities 38 million • 22 million decrease charges related future ash pond landfill closure costs certain utility generation facilities decreases partially offset • absence gain sale dominion’s electric retail energy marketing business march 2014 100 million net 31 million writeoff goodwill • 80 million increase certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • absence gains sale assets blue racer 59 million • 53 million increase utility nuclear refueling outage costs primarily due amortization outage costs previously deferred pursuant virginia legislation enacted april 2014 • 46 million net increase due services performed atlantic coast pipeline blue racer expenses billed entities significantly impact net income • 22 million increase due acquisition dcg income decreased 22 primarily reflecting lower tax recoveries associated contributions aid construction 17 million decrease interest income related income taxes 12 million lower net realized gains nuclear decommissioning trust funds 11 million interest related charges decreased 24 primarily result absence charges associated dominion’s liability management exercise 2014 income tax expense increased 100 primarily reflecting higher pretax income 2014 vs 2013 net revenue decreased 3 primarily reflecting • 263 million decrease retail energy marketing operations primarily due sale retail electric business march 2014 • 195 million decrease primarily related repositioning dominion’s producer services business completed first quarter 2014 reflecting termination natural gas trading certain energy marketing activities decreases partially offset • 171 million increase electric utility operations primarily reflecting • increase rate adjustment clauses electric utility operations 132 million • increase sales electric utility operations primarily due increase heating degree days 34 million • 46 million increase gas transportation storage activities revenues largely due various expansion projects placed service • 35 million increase merchant generation margins primarily due higher realized prices 120 million partially offset lower generation output due decommissioning kewaunee beginning may 2013 95 million operations maintenance increased 12 primarily reflecting • 370 million charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities • 135 million increase planned outage costs certain merchant generation facilities certain nonnuclear utility facilities • 121 million charge related settlement offer incur future ash pond closure costs certain utility generation facilities management’s discussion analysis financial condition results operations continued increases partially offset • gain sale dominion’s electric retail energy marketing business march 2014 100 million net 31 million writeoff goodwill • 67 million decrease primarily due deferral utility nuclear outage costs beginning second quarter 2014 pursuant virginia legislation enacted april 2014 • absence 65 million charge primarily reflecting impairment charges recorded 2013 certain natural gas infrastructure assets • decrease bad debt expense regulated natural gas distribution operations primarily related lowincome assistance programs 53 million bad debt expenses recovered rates impact net income interest related charges increased 36 primarily due charges associated dominion’s liability management exercise 2014 284 million higher longterm debt interest expense resulting debt issuances 2014 44 million income tax expense decreased 49 primarily reflecting lower pretax income 350 million impact federal renewable energy investment tax credits 105 million loss discontinued operations reflects sale brayton point kincaid 2013 outlook dominion’s strategy continue focusing regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide eps growth growing dividend maintain stable credit profile dominion expects 80 90 earnings primary operating segments come regulated longterm contracted businesses 2016 dominion expected experience increase net income per share basis compared 2015 dominion’s anticipated 2016 results reflect following significant factors • return normal weather electric utility operations • growth weathernormalized electric utility sales approximately 1 • construction operation growth projects electric utility operations associated rate adjustment clause revenue • absence writeoff deferred fuel costs associated virginia legislation enacted february 2015 decreased charges related future ash pond landfill closure costs certain utility generation facilities • lower effective tax rate driven primarily additional investment tax credits • construction operation growth projects gas transmission distribution partially offset • increase depreciation depletion amortization • higher operating maintenance expenses • share dilution additionally 2016 dominion expects focus meeting new developing environmental requirements including making investments utility solar generation particularly virginia segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion 1 amounts recast reflect nonregulated retail energy marketing operations dominion energy segment dvp presented operating statistics related dvp’s operations 1 period average presented aftertax basis key factors impacting dvp’s net income contribution 2015 vs 2014 vs 2013 dominion generation presented operating statistics related dominion generation’s operations 1 excludes 76 million mwh 2013 related kewaunee brayton point kincaid state line power station salem harbor power station dominion’s equity method investment elwood exclusions related stations 2014 2015 presented aftertax basis key factors impacting dominion generation’s net income contribution 2015 vs 2014 vs 2013 dominion energy presented selected operating statistics related dominion energy’s operations 1 period average 2 excludes 511 thousand average retail electric energy marketing customer accounts due sale business march 2014 presented aftertax basis key factors impacting dominion energy’s net income contribution 2015 vs 2014 1 primarily represents absence gain sale northern system 2 represents portion earnings attributable dominion midstream’s public unitholders management’s discussion analysis financial condition results operations continued 2014 vs 2013 1 includes 24 million decrease gains sale assets 2 excludes earnings retail electric energy marketing sold march 2014 corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 consolidated financial statements discussion items detail corporate also includes specific items attributable corporate segment 2014 primarily included 174 million aftertax charges associated dominion’s liability management exercise virginia power results operations presented summary virginia power’s consolidated results overview vs 2014 net income increased 27 primarily due absence charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities 2014 vs 2013 net income decreased 25 primarily due charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2015 vs 2014 net revenue increased 3 primarily reflecting • increase rate adjustment clauses 225 million • increase sales retail customers primarily due net increase cooling degree days 38 million • decrease capacity related expenses 33 million partially offset • 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 • decrease sales customers due effect changes customer usage factors 24 million • decrease due charge based 2015 biennial review order refund revenues customers 20 million operations maintenance decreased 15 primarily reflecting • absence 370 million charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities • 38 million decrease planned outage costs primarily due decrease scheduled outage days certain nonnuclear utility generation facilities decreases partially offset • 80 million increase certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • 53 million increase utility nuclear refueling outage costs primarily due amortization outage costs previously deferred pursuant virginia legislation enacted april 2014 income decreased 27 primarily reflecting lower tax recoveries associated contributions aid construction income tax expense increased 20 primarily reflecting higher pretax income 2014 vs 2013 net revenue increased 4 primarily reflecting increases rate adjustment clauses 132 million sales customers due increase heating degree days 34 million operations maintenance increased 32 primarily reflecting • 370 million charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities • 121 million charge related settlement offer incur future ash pond closure costs certain generation facilities interest related charges increased 11 primarily due higher longterm debt interest expense resulting debt issuances august 2013 february 2014 income tax expense decreased 17 primarily reflecting lower pretax income dominion gas results operations presented summary dominion gas’ consolidated results overview vs 2014 net income decreased 11 primarily due absence gains indirect sale assets blue racer decrease income ngl activities higher interest expense partially offset increased gains agreements convey shale development rights underneath several natural gas storage fields 2014 vs 2013 net income increased 11 primarily due absence impairment charges certain natural gas infrastructure assets increased gains due assignments marcellus acreage partially offset decreased gains sales assets related parties analysis consolidated operations presented selected amounts related dominion gas’ results operations analysis dominion gas’ results operations follows 2015 vs 2014 net revenue increased 1 primarily reflecting • 43 million increase regulated natural gas distribution operations primarily due increase amr pir program revenues 24 million various expansion projects placed service 22 million partially offset • 27 million decrease regulated natural gas transmission operations primarily reflecting • 62 million decrease ngl activities primarily due decreased prices partially offset • 2 million increase gas transportation storage activities primarily due decreased fuel costs 24 million various expansion projects placed service 24 million partially offset decreased regulated gas sales 46 million • 33 million net increase revenue primarily due services performed atlantic coast pipeline blue racer 47 million partially offset decrease nonregulated gas sales 8 million decreased farmout revenues 6 million operations maintenance increased 15 primarily reflecting • 47 million net increase due services performed atlantic coast pipeline blue racer expenses billed entities significantly impact net income • absence gains sale assets blue racer 59 million partially offset • increase gains agreements convey shale development rights underneath several natural gas storage fields 63 million depreciation amortization increased 10 primarily due various expansion projects placed service management’s discussion analysis financial condition results operations continued interest related charges increased 46 million primarily due higher longterm debt interest expense resulting debt issuances december 2014 income tax expense decreased 15 primarily reflecting lower pretax income 2014 vs 2013 operations maintenance decreased 20 primarily reflecting • absence impairment charges related certain natural gas infrastructure assets 55 million • decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs 53 million bad debt expenses recovered rates impact net income • increase gains associated assignments marcellus acreage 42 million partially offset • decreased gains sale assets related parties 43 million income tax expense increased 11 primarily reflecting higher pretax income liquidity capital resources dominion depends internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2015 dominion 932 million unused capacity credit facilities see additional discussion credit facilities shortterm debt summary dominion’s cash flows presented operating cash flows net cash provided dominion’s operating activities increased 10 billion primarily due absence losses related repositioning dominion’s producer services business 2014 higher deferred fuel cost recoveries virginia jurisdiction higher revenue rate adjustment clauses lower outage costs absence losses related retail electric energy marketing business 2014 dominion believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares december 2015 dominion’s board directors affirmed dividend policy set february 2015 targeting payout ratio 7075 established annual dividend rate 2016 280 per share common stock 81 increase 2015 rate dividends subject declaration board directors january 2016 dominion’s board directors declared dividends payable march 2016 70 cents per share common stock dominion’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2015 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 45 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 2 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 14 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 20 total net credit exposure investing cash flows 2015 net cash used dominion’s investing activities increased 13 billion primarily due dominion’s acquisition dcg 2015 increase acquisitions solar development projects 2015 absence proceeds sale dominion’s electric retail energy marketing business 2014 financing cash flows liquidity dominion relies capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings dominion’s ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances dominion currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows dominion use automatic shelf registration statements register offering securities exchange offers business combination transactions 2015 net cash provided dominion’s financing activities increased 573 million primarily due issuance common stock atthemarket program proceeds sale interest merchant solar projects absence subsidiary preferred stock redemption 2014 partially offset absence proceeds issuance dominion midstream common units 2014 liability management 2014 dominion elected redeem certain debt preferred securities prior stated maturities proceeds issuance lowercost senior enhanced junior subordinated notes used fund redemption payments see note 17 consolidated financial statements descriptions redemptions time dominion may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions tender offers otherwise credit facilities shortterm debt dominion uses shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations january 2016 dominion expanded shortterm funding resources 10 billion increase one joint revolving credit facility limits addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties connection commodity hedging activities dominion required provide collateral counterparties circumstances certain collateral arrangements dominion may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time dominion may vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates dominion issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion’s commercial paper letters credit outstanding well capacity available credit facilities follows 1 credit facilities mature april 2019 used support bank borrowings issuance commercial paper well support combined 20 billion letters credit 2 january 2016 facility limit increased 40 billion 50 billion 3 weightedaverage interest rate outstanding commercial paper supported dominion’s credit facilities 062 december 31 2015 shortterm notes november 2014 dominion issued 400 million private placement shortterm notes matured repaid november 2015 bore interest variable rate proceeds used general corporate purposes november 2015 dominion issued 400 million private placement shortterm notes mature may 2016 bear interest variable rate december 2015 dominion issued additional 200 million variable rate shortterm notes mature may 2016 proceeds used general corporate purposes february 2016 dominion purchased cancelled 100 million variable rate shortterm notes would otherwise matured may 2016 using proceeds february 2016 issuance senior notes mature 2018 result december 31 2015 100 million notes included longterm debt consolidated balance sheets longterm debt 2015 dominion issued following longterm debt august 2015 virginia power remarketed five series taxexempt bonds aggregate outstanding principal 412 million new investors two bonds bear interest coupon rate 175 may 2019 bear interest market rate determined time three bonds bear interest coupon rate 215 september 2020 bear interest market rate determined time previously interest remarketed bonds variable reset monthly remarketing accounted debt extinguishment previous investors management’s discussion analysis financial condition results operations continued 2015 dominion repaid repurchased 892 million longterm debt issuance common stock equity securities dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion began purchasing common stock open market plans april 2014 dominion began issuing new common shares direct stock purchase plans 2015 dominion issued 42 million shares common stock totaling 295 million employee savings plans direct stock purchase dividend reinvestment plans employee director benefit plans dominion received cash proceeds 284 million issuance 41 million shares dominion direct® employee savings plans 2015 dominion issued 68 million shares common stock received cash proceeds 499 million net fees commissions paid 3 million atthemarket program registered underwritten public offering see note 19 consolidated financial statements description atthemarket program public offering 2016 dominion plans issue shares employee savings plans direct stock purchase dividend reinvestment plans stock purchase contracts finance questar combination see note 17 consolidated financial statements description common stock issued dominion stock purchase contracts repurchase common stock dominion repurchase shares 2015 plan repurchase shares 2016 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization purchase dominion midstream units september 2015 dominion initiated program purchase market 50 million common units representing limited partner interests dominion midstream common units may acquired dominion 12 month period following commencement program discretion management december 31 2015 dominion purchased approximately 887000 common units 25 million first quarter 2016 dominion purchased approximately 377000 additional common units approximately 10 million february 23 2016 dominion still ability purchase 15 million common units program proposed acquisition questar terms questar combination announced february 2016 dominion agreed pay questar shareholders 25 per share totaling approximately 44 billion well assume questar’s outstanding debt currently approximately 16 billion expected remain outstanding following merger additionally dominion entered agreements several lending banks pursuant commit ted provide temporary debt financing consisting 39 billion acquisition facility dominion intends permanently finance transaction manner supports existing credit ratings targets issuing combination common stock mandatory convertibles including rsns debt dominion indirectly issuance common units dominion midstream proceeds applied pay dominion certain assets questar expected contributed dominion midstream subject receipt questar shareholder required regulatory approvals meeting closing conditions dominion targets closing end 2016 credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion believes current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion may affect ability access funding sources cause increase return required investors dominion’s credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions november 2014 standard poor’s changed dominion’s rating outlook negative stable february 2016 standard poor’s lowered following ratings dominion issuer bbb senior unsecured debt securities bbb juniorremarketable subordinated debt securities bbb addition standard poor’s affirmed dominion’s commercial paper rating a2 revised outlook stable negative credit ratings february 23 2016 follow february 23 2016 fitch moody’s standard poor’s maintained stable outlook respective ratings dominion downgrade individual company’s credit rating necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade could result increase cost borrowing dominion works closely fitch moody’s standard poor’s objective achieving targeted credit ratings dominion may find necessary modify business plan maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion typical covenants include • timely payment principal interest • information requirements including submitting financial reports filed sec information changes dominion’s credit ratings lenders • performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets • compliance collateral minimums requirements related mortgage bonds • limitations liens dominion required pay annual commitment fees maintain credit facilities addition dominion’s credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2015 calculated total debt total capital ratio pursuant terms agreements follows 1 indebtedness defined bank agreements excludes junior subordinated remarketable subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets dominion material subsidiaries fails make payment various debt obligations excess 100 million lenders could require defaulting company borrower dominion’s credit facilities accelerate repayment outstanding borrowings lenders could terminate commitments lend funds company credit facilities addition defaulting company virginia power dominion’s obligations repay outstanding borrowing credit facilities could also accelerated lenders’ commitments dominion could terminate dominion executed rccs connection issuance following hybrid securities • june 2006 hybrids • september 2006 hybrids • june 2009 hybrids october 2014 dominion redeemed june 2009 hybrids redemption conducted compliance rcc see note 17 consolidated financial statements additional information including terms rccs december 31 2015 termination dates covered debt rccs associated dominion’s hybrids follows dominion monitors debt covenants regular basis order ensure events default occur december 31 2015 events default changes dominion’s debt covenants dividend restrictions certain agreements associated dominion’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s ability pay dividends receive dividends subsidiaries december 31 2015 see note 17 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes equity units initially form corporate units information incorporated herein reference management’s discussion analysis financial condition results operations continued future cash payments contractual obligations planned capital expenditures contractual obligations dominion party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion party december 31 2015 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s current liabilities paid cash 2016 1 based stated maturity dates rather earlier redemption dates could elected instrument holders february 2016 dominion purchased cancelled 100 million variable rate shortterm notes would otherwise matured may 2016 using proceeds february 2016 issuance senior notes mature 2018 result december 31 2015 100 million notes included longterm debt consolidated balance sheets 2 includes interest payments terms debt payments related stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2015 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements reflect dominion’s ability defer interest stock purchase contract payments junior subordinated notes rsns equity units initially form corporate units 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 includes capital operations maintenance commitments 6 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 67 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 7 includes interest rate swap agreements planned capital expenditures dominion’s planned capital expenditures expected total approximately 69 billion 49 billion 43 billion 2016 2017 2018 respectively dominion’s planned expenditures include construction expansion electric generation natural gas transmission storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel construction liquefaction project funding dominion’s portion atlantic coast pipeline project dominion expects fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors see dvp dominion generation dominion energyproperties item 1 business discussion dominion’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion’s board directors late 2015 subject continuing review adjustment actual capital expenditures may vary estimates dominion may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others see note 22 consolidated financial statements additional information incorporated herein reference future issues matters see item 1 business notes 13 22 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred 190 million 192 million 182 million expenses including depreciation 2015 2014 2013 respectively connection environmental protection monitoring activities excluding charges related ash pond landfill closure costs expects expenses approximately 186 million 187 million 2016 2017 respectively addition capital expenditures related environmental controls 59 million 101 million 64 million 2015 2014 2013 respectively expenditures expected approximately 85 million 113 million 2016 2017 respectively future environmental regulations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum delegated states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements august 2015 epa issued final carbon standards existing fossil fuel power plants known clean power plan rule uses set measures reducing emissions existing sources includes efficiency improvements coal plants displacing coalfired generation increased utilization natural gas combined cycle units expanding renewable resources new rule requires states impose standards performance limits existing fossil fuelfired electric generating units equivalent statewide intensitybased massbased co2 binding goals limits states required submit interim plans epa september 2016 identifying comply rule final plans due september 2018 epa also proposed federal plan model trading rules finalized states adopt would put place response final guidelines state either submit state plan approved epa virginia power’s recent integrated resources plan filed july 2015 includes four alternative plans represent plausible compliance strategies rule proposed include additional coal unit retirements additional low zerocarbon resources final rule challenged us court appeals dc circuit february 2016 us supreme court issued stay clean power plan disposition petitions challenging rule court appeals petitions filed future us supreme court dominion know whether legal challenges impact submittal deadlines state implementation plans subsequent stay virginia announced continue development state plan unless rule survives court challenges state plans developed epa approves plans dominion cannot predict potential financial statement impacts believes potential expenditures comply could material december 2012 epa issued final rule set stringent annual air quality standard fine particulate matter epa issued final attainmentnonattainment designations january 2015 states develop implementation plans dominion cannot determine whether facilities located areas designated nonattainment standard impacted expect impacts material epa finalized rules establishing new 1hour naaqs no2 new 1hour naaqs so2 could require additional nox so2 controls certain areas dominion operates states developed implementation plans standards impact dominion’s facilities emit nox so2 uncertain additionally impact permit limits implementing naaqs dominion’s facilities uncertain time june 2005 epa finalized amendments regional haze rule also known clean air visibility rule requires states implement best available retrofit technology requirements sources address impacts visual air quality regional haze state implementation plans allows alternative options dominion anticipates emission reductions achieved compliance caarequired programs generally address rule december 2015 epa published proposed revision csapr proposal substantially reduces csapr phase ii ozone season nox emission caps 23 states including virginia west virginia north carolina relative phase ii caps current csapr rule would take effect beginning 2017 ozone season proposed reductions state ozone season nox caps would turn reduce approximately 55 overall number allowances dominion electric generating units receive csapr ozone season nox program beginning 2017 may september ozone season addition epa proposing discount use banked phase allowances compliance phase ii applying either 21 41 surrender ratio proposal finalized dominion unable predict certainty impact future csapr ozone season allowance streams extent rule may require additional controls epa expects issue final revision csapr august 2016 april 2014 pennsylvania department environmental protection issued proposed regulations reduce nox voc emissions combustion sources regulations expected finalized second quarter 2016 comply regulations dominion gas anticipates installing emission control systems existing engines several compressor stations pennsylvania regulations finalized dominion gas cannot estimate potential impacts results operations financial condition andor cash flows related matter climate change december 2015 paris agreement formally adopted united nations framework convention climate change accord establishes universal framework addressing ghg emissions involving actions nations concept nationally determined contributions nation defines ghg commitment make sets place process increasing commitments every five years also contains global goal holding increase global average temperature well 2 degrees celsius preindustrial levels pursue efforts limit temperature increase 15 degrees celsius preindustrial levels aim reach global peaking ghg emissions soon possible key element initial us nationally determined contributions achieving 26 28 reduction 2005 levels 2025 implementation clean power plan establishes interim emission reduction targets fossil fuelfired electric generating units period 2022 management’s discussion analysis financial condition results operations continued 2029 final targets achieved 2030 epa estimates clean power plan result nationwide reduction co2 emissions fossil fuelfired electric generating units 32 2005 levels 2030 doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets cea amended title vii doddfrank act requires certain overthe counter derivatives swaps cleared derivatives clearing organization swap subject clearing requirement executed designated contract market swap execution facility nonfinancial entities use swaps hedge mitigate commercial risk often referred end users may elect enduser exception cea’s clearing requirements dominion elected exempt swaps cea’s clearing requirements cftc may continue adopt final rules implement provisions doddfrank act ongoing rulemaking process including rules regarding margin requirements noncleared swaps result rulemaking process dominion’s derivative activities exempted clearing exchange trading margin requirements could subject higher costs due decreased market liquidity increased margin payments addition dominion’s swap dealer counterparties may attempt passthrough additional trading costs connection implementation compliance title vii doddfrank act due ongoing rulemaking process dominion currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows item 7a item 7 managements discussion analysis financial condition results operations liquidity capital resources cash flow operating activities accounted average 74 percent companys cash requirements past three years net cash provided operating activities decreased 46 million 1994 compared 1993 primarily result number factors resulting normal operations partially offset rate refund 1292 million 1994 net cash provided operating activities decreased 1521 million 1993 compared 1992 primarily result rate refund 1889 million 1993 offset part recovery previously deferred capacity expenses cash financing activities follows company sold 3250 million first refunding mortgage bonds 1994 portion proceeds company refinanced 1190 million highercost debt remainder proceeds used meet portion companys capital requirements 1994 company also issued 100 million unsecured mediumterm notes annual interest rates ranging 615 727 proceeds used meet portion companys capital requirements company also issued 39 million variable fixed rate pollution control securities 1994 refinance 39 million highercost pollution control securities 1994 company issued dominion resources 75 million common stock year company retired 1665 million securities mandatory debt maturities sinking fund requirements repurchased 75 million debt securities 23 million preferred stock proceeds sale commercial paper primarily used finance working capital operations borrowings companys commercial paper program limited 200 million outstanding one time december 31 1994 amount outstanding program cash used investing activities follows investing activities 1994 resulted net cash outflow 7268 million primarily due 5809 million construction expenditures 80 million nuclear fuel expenditures construction expenditures approximately 673 million spent new generating facilities 1738 million production projects 2913 million transmission distribution projects capital requirements company presently anticipates kilowatthour sales grow approximately 21 percent year 2014 capacity needed support growth provided combination companyconstructed generating units purchases nonutility generators utility generators options plays important role companys overall plan meet capacity needs companys construction nuclear fuel expenditures excluding afc 1995 1996 1997 expected aggregate 6732 million 6003 million 6152 million respectively construction continues 782 mw coal fired power station near clover virginia company 50 percent undivided ownership interest companys share cost construction approximately 5330 million 4498 million incurred december 31 1994 expected inservice dates clover units 1 2 april 1995 april 1996 respectively 1996 base load generation expected needed middle next decade 1999 2005 company need add peaking units meet anticipated demand company require 3122 million meet longterm debt maturities 1995 company presently estimates 1995 82 percent construction expenditures including nuclear fuel expenditures met cash flow operations balance including capital requirements obtained combination sales securities shortterm borrowings results operations following discussion results operations years ended 1994 compared 1993 compared 1992 1994 compared 1993 operating revenues changed principally due following detailed chart decrease revenues primarily due decrease base revenues base revenues lower 1994 primarily result additional revenue reserves established year 1994 company 46741 new connections system compared 43014 39807 1993 1992 respectively kilowatthour sales changed follows increase kilowatthour sales 1994 compared 1993 reflects extreme weather experienced january 1994 partially offset lower sales second half 1994 due milder weather number actual cooling degree days 1994 57 percent normal number cooling degree days number actual heating degree days 38 percent number normal heating degree days increase kilowatthour sales 1993 compared 1992 reflects warmer normal summer weather 1993 compared moderate weather 1992 number actual cooling degree days 1993 100 percent number normal cooling degree days number actual heating degree days 12 percent number normal heating degree days increase sales resale 1993 compared 1992 primarily due sale firm capacity associated energy odec terms agreement signed november 26 1991 company committed sell 300 mw capacity odec commercial operation date clover power station average fuel cost system energy output shown system energy output shown excludes odecs 116 percent ownership interest north anna power station see note f financial statements operation expensesother increased compared 1993 primarily result recognition costs associated early retirement voluntary separation programs offered company 1994 income taxesoperating decreased compared 1993 primarily result decreased pretax book income interest chargesother decreased 1994 primarily result reduction 106 million interest accrued prior years certain tax obligations 1993 compared 1992 fuel net increased compared 1992 result higher sales 1993 decrease nuclear generation due scheduled outages 1993 increased sales together reduced generation nuclear units increased use purchased power resulted higher overall fuel costs purchased power capacity net resulted increase 1993 1992 company implemented deferral accounting certain capacity expenses increase expense 1993 primarily reflects recovery expenses deferred 1992 operation expenses increased compared 1992 primarily result increased expenses associated accrual postretirement benefits due implementation statement financial accounting standards sfas 106 employers accounting postretirement benefits pensions effective january 1 1993 income taxesoperating increased compared 1992 primarily result increased pretax book income increase federal income tax rate 34 percent 35 percent income interest charges decreased compared 1992 primarily result reclassification imputed interest nuclear decommissioning obligation previously included interest charges 148 million included income approved ferc increase offset part 31 million decrease expenses associated sale accounts receivable cumulative effect change accounting principle 1992 company adopted provisions statement financial accounting standards sfas 109 accounting income taxes company reported implementation standard change accounting principle cumulative effect prior years 143 million reported 1992 earnings adoption sfas 109 1992 increased deferred income tax liabilities 459 million resulted establishment net regulatory asset 459 million additional information see note financial statements future issues utility rate regulation regulatory policy continues fundamental importance company financial performance recently nearterm future costs purchased capacity constitute largest category increased costs requiring rate relief virginia commission authorized rates providing current recovery ongoing level capacity payments moreover virginia commission established reaffirmed deferral accounting intended ensure dollar recovery reasonably incurred capacity costs additional information current rate proceedings see rates item 1 business environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result remediation containment monitoring obligations company costs historically recovered ratemaking process however material costs incurred recovered rates companys results operations financial condition could adversely impacted water quality compliance march 30 1992 virginia water control board adopted water quality standards toxic pollutants pursuant clean water act standards became effective april 20 1992 applicable company virginia pollution discharge elimination system permits reissued company studying potential impact standards cannot presently determine whether extent changes facilities operating procedures might ultimately required incremental compliance costs could significant environmental protection monitoring expenditures company incurred 673 million 722 million 652 million including depreciation 1994 1993 1992 respectively connection use environmental protection facilities expects expenses approximately 643 million 1995 addition capital expenditures limit monitor hazardous substances 40 million 36 million 66 million 1994 1993 1992 respectively amount estimated 1995 expenditures 331 million clean air act compliance air act amended 1990 requires company reduce emissions sulfur dioxide nitrogen oxides beginning 1995 sulfur dioxide reduction program based issuance limited number sulfur dioxide emission allowances may used permit emit one ton sulfur dioxide atmosphere may sold someone else program administered epa company assessing economic reasonableness constructing two additional scrubbers mt storm power station acquiring allowances means maintaining compliance air acts standards additional information clean air act see regulation item 1 business electromagnetic fields possibility exposure electromagnetic fields emanating power lines household appliances electric sources may result adverse health effects subject increased public governmental media attention considerable amount scientific research conducted topic without definitive results research continuing resolve scientific uncertainties soon tell impact actions may companys financial condition nuclear operations 1994 companys four nuclear units operated combined capacity factor 867 percent reflecting record 31 day refueling outage north anna unit 1 63 day refuelingtenyear inservice inspection outage surry unit 1 two scheduled steam generator chemical cleaning outages surry units 1 2 took 27 21 days respectively nuclear refueling outages typically occur every eighteen months last approximately sixty days companys goal reduce refueling outages average sixty days fortyeight days nuclear units refueled company replaces power nuclear generation expensive sources reduction length outage result increased availability lowcost nuclear generation thereby lowering expenses three refueling outages currently scheduled 1995 north anna unit 2 outage include steam generator replacement surry unit 2 outage include ten year inservice inspection surry unit 1 outage normal refueling see nuclear operations fuel supply sources energy used fuel costs item 1 business stress corrosion cracking occurred steam generators certain design including surry north anna power stations steam generators surry units 1 2 replaced 1981 1979 respectively replacement north anna unit 1 steam generators completed 1993 cost 106 million replacement north anna unit 2 steam generators scheduled 1995 total estimated company cost 110 million costs associated steam generator replacements surry recovered rates costs associated steam generator replacements north anna unit 1 unit 2 expected recovered rates nrc proposed revisions nuclear power plant license renewal rules issued 1991 company intends work industry groups life extension programs comment proposed rulemaking addition improving nuclear unit productivity efficiency company completed engineering analyses evaluations support uprating capability units plant modifications completed north anna facility upgraded core improvement resulted 42 increase gross electrical output units similar project initiated uprate surry units 1 2 1995 analyses evaluations support uprate completed license amendment pending nuclear regulatory commission information nuclear decommissioning see note c financial statements conservation load management information see conservation load management item 1 business competition company continue affected developing competitive market wholesale power energy policy act 1992 participant wholesale market obtain ferc order provide transmission services certain conditions ferc completed industrywide formal inquiry aimed reforming pricing transmission services company active participant inquiry ferc also encouraging development regional transmission groups rtgs transmissionowning utilities transmission users would jointly plan facilities administer provision transmission services early determine effects reformed transmission pricing development rtgs could company present competition retail customers limited arises primarily ability certain business customers relocate among utility service territories substitute energy sources electric power generate electricity energy policy act bans federal orders transmission service ultimate customers broader retail competition would allow customers choose among electric suppliers subject intense debate federal state forums competition develop would potential shift costs among customer classes create significant transitional costs certain state actions affect retail competition may preempted federal law potential competition also exists companys sales cooperative municipal customers however nearly service contracts multiyear notice provisions date company experienced material loss load revenues net income due competition customers company believes strong capability meet future competition additional information competition see competition item 1 business accordance sfas 71 accounting effects certain types regulation companys financial statements reflect assets costs based current costbased ratemaking regulations continued accounting sfas 71 requires following criteria met utilitys rates regulated services provided customers established subject approval independent thirdparty regulator b regulated rates designed recover specific costs providing regulated services products c view demand regulated services level competition direct indirect reasonable assume rates set levels recover utilitys costs charged collected customers criterion requires consideration anticipated changes levels demand competition recovery period capitalized costs utilitys operations portion operations cease meet criteria various reasons including change method regulation change competitive environment regulated services utility whose operations portion operations cease meet criteria discontinue application sfas 71 writeoff regulatory assets liabilities operations longer meet requirements sfas 71 companys operations currently satisfy sfas 71 criteria however events circumstances change criteria longer satisfied management believes material adverse effect companys results operations financial position may result commitments contingencies dispute corporate governance issues dominion resources virginia power arose 1994 connection dispute virginia commission commenced proceedings investigating related issues settlement agreement entered two companies respective boards respect matters august 1994 settlement agreement also described item 3 legal proceedings 1995 session virginia general assembly virginia commission caused legislation introduced addressed commissions authority intervene disputes involving public utilities owned separate holding companies legislation opposed dominion resources february 20 1995 proposed legislation withdrawn dominion resources virginia power virginia commission staff consented order included virginia powers current report form 8k february 21 1995 order effective july 2 1996 dominion resources must obtain commissions approval taking steps removing virginia powers board members officers changing virginia powers articles incorporation bylaws although order imposes period time significant restrictions ability dominion resources select board management subsidiary dominion resources virginia power agreed order interest enhancing relations virginia commission achieving purposes settlement agreement disagreements companies arisen time since settlement agreement executed february 28 1995 upon recommendation joint committee created settlement agreement boards dominion resources virginia power took action enhance cooperation two companies relationship virginia commission among things boards expanded authority joint committee act boards issues presented chief executives companies board directed corporate officials employees company cooperate fully joint committee resolution issues acted committee support actions taken committee connection initiatives chief executive officers companies made known intentions retire july 1996 boards directed development executive succession plans company also dominion resources board received resignations directors bruce c gottwald john w snow virginia power board received resignations directors william w berry frank royal boards voted reduce size two members time virginia power unable predict ultimate resolution matters effect company item 8 item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contains forwardlooking statements defined private securities litigation reform act 1995 including without limitation discussions expectations beliefs plans objectives future financial performance assumptions underlying concerning matters discussed document discussions including certain contingency matters respective cautionary statements discussed elsewhere report historical facts forwardlooking accordingly involve estimates projections goals forecasts assumptions uncertainties could cause actual results outcomes differ materially expressed forwardlooking statements business financial condition virginia power influenced number factors including political economic risks market demand energy inflation capital market conditions governmental policies legislative regulatory actions including ferc epa doe nrc virginia commission north carolina commission industry rate structure legal administrative proceedings important factors could cause actual results outcomes differ materially discussed forwardlooking statements include changes compliance environmental laws policies weather conditions catastrophic weatherrelated damage present prospective wholesale retail competition new energy development opportunities pricing transportation commodities operation nuclear power facilities acquisition disposition assets facilities recovery cost purchased power nuclear decommissioning costs ability company suppliers customers successfully address year 2000 compliance issues exposure changes fair value commodity contracts counterparty credit risk unanticipated changes operating expenses capital expenditures factors difficult predict contain uncertainties may materially affect actual results may beyond control virginia power new factors emerge time possible predict factors assess impact factor virginia power forwardlooking statement speaks date statement made virginia power undertakes obligation update forwardlooking statement statements reflect events circumstances date statement made liquidity capital resources operating activities continue strong source cash flow providing 1094 million 1998 compared 1091 million 1997 past three years cash flow operating activities dividend payments average covered 137 percent total construction requirements provided 83 percent total cash requirements remaining cash needs met generally proceeds sale securities shortterm borrowings financing activities represented net outflow cash recent years strong cash flow operations absence major construction programs reduced companys reliance debt financing cash used financing activities follows continued take advantage declining interest rates issuing new debt lower rates higherrate debt matured 1998 3335 million companys longterm debt securities matured average effective rate 836 percent partial replacement maturing debt issued 270 million longterm debt securities year average effective rate 671 percent currently three shelf registration statements effective sec obtain additional debt capital 400 million junior subordinated debentures 375 million debt securities including first refunding mortgage bonds senior notes senior subordinated notes 200 million mediumterm notes series f remaining principal amount debt issued registrations totals 645 million additional capital resource 100 million preferred stock also registered sec company commercial paper program supported two credit facilities totaling 500 million proceeds sale commercial paper primarily used provide working capital net borrowings program 2217 million december 31 1998 investing activities 1998 resulted net cash outflow 5819 million primarily due 4508 million construction expenditures 809 million nuclear fuel expenditures construction expenditures included approximately 2818 million transmission distribution projects 805 million production projects 579 million information technology projects 306 million projects cash used investing activities follows capital requirements capacity anticipate kilowatthour sales grow approximately 3 percent year 2001 addition purchase agreements hoosier 400 mw aep 500 mw expire december 31 1999 meet requirements developed plans construct four 150 mw combustion turbines fauquier county virginia midyear 2000 projected cost 175 million 190 million however january 14 1999 virginia commission issued order directing company solicit bids independent suppliers determine lower overall cost option available fixed assets companys construction nuclear fuel expenditures 1999 2000 2001 expected total 8025 million 7567 million 7627 million respectively expect 1999 construction nuclear fuel expenditures met cash flow operations sales securities shortterm borrowings plan install sulfur dioxide so2 emission control equipment two coal fired generating units require 115 million investment next four years management believes installation scrubbers two units provide cost effective means complying clean air act response rule adopted epa september 1998 plan install nitrogen oxides nox reduction equipment coal fired generating stations estimated capital cost 500 million next five years whether costs actually incurred dependent implementation plans adopted states operate see future issues clean air act compliance longterm debt company require 321 million meet maturities longterm debt 1999 expect meet cash flow operations issuance replacement debt securities capital requirements met combination sales securities shortterm borrowings results operations following discussion results operations years ended 1998 compared 1997 compared 1996 1998 compared 1997 balance available common stock decreased 2393 million compared 1997 primarily due settlement companys rate case virginia commission 1998 settlement resulted rate reduction refund writedown regulatory assets see note p consolidated financial statements revenue changed prior year primarily due following electric service revenue consists sales retail customers service territory rates authorized virginia north carolina commissions sales cooperatives municipalities wholesale rates authorized ferc primary factors affecting revenue 1998 base rate refund rate reduction arising settlement companys rate proceedings virginia commission adjustments annual fuel rates see note p consolidated financial statements addition revenue affected weather customer growth customer growth sales resulting new customer connections increased revenue 501 million 1998 1997 weather mild winter weather 1998 caused customers use less electricity normal heating reduction sales substantially offset increased 1998 third quarter sales compared third quarter 1997 resulting warmer weather increased usage customers cooling reduced 1998 revenue 70 million compared 1997 heating cooling degree days follows fuel rates regulatory commissions jurisdiction company currently allow us charge customers cost fuel used generating electricity decrease fuel rate revenues primarily attributable lower fuel rates went effect december 1 1997 additional reductions effective march 1 1998 may 1 1998 recognize savings negotiated changes power supply contracts reductions partially offset increase companys annual fuel case went effect december 1 1998 rate changes decreased fuel revenues 1209 million compared 1997 revenue includes sales electricity beyond service territory sales natural gas net related cost purchased commodities also includes revenue nuclear consulting services energy management services revenue decreased 1998 compared 1997 due electricity trading revenues reported net purchased energy entirety 1998 last four months 1997 revenues reported gross first eight months 1997 result subject cost service rate regulation time expenses changed prior year primarily due following fuel net decreased 1998 compared 1997 primarily due inclusion cost power marketing purchases first eight months 1997 however cost power marketing purchases last four months 1997 entirety 1998 reported net related revenues revenue prior september 1997 activity subject cost service rate regulation system energy output energy source average fuel cost shown fuel cost presented mills one tenth one cent per kilowatt hour excludes odecs 116 percent ownership interest north anna power station excludes odecs 50 percent ownership interest clover power station purchased power capacity net increased 1998 compared 1997 primarily due 1 increased expenses associated restructuring certain contracts 2 discontinuance deferral accounting expenses see note p consolidated financial statements impairment regulatory assets 1998 write regulatory assets result companys settlement rate proceeding virginia commission see note p consolidated financial statements 1996 1997 amounts represent reserve potential adjustments regulatory assets operations maintenance increased 1998 compared 1997 primarily due 1 costs repair storm damage caused december 1998 ice storms hurricane bonnie third quarter 1998 2 cost preparing companys computer systems year 2000 see future issues year 2000 compliance restructuring expenses decreased 1998 compared 1997 although continuing evaluate companys operations anticipation restructuring electric industry significant restructuring expenses incurred 1998 see note consolidated financial statements depreciation amortization decreased 1998 compared 1997 due adjustments provision depreciation decommissioning expenses reflect terms settlement virginia rate proceeding see note p consolidated financial statements taxes income increased 1998 compared 1997 due increased taxes associated wholesale power natural gas marketing activities income taxes 1998 decreased compared 1997 primarily due income tax provision associated effects settlement virginia rate proceeding see note p consolidated financial statements 1997 compared 1996 electric service revenues grew marginally 1997 compared 1996 primary factors affecting revenue 1997 customer growth weather fuel rates customer growth 50000 new customer connections system 1997 largest number new connections year since 1990 effect increasing sales 558 million 1997 1996 weather mild weather 1997 caused customers use less electricity heating cooling reduced revenue approximately 1111 million previous year fuel rates increase fuel rate revenues primarily attributable higher fuel rates went effect december 1 1996 increasing recovery fuel costs approximately 482 million revenue includes sales electricity beyond service territory natural gas nuclear consulting services energy management services increase revenue 1997 compared 1996 primarily due marketing electricity beyond service territory fuel net increased 1997 compared 1996 primarily due cost increased purchases energy wholesale power suppliers associated power marketing effective september 1997 purchases reported revenue related sales revenue prior september 1997 activity subject cost service rate regulation operations maintenance increased 1997 compared 1996 result costs associated growth sales energy management services higher costs offset partially reduction expenses attributable companys strategic initiatives see note consolidated financial statements expenses 1996 include high storm damage costs resulting destructive summer storms including hurricane fran restructuring expenses decreased 1997 compared 1996 due lower expenses companys strategic initiatives anticipation industry restructuring charges restructuring primarily include employee severance costs restructure agreements purchase power third parties necessary negotiate settlement termination contracts costs see note consolidated financial statements depreciation amortization increased 1997 compared 1996 due recognition additional depreciation nuclear decommissioning expense reflect adjustments rate proceeding pending virginia commission higher depreciation expense related clover unit 2 began operations march 1996 future issues competition electric industry general century structure electric industry virginia throughout united states relatively stable recently seen however federal state developments toward increased competition electric utilities required open transmission systems use potential wholesale competitors addition nonutility power producers compete electric utilities wholesale generation market federal level retail competition consideration states including virginia enacted legislation requiring introduction retail competition today virginia power faces competition wholesale market general retail competition virginia powers principal service area time however 1998 session virginia legislature passed law requires transition retail competition january 1 2002 january 1 2004 legislation established principle reasonable net stranded costs would recoverable left details would accomplished future enabling legislation time report general assembly virginia session considering proposed legislation would establish detailed plan restructure electric utility industry virginia actively supporting restructuring legislation would provide necessary details implement legislation passed 1998 see competition retail competition legislative initiatives addition legislative activity responded trend toward competition renegotiating longterm contracts wholesale large federal government customers obtained regulatory approval innovative pricing proposals large industrial customers rate concessions resulting contract negotiations innovative pricing proposals expected reduce companys 1999 revenue approximately 45 million compared amounts would billed prior measures also responded trend toward competition cutting costs reengineering core business processes pursuing innovative approaches serving traditional markets future markets strategy also includes development nontraditional products services objective providing growth future earnings products services include electric energy capacity emerging wholesale market natural gas energyrelated products services nuclear management consulting services power distribution transmission related services including engineering metering telecommunication services addition may time identify investigate opportunities expand markets strategic alliances partners whose strengths market position strategies complement virginia power competition wholesale september 11 1997 ferc authorized us make wholesale power sales market based sales tariff set hearing consider effect transmission constraints ability exercise generation market power localized areas within service territory connection proceeding participants filed formal offer settlement accepted ferc january 1999 offer settlement agreed make wholesale power sales marketbased sales tariff loads located within service territory settlement preclude us requesting ferc authorization sales future authorization granted ferc agreements allow us sell wholesale power loads located within service territory costbased rates accepted ferc 1998 sales wholesale customers requirements contracts represented approximately 4 percent total revenues electric sales since ferc issued order 888 requiring open access transmission service faced increased competitive pressures sales wholesale customers served requirements contracts response renegotiated longterm contracts wholesale customers implemented new arrangement largest wholesale customer provides transition costbased rates marketbased rates reduced rates offset part revenues may earned agreement expected decrease net income approximately 21 million period 1999 2005 result increased competitive pressures sales wholesale customers reevaluating recoverability regulatory assets previously assigned wholesale customers reallocation retail customers based principles included settlement virginia rate proceedings 1998 restructuring legislation virginia general assembly recovery costs virginia retail customers would unlikely furthermore although future federal legislation may ultimately address restructuring electric utility industry believe would provide recovery regulatory assets wholesale customers see competition sfas 71 competition retail currently exclusive right provide electricity retail within assigned service territories virginia north carolina result company faces competition retail sales certain business customers move another utility service territory use energy sources instead electric power generate electricity however 1998 virginia general assembly passed house bill 1172 hb1172 established principles schedule virginias transition retail competition electric utility industry new law became effective july 1 1998 requires following establishment one independent system operators iso one regional power exchanges rpx virginia january 1 2001 deregulation generating facilities beginning january 1 2002 transition retail competition begin january 1 2002 full retail competition completed january 1 2004 recovery reasonable net stranded costs appropriate consumer safeguards related stranded costs consideration stranded benefits legislation established timeline deregulation retail electric service left details regarding implementation future enabling legislation consideration virginia general assembly see competition legislative initiatives north carolina also considering implementing retail competition legislative initiatives virginia actively supported hb1172 1998 general assembly session currently support comprehensive restructuring legislation considered 1999 general assembly special joint legislative subcommittee proactively examining electric industry restructuring past three years drafted presented bill senate consideration 1999 session general assembly major elements bill supported broad coalition consumer groups utilities include phasein retail customer choice beginning 2002 full retail customer choice 2004 schedule determined virginia commission authority accelerate delay implementation certain conditions however phasein retail customer choice may delayed beyond january 1 2005 mandatory divestiture generating assets deregulation generation 2002 capped base rates january 1 2001 july 1 2007 recovery net stranded costs capped base rates wires charge paid customers opting capped rates effect purchase energy competitive supplier consumer protection safeguards establishment default service beginning january 1 2004 creation legislative transition task force oversee implementation statute proposed legislation companys base rates would remain unchanged july 2007 legislation enacted generation portion virginia jurisdictional operations would longer subject costbased rate regulation beginning 2002 although recovery generationrelated costs would continue provided capped rates july 2007 senate approved legislation senate bill 1269 february 9 1999 senate bill whether provisions senate bill ultimately included enacted legislation uncertain believe passage virginia restructuring legislation likely 1999 cannot predict provisions would included restructuring legislation ultimately enacted see competition exposure potentially stranded costs competition sfas 71 federal u congress expected consider federal legislation near future authorizing requiring retail competition virginia power cannot predict definitive actions congress may take north carolina 1997 session north carolina general assembly created study commission future electric service north carolina north carolina commission received published comments interested parties may 1998 interim report expected 1998 yet issued competition regulatory initiatives virginia commission actively interested industry restructuring competition illustrated establishment several generic utilityspecific restructuring related proceedings since 1995 march 20 1998 virginia commission issued order regarding establishment isos rpxs retail access pilot programs direct response order filed report november 2 1998 describing details objectives characteristics proposed retail access pilot program also complying order filing reports regular basis activities concerning efforts establish iso rpx proposed retail access pilot program envisions retail customer choice available 24000 customers 1 retail load jurisdiction virginia commission virginia commission created generic proceeding address issues common electric gas retail access pilot programs throughout commonwealth virginia december 3 1998 virginia commission issued order setting retail access pilot program proposal hearing june 29 1999 consider remaining issues details anticipated regulatory proceedings take much 1999 complete delivery competitively procured electricity pilot program occur mid2000 competition exposure potentially stranded costs traditional costbased regulation utilities generally obligation serve supported implicit promise opportunity recover prudently incurred costs significant potential impact transitioning regulated competitive environment stranded costs stranded costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market recovery mechanism provided transition financial position utility could materially adversely affected companys exposure stranded costs comprised following longterm purchased power contracts may market see purchased power contracts note q consolidated financial statements costs pertaining certain generating plants may become uneconomic deregulated environment regulatory assets items income tax benefits previously flowedthrough customers deferred losses reacquired debt costs see note f consolidated financial statements unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements see notes c n consolidated financial statements previously discussed competition legislative initiatives recovery potentially stranded costs virginia retail customers senate bill would occur rate freeze period see competition sfas 71 legislation enacted extent recovery costs would depend many factors including limited weather sales load growth future power station performance unanticipated expenses eg equipment failures storm damage competition sfas 71 virginia powers financial statements reflect assets costs costbased rate regulation accordance statement financial accounting standards 71 sfas 71 accounting effects certain types regulation sfas 71 provides certain expenses normally reflected income deferred balance sheet regulatory assets regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process presence increasing competition limits utilitys ability charge rates recover costs change method regulation effect could result discontinued applicability sfas 71 rateregulated companies required write regulatory assets earnings whenever assets longer meet criteria recognition defined sfas 71 addition sfas 121 accounting impairment longlived assets longlived assets disposed requires review longlived assets impairment whenever events changes circumstances indicate carrying amount asset would recoverable thus events changes circumstances cause discontinuance sfas 71 writeoff regulatory assets would also require review utility plant assets possible impairment review indicates utility plant assets impaired carrying amount affected assets would written see note consolidated financial statements would result loss charged earnings unless recovery loss provided operations remain regulated would also appropriate review longterm purchase commitments potential impairment accordance sfas 5 accounting contingencies see purchased power contracts note q consolidated financial statements december 31 1998 regulated operations satisfied sfas 71 requirements continued recognition regulatory assets however senate bill enacted generation portion virginia jurisdictional operations would longer subject costbased regulation beginning 2002 although recovery generationrelated costs would continue provided capped rates july 2007 enacted legislation provides sufficient details transition deregulation generation would discontinue application sfas 71 generation portion virginia jurisdictional operations determine amount regulatory assets written order measure amount regulatory assets written must evaluate extent recovery regulatory assets would provided costbased rates would required write regulatory assets recovery would provided either costbased rates separate stranded cost recovery mechanism emerging issues task force issue 974 deregulation pricing electricity issues related application fasb statements 71 accounting effects certain types regulation 101 regulated enterprises accounting discontinuance application fasb statement 71 eitf 974 provides guidance writing regulatory assets sfas 71 discontinued portion utilitys operations however final provisions virginia legislation known believe measurement regulatory assets written sfas 71 eitf 974 uncertain writeoff regulatory assets required writeoff could materially affect virginia powers financial position results operations see note f consolidated financial statements time report believe passage virginia restructuring legislation likely 1999 cannot predict provisions would included restructuring legislation ultimately enacted believe stable rates would provided july 2007 senate bill coupled opportunity pursue reductions operating costs would present reasonable opportunity recover substantial portion potentially stranded costs however discussed application sfas 71 discontinued part utility operations would also perform impairment evaluation respect property plant equipment well longterm power purchase commitments impairment assessment may required disaggregated basis rather aggregate portfolio thus recognition impairments could potentially mitigated assets contracts estimated values excess respective carrying amounts contract payments evaluation concludes impairment exists additional loss would charged earnings impairment evaluation completed cannot estimate amount loss would recognized however amount could materially affect companys financial position results operations environmental matters virginia power subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations costs historically recovered customers utility rates however see competition legislative initiatives discussion legislation enacted would provide transition cost based competitive pricing virginia environmental protection monitoring expenditures incurred 719 million 704 million 711 million including depreciation 1998 1997 1996 respectively connection use environmental protection facilities expect expenses 711 million 1999 addition capital expenditures limit monitor hazardous substances 222 million 246 million 224 million 1998 1997 1996 respectively amount estimated 1999 expenditures 1069 million clean air act compliance clean air act amended 1990 requires company reduce emissions so2 nox gaseous byproducts fossil fuel combustionthe clean air act also requires us obtain operating permits major emissionsemitting facilities permit applications submitted companys power stations clean air acts so2 reduction program based issuance limited number so2 emission allowances may used permit emit one ton so2 atmosphere may sold someone else epa administers program compliance plans reviewed periodically may include switching lower sulfur coal purchase emission allowances installation so2 control equipment december 1998 initiated capital project install so2 control equipment two units mt storm power station estimated cost 115 million began complying clean air act phase nox limits eight units virginia 1997 three years earlier otherwise required result units subject stringent phase ii limits 2008 however september 1998 epa adopted rule requires 22 states including virginia north carolina west virginia reduce cap nox emissions beginning 2003 rule allows state determine achieve required reduction emissions september 1999 affected state must develop submit plan epa details state achieve emission cap states adopt approach suggested epa probable incur major capital expenditures range 500 million expenditures would satisfy clean air act phase ii standards nox thereby eliminating need existing law make additional investment beginning 2008 closely monitor development nox emission cap plans various states evaluation planning future projects comply so2 nox reduction requirements ongoing influenced changes regulatory environment availability so2 allowances emission control technology global climate change 1993 united nations global warming treaty became effective objective treaty stabilization greenhouse gas concentrations level would prevent manmade emissions interfering climate system continuation effort limit manmade greenhouse emissions international protocol formulated december 10 1997 kyoto japan protocol calls united states reduce greenhouse emissions 7 percent 1990 baseline levels period 20082012 protocol signed united states constitute binding commitment unless submitted approved united states senate emission reductions magnitude included protocol adopted would likely result substantial financial impact companies consume produce fossil fuelderived electric power including virginia power nrc nuclear decommissioning rule effective november 23 1998 nrc amended nuclear decommissioning financial assurance requirements particular nrc limited use sinking fund method portion licensees collections decommissioning recovered either traditional cost service rate regulation nonbypassable charges majority decommissioning collections currently recovered cost service rate regulation however portion decommissioning collections recovered contracted rates established parent company guarantee satisfy nrcs revised requirements furthermore evaluating implications method satisfying nrc financial assurance requirements may result enactment legislation currently virginia general assembly see competition legislative initiatives recently issued accounting standards june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities statement requires derivative instruments including certain derivative instruments embedded contracts recorded balance sheet either asset liability measured fair value statement requires changes derivatives fair value recognized currently earnings unless specific hedge accounting criteria met special accounting qualifying hedges allows derivatives gains losses offset related results hedged item income statement requires company formally document designate assess effectiveness transactions receive hedge accounting sfas 133 effective company beginning 2000 however may adopted earlier cannot applied retroactively financial statements prior periods yet quantified impacts adopting sfas 133 yet determined timing method adoption since impact function market prices measures fair value quantification would subject change adoption statement could increase volatility earnings comprehensive income november 1998 emerging issues task force reached consensus issue 9810 accounting contracts involved energy trading risk management activities eitf issue 9810 must adopt eitf issue 9810 1999 eitf issue 9810 requires energy trading contracts recorded fair value balance sheet changes fair value included earnings effects initial application eitf issue 9810 reported cumulative effect change accounting principle manage portfolio energy contracts currently recorded fair value balance sheet changes fair value included earnings required eitf issue 9810 however yet completed review energyrelated contracts held company could possibly subject eitf issue 9810 thus yet quantified impact adoption year 2000 compliance preparing computer systems computerdriven equipment devices year 2000 virtually every computer operation could affected way rollover twodigit year value 99 00 systems devices use computer chips properly recognize datesensitive information year changes 2000 could generate erroneous data fail properly addressed year 2000 problem could result computer equipment failures within virginia power third parties transact business extensive use technology throughout business businesses suppliers customers failures areas could impact business objective year 2000 ready year 2000 ready means critical systems devices applications business relationships evaluated expected suitable continued use beyond year 2000 organized formal year 2000 project teams identify correct reprogram test systems year 2000 readiness teams addressing critical aspects business including information systems embedded systems external relationships business partners information systems encompass traditional information technology systems financial reporting accounting purchasing systems embedded systems primarily represent specialized computers used control monitor assist operations equipment external relationships include suppliers service providers teams overseen executive reports regularly board directors year 2000 remediation program involves completing four major phases 1 inventorying computer systems embedded systems could potentially affected year 2000 problem 2 screening determine date sensitivity within inventoried systems 3 impact assessment 4 remediation testing completed first three phases approximately 93 systems identified critical company operations year 2000 ready december 31 1998 anticipate 99 systems year 2000 ready july 1999 100 completion prior january 1 2000 addition internal efforts assessing state readiness major suppliers service providers implemented initiatives prevent future procurement nonyear 2000 compliant technology also meeting nonutility power producers supply us energy power purchase contracts share information year 2000 readiness expect year 2000 costs within range 30 million 40 million change original estimate 40 million 50 million downward revision due part completion assessment phase progress made remediation testing phase increase information critical suppliers significant external sources actual year 2000 costs december 31 1998 108 million effort date primarily focused critical systems remaining expenditures critical noncritical year 2000 preparedness expenditure noncritical systems incurred year 2000 maintenance modification costs expensed incurred costs new software hardware capitalized amortized assets useful life costs include capital expenditures major information systems initiated normal business reasons without regard year 2000 issues congress directed department energy doe ascertain readiness electric utilities year 2000 doe turn asked north american electric reliability council nerc coordinate monitor year 2000 activities electric industry nerc comprised ten regional councils whose members represent major bulk power suppliers electric industry actively participating nerc members including local regional council southeastern electric reliability council serc primary importance reliability transmission network delivery energy customers reliability achieved participation many utilities supply control individually owned portions network failure individual utility manage successfully transmission network could affect reliability could material adverse effect company contingency planning efforts ensure continuity operations beyond year 2000 schedule completed june 30 1999 company us electric utility industry already extensive contingency plans place many events extreme heat storms equipment failures year 2000 contingency planning extension existing plans coordinating efforts serc nerc participate nationwide drills planned nerc april 9 1999 september 9 1999 part process must consider evaluate reasonably likely worst case scenarios impact critical business processes based preliminary evaluations include serc nerc efforts date reasonably likely worst case scenarios could include minor variations voltage frequency significant effect electric service temporary loss portion generation capacity including possibly nonutility generators however loss expected sufficient adversely affect electric service temporary loss telecommunications functionality services impact expected electric service temporary loss small portion commercial industrial customer loads cannot estimate predict potential adverse consequences could result third partys failure effectively address year 2000 issue believe impact would shortterm nature would material adverse impact business results operations objective contingency planning process mitigate internal external risks assure continuous sustained delivery electricity customers based company industry analyses date believe reasonably likely worst case scenarios identified occur would material adverse effect business results operations plan contingency plans identified tested prior yearend 1999 descriptions herein elements year 2000 effort forwardlooking statements necessity effort based estimates assessment remediation testing contingency planning activities perceived problems yet identified assurance actual results differ materially expectations item 7a item 7 managements discussion analysis financial condition results operations managements discussion analysis financial condition results operations contains forwardlooking statements defined private securities litigation reform act 1995 including without limitation discussions expectations beliefs plans objectives future financial performance assumptions underlying concerning matters discussed document discussions including certain contingency matters respective cautionary statements discussed elsewhere report historical facts forwardlooking accordingly involve estimates projections goals forecasts assumptions uncertainties could cause actual results outcomes differ materially expressed forwardlooking statements business financial condition influenced number factors including political economic risks market demand energy inflation capital market conditions governmental policies legislative regulatory actions including ferc epa doe nrc virginia commission north carolina commission industry rate structure legal administrative proceedings important factors could cause actual results outcomes differ materially discussed forwardlooking statements include changes compliance environmental laws policies weather conditions catastrophic weatherrelated damage present prospective wholesale retail competition new energy development opportunities pricing transportation commodities operation nuclear power facilities acquisition disposition assets facilities nuclear decommissioning costs exposure changes fair value commodity contracts counterparty credit risk unanticipated changes operating expenses capital expenditures factors difficult predict contain uncertainties may materially affect actual results may beyond control virginia power new factors emerge time possible predict factors assess impact factor virginia power forwardlooking statement speaks date statement made undertake obligation update forwardlooking statement statements reflect events circumstances date statement made business segments manage operations manner requires disclosure two business segmentsthe generation business delivery business generation business includes portfolio generating facilities purchased power contracts trading marketing activities nuclear consulting services energy services activities delivery business includes bulk power transmission distribution metering services customer service continues subject costbased regulation majority revenue provided bundled rate tariffs revenue allocated generation business delivery business internal reporting purposes discussion herein certain activities discussed liquidity capital resources managed currently segment level however specific references segments made appropriate discussion trends variations generally applies company whole liquidity capital resources operating activities continue strong source cash flow providing approximately 11 billion years 1999 1998 1997 respectively past three years cash flow operating activities dividend payments average covered 120 percent total construction requirements provided 77 percent total cash requirements cash requirements met timing amount cash flow operations generally satisfied proceeds sale securities shortterm borrowings financing activities represented net outflow cash recent years strong cash flow operating activities reduced need debt equity financing cash flow used financing activities follows 1999 issued 305 million aggregate principal unsecured debt securities june 1999 issued 150 million aggregate principal unsecured senior notes series 1999a annual coupon rate 67 due june 2009 80 million mediumterm notes series g annual coupon rate 63 due june 2001 november 1999 issued 75 million aggregate principal unsecured senior notes series 1999b annual coupon rate 72 due 2004 1999 retired 321 million aggregate principal amount mandatory debt maturities july 1999 repurchased 24 million aggregate principal amount first refunding mortgage bonds became available open market december 31 1999 740 million securities effective shelf registrations securities exchange commission available use meet capital requirements commercial paper program supported two credit facilities totaling 500 million proceeds sale commercial paper primarily used provide working capital net borrowings program 378 million december 31 1999 cash flow used investing activities follows plant equipment expenditures generationrelated projects approximately 327 million 1999 included significant expenditures additional capacity environmental upgradessee capital requirements transmission distributionrelated projects accounted approximately 282 million total plant equipment expenditures projects included routine capital improvements expenditures associated new connections remaining plant equipment expenditures 64 million reflect general projects information technology enhancements information technology projects include development remote metering dispatch technology continued improvements financial systems capital requirements capacitywe anticipate peak demand grow approximately 2 percent year 2002 expect complete construction four 150 mw combustion turbines fauquier county virginia midyear 2000 anticipate spending estimated 190 million total project approximately 145 million incurred december 31 1999 january 2000 filed approval virginia commission construction two combustion turbines caroline county virginia commission set hearing date may 2000 consider request expect future additional capacity energy requirements met combination market purchases companyconstructed generation plant equipmentour construction nuclear fuel expenditures 2000 2001 2002 expected total 856 million 822 million 760 million respectively expect construction nuclear fuel expenditures met cash flow operations sales securities shortterm borrowings installing sulfur dioxide so2 emission control equipment two coalfired generating units total cost project estimated 126 million 33 million incurred december 31 1999 believe installation scrubbers two units provide cost effective means complying clean air act response rule adopted epa september 1998 plan install nitrogen oxide nox reduction equipment generating units estimated capital cost 454 million next five years whether costs actually incurred dependent implementation plans adopted states operate significant costs incurred december 31 1999 see future issuesclean air act compliance maturitieswe require 375 million meet maturities securities 2000 expect fund capital requirements maturities cash flow operations combination sales securities shortterm borrowings results operations general section provides general discussion factors affect revenue generation delivery businesses discussion fluctuations certain expenses allocated separately generation delivery businesses total revenue fiscal years 1999 1998 1997 allocated generation delivery businesses follows see note consolidated financial statements discussion nature line item following factors contributed increase electric service revenue 1999 1998 decrease 1998 1997 electric service revenue consists primarily sales retail customers service territory rates authorized virginia commission north carolina commission sales cooperatives municipalities wholesale rates authorized ferc also included electric service revenue amounts received others use transmission system transport electric energy tariffs authorized ferc primary factors affecting electric service revenue fiscal years 1999 1998 customer growth changes rates retail customer growthour retail customer base increased approximately 39000 1999 35000 1998 respective prior year periods additional customers increased electric service revenue estimated 68 million 1999 compared 1998 estimated 60 million 1998 compared 1997 weatherweather typically significant impact electric service revenue however comparative periods presented weather significant impact base rate refund base rate reductionelectric service revenue 1998 less electric service revenue 1999 1997 result onetime base rate refund 150 million recorded 1998 part settlement resolve outstanding rate proceedings addition agreed twophased rate reduction 100 million effective march 1 1998 additional 50 million effective march 1 1999 twophased rate reduction reduced 1999 electric service revenue 57 million compared 1998 reduced 1998 revenue 88 million compared 1997 see note q consolidated financial statements result virginia law enacted 1999 virginia jurisdictional base rates remain unchanged july 2007 see note b consolidated financial statements fuel ratescurrently permitted recover cost fuel used generating electricity fuel rates approved regulatory authorities decrease 1998 fuel rate revenue compared 1997 primarily attributable lower fuel rates became effective december 1997 march 1998 may 1998 reductions recognized savings negotiated changes power supply contracts december 1998 annual fuel case resulted increase fuel rates increase partially offset aforementioned fuel rate reductions 1998 favorably affected electric service revenue 1999 overall fuel rates 1999 exceeded 1998 electric service revenue increased 1999 compared 1998 due increased revenue electric transmission services decrease electric service revenue 1998 compared 1997 reflected reduced revenue associated certain renegotiated longterm wholesale requirements contracts partially offset increased revenue electric transmission services certain expenses allocated separately generation business delivery business changed follows compared respective prior years 1999 compared 1998 impairment regulatory assets 1998 write regulatory assets result settlement virginia rate proceeding see note q consolidated financial statements interest expense net decreased 1999 compared 1998 due part interest cost associated onetime base rate refund paid 1998 part settlement virginia rate proceeding see note q consolidated financial statements addition upon discontinuance sfas 71 began capitalizing interest accordance sfas 34 capitalization interest cost part generationrelated construction projects extraordinary itemthis extraordinary item recorded connection passage new legislation 1999 establishing detailed plan restructure electric utility industry virginia legislations deregulation generation event required discontinuation sfas 71 generation operations generationrelated assets liabilities expected recovered costbased rates written march 1999 resulting aftertax charge 255 million see note b consolidated financial statements 1998 compared 1997 impairment regulatory assets 1998 write regulatory assets result settlement virginia rate proceeding see note q consolidated financial statements 1997 amount represented reserve potential adjustments regulatory assets depreciation amortization decreased 1998 compared 1997 due adjustments provision depreciation decommissioning expenses reflect terms settlement virginia rate proceeding see note q consolidated financial statements generation business net income generation business increased 1999 compared 1998 increase primarily attributable changes composition fair value portfolio commodity contracts well settlement commodity contract liabilities using company resources rather market purchases decrease generation business net income 1998 compared 1997 reflected primarily impact base rate reductions noted general discussion electric service revenue increased operating expenses selected financial information relevant generation business follows revenue includes sales electricity beyond service territory sales natural gas nuclear consulting services energy management services revenue increase revenue 1999 1998 reflects primarily changes composition fair value portfolio commodity contracts revenue decreased 1998 compared 1997 due electricity trading revenue reported net purchased energy entirety 1998 last four months 1997 revenue reported gross first eight months 1997 result subject cost service rate regulation time fuel net increased 1999 compared 1998 primarily due increased fuel costs resulting higher production generating units increased energy purchases fuel net decreased 1998 compared 1997 primarily due inclusion cost power marketing purchases first eight months 1997 cost power marketing purchases since september 1997 entirety 1998 reported net related revenue prior september 1997 activity subject cost service rate regulation system energy output energy source average fuel cost shown fuel cost presented mills one tenth one cent per kilowatt hour excludes old dominion electric cooperatives odec 116 percent ownership interest north anna power station excludes odecs 50 percent ownership interest clover power station purchased power capacity net increased 1998 compared 1997 primarily due increased expenses associated restructuring certain contracts discontinuance deferral accounting expenses see note q consolidated financial statements operations maintenance increased 1999 compared 1998 primarily result increased maintenance activities performed planned outages fossil plants adjustments inventories related planned disposal identified obsolete excess materials supplies effect certain accounting policy changes resulted discontinuance sfas 71 including recognition losses retirement equipment related removal costs see note consolidated financial statements delivery business overall net income associated delivery business increased 1999 compared 1998 primarily due increase revenue electric transmission services retail electric service customer growth offset part increased expenses associated storm damage decrease delivery business net income 1998 compared 1997 reflects primarily excess increased storm damage costs routine operational expenses increase revenue electric transmission services selected financial information relevant delivery business follows electric service revenue increased 1999 1998 compared respective prior years due increased revenue electric transmission services retail customer growth operations maintenance increased 1999 1998 compared respective prior years primarily due increased service restoration costs associated storm damage future issues competitiongeneral recently seen federal state developments toward increased competition electric utilities required open transmission systems use potential wholesale competitors addition nonutility power producers compete electric utilities wholesale generation market federal level retail competition consideration states including virginia already enacted legislation requiring introduction retail competition today face competition wholesale market general retail competition principal service area time however 1998 session virginia legislature passed law requires transition retail competition january 1 2002 january 1 2004 see competitionretail competitionlegislative initiatives actively supported restructuring legislation provided necessary details implement legislation passed 1998 responded trend toward competition cutting costs engineering core business processes pursuing innovative approaches serving traditional markets future markets strategy also includes development nontraditional products services objective providing growth future earnings products services include electric energy capacity emerging wholesale market natural gas energyrelated products services nuclear management consulting services power distribution transmission related services including engineering metering telecommunication services addition may time identify investigate opportunities expand markets strategic alliances partners whose strengths market position strategies complement virginia power competitionwholesale sell electricity wholesale market based sales tariff authorized ferc agreed make wholesale power sales tariff loads located within service territory however filed february 2000 application ferc make sales marketbased sales tariff loads within service territory facilitate retail access pilot program also filed february 2000 application ferc amend open access transmission tariff accommodate retail access pilot program proposed virginia see competitionregulatory initiatives authorization granted ferc agreements allow us sell wholesale power loads located within service territory costbased rates accepted ferc 1999 sales wholesale customers requirements contracts represented approximately 4 percent total electric service revenue since ferc issued order 888 requiring open access transmission service faced increased competitive pressures sales wholesale customers served requirements contracts response renegotiated long term contracts wholesale customers also implemented new arrangement largest wholesale customer provides transition costbased rates marketbased rates competitionretail currently exclusive right provide electricity retail within assigned service territories virginia north carolina result company faces competition retail sales extent business customers move another utility service territory use energy sources instead electric power generate electricity however 1998 virginia general assembly passed legislation established timeline deregulation retail electric service left details regarding implementation future enabling legislation march 1999 governor virginia signed law new legislation establishing detailed plan restructure electric utility industry virginia provides customer choice beginning 2002 legislation base rates remain unchanged july 2007 recovery generation related costs continue provided capped rates wires charge assessed customers opting alternate suppliers see note b consolidated financial statements discussion companys pilot program customer choice beginning 2000 see competitionregulatory initiatives competitionlegislative initiatives virginia discussed governor virginia signed law legislation establishing detailed plan restructure electric utility industry legislation generation portion companys virginia jurisdictional operations longer subject costbased rate regulation beginning 2002 legislation transition task force charged work virginia commission phasein retail competition task force charged specific assignments including monitoring possible underrecovery stranded costs incumbent utilities monitoring begins onset customer choice task force submit annual reports governor general assembly offering recommendations deems necessary legislation also addressed divestiture functional separation corporate relationships although mandatory divestiture prohibited functional separation required must completed january 1 2002 utilities must submit plans virginia commission january 1 2001 outlining steps taken functionally separate generation transmission distribution currently supporting certain technical amendments restructuring legislation considered 2000 general assembly north carolina 1997 session north carolina general assembly created study commission future electric service north carolina october 1999 duke energy corp carolina power light company submitted proposal study commission addressing certain municipal debt issues must resolved comprehensive restructuring plan developed north carolina commission continues study subject deregulation anticipation 2000 session general assembly consider issue convenes may 2000 federal us congress expected consider federal legislation near future authorizing requiring retail competition virginia power cannot predict definitive actions congress may take competitionregulatory initiatives virginia march 1998 virginia commission issued order instructing virginia power aepvirginia virginias two largest investorowned utilities design file retail access pilot program filed report november 1998 describing details objectives characteristics proposed retail access pilot program august 1999 virginia commissions hearing examiner issued report interim rules introduction electric natural gas retail competition virginia september 1999 company virginia commission two parties entered stipulated agreement resolved size scope proposed pilot program methodology determining market price electricity used calculating wires charge assessed customers opting alternate suppliers pilot program initially give approximately 35000 customers ability choose electric supplier scope program expanded include approximately 70000 customers year end 2000 hearing held september 1999 hearing examiners report issued november 1999 recommending certain changes pilot plan modification stipulated market price methodology filed comments exceptions december 1999 final order virginia commission anticipated early 2000 march 1998 virginia commission issued order establishing investigation regard independent system operators isos regional power exchanges rpxs retail access pilot programs order directed investorowned electric utilities begin work conjunction staff virginia commission interested parties develop one isos rpxs serve public interest virginia electric utility restructuring act signed law 1999 requires virginias incumbent electric utilities join establish regional transmission entities rtes january 1 2001 seek authorization virginia commission transfer ownership operational control transmission facilities rtes may 1999 virginia commission issued order establishing investigation invited comments concerning development rules required act submitted comments june 1999 reply comments july 1999 january 2000 virginia commission issued order giving notice requesting comments proposed rules regulations establishing elements rte structures submitted comments proposed rules regulations february 2000 proposed rule required seek authorization transfer operational control transmission facilities may 1 2000 federal delivery business maintains major interconnections carolina power light company aep allegheny energy utilities pennsylvania new jerseymaryland power pool major transmission network arrangements coordinated planning operation emergency assistance exchanges capacity energy june 1999 virginia power together aep consumers energy company detroit edison company first energy corporation behalf public utility operating company subsidiaries alliance companies filed ferc applications sections 205 203 federal power act approval proposed alliance regional transmission organization alliance rto december 1999 ferc issued order section 203 federal power act granting application subject certain conditions requirements discussed order directing alliance companies submit compliance filing discussed order january 2000 alliance companies filed application seeking rehearing certain conditions requirements order february 2000 alliance companies filed amendments alliance rto documents comply certain conditions requirements order also december 1999 ferc issued order 2000 amended regulations advance formation regional transmission organizations rtos regulations require public utility owns operates controls transmission facilities make certain filings respect forming participating rto ferc also codified minimum characteristics functions transmission entity must satisfy order considered rto january 2000 alliance companies filed application seeking rehearing certain provisions order competitionexposure potentially stranded costs traditional costbased regulation utilities generally obligation serve supported implicit promise opportunity recover prudently incurred costs significant potential impact transitioning regulated competitive environment stranded costs stranded costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market recovery mechanism provided transition financial position utility could materially adversely affected december 31 1999 exposure potentially stranded costs comprised following longterm purchased power contracts could ultimately determined market see purchased power contracts note r consolidated financial statements generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements see note e note p consolidated financial statements believe capped rates provided 1999 deregulation legislation present reasonable opportunity recover substantial portion potentially stranded costs absence capped rates would otherwise exposed pretax basis estimated 32 billion potential losses related longterm power purchase commitments see note b consolidated financial statements recovery potentially stranded costs subject numerous risks including among others exposure longterm power purchase commitment losses future environmental compliance requirements changes tax laws decommissioning costs inflation increased capital costs recovery certain items rate matters support dominions request approval north carolina commission merger consolidated natural gas company cng dominion reached agreement public staff north carolina commission whereby agreed request increase north carolina retail electric base rates december 31 2005 except certain events would significant financial impact company events could include governmental action occurrence beyond control attributable fault negligence however fuel rates still subject change annual fuel cost adjustment proceedings north carolina utilities commission approved merger subject conditions agreed dominion virginia power october 1999 establishment service company january 28 2000 dominion completed merger cng subsidiaries become whollyowned subsidiaries dominion result merger dominion become registered public utility holding company subject regulation 1935 public utility holding company act 1935 act accordance certain requirements 1935 act dominion created subsidiary service company dominion resources services inc services provide certain administrative support services dominion subsidiaries including virginia power employees dominion virginia power perform functions became employees services effective february 1 2000 cng also service company virginia power may elect purchase services either service company however service company functions expected moved single service company march 31 2001 addition business operations reviewed conjunction merger dominion cng identify opportunities operational efficiencies result formation services operational review restructuring charges items employee severance special termination benefits elimination duplicate facilities likely incurred 2000 2001 implement managements reorganization plans environmental matters virginia power subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations historically recovered costs customers utility rates however extent environmental costs incurred period ending june 30 2007 excess level currently included virginia jurisdictional rates results operations decrease date may seek recovery environmental costs related transmission distribution operations regulated utility rates environmental protection monitoring expenditures incurred approximately 78 million 72 million 71 million including depreciation 1999 1998 1997 respectively connection use environmental protection facilities expect expenses approximately 79 million 2000 addition capital expenditures limit monitor hazardous substances 74 million 22 million 25 million 1999 1998 1997 respectively amount estimated 2000 expenditures 148 million clean air act compliance clean air act amended 1990 requires company reduce emissions so2 nox gaseous byproducts fossil fuel combustion clean air act also requires us obtain operating permits major emissionsemitting facilities permit applications submitted companys power stations clean air acts so2 reduction program based issuance limited number so2 emission allowances may used permit emit one ton so2 atmosphere may sold someone else epa administers program compliance plans reviewed periodically may include switching lower sulfur coal purchasing emission allowances installing so2 control equipment december 1998 initiated capital project install so2 control equipment two units mt storm power station estimated cost 126 million so2 controls expected operational january 2002 began complying clean air act phase nox limits eight units virginia 1997 three years earlier otherwise required result units subject stringent phase ii limits 2008 established plan comply phase ii limits remaining eight coalfired units virginia subject phase ii limits september 1998 epa adopted rule requiring 22 states including virginia west virginia north carolina reduce cap ozone season may september nox emissions beginning may 2003 affected states submit compliance plan epa september 1999 may 1999 ruling us district court appeals dc circuit granted indefinite stay states submittal requirements however december 1999 epa issued finding support petitions filed several northeastern states seeking relief longrange pollutant transport utility large industrial sources essentially enforces nox emission caps beginning may 2003 12 22 states including virginia west virginia north carolina response requirements plan install nox reduction equipment coalfired generating facilities estimated capital cost approximately 454 million next several years whether costs actually incurred dependent outcome pending litigation rules implementation plans adopted states operate evaluation planning future projects comply so2 nox reduction requirements ongoing influenced changes regulatory environment availability so2 allowances emission control technology global climate change 1993 united nations global warming treaty became effective objective treaty stabilization greenhouse gas concentrations level would prevent manmade emissions interfering climate system continuation effort limit manmade greenhouse emissions international protocol formulated december 1997 kyoto japan protocol calls united states reduce greenhouse emissions 7 percent 1990 baseline levels period 20082012 protocol signed united states constitute binding commitment unless submitted approved united states senate emission reductions magnitude included protocol adopted would likely result substantial financial impact companies consume produce fossil fuelderived electric power including virginia power recently issued accounting standards financial accounting standards board fasb recently issued sfas 137 accounting derivative instruments hedging activitiesdeferral effective date fasb statement 133 defers effective date sfas 133 accounting derivative instruments hedging activities sfas 133 january 1 2000 january 1 2001 sfas 133 requires derivative instruments including certain derivative instruments embedded contracts recorded balance sheet either asset liability measured fair value statement requires changes derivatives fair value recognized current earnings unless specific hedge accounting criteria met tentatively determined longterm purchased power contracts would subject sfas 133 trading portfolio commodity contracts currently marked fair value would affected statement process assessing impact method period adoption sfas 133 estimated financial impact adoption extent contracts subject fair value accounting implementing appropriate hedging strategies could possibly mitigate potential impact earnings volatility year 2000 readiness experienced successful transition year 2000 immediately rollover throughout rollover weekend transmission distribution systems generating units continued operate smoothly customers lose power result year 2000 problem continuing monitor systems year 2000 issues transition february 29 2000 however rollover january 1 2000 significant problems expected expect total year 2000 costs approximately 28 million actual year 2000 costs 26 million expended december 31 1999 cannot estimate predict potential adverse consequences could result third partys failure effectively address remaining year 2000 issues believe impact would shortterm nature would material adverse impact results operations market risk sensitive instruments risk management exposed market risk utilize financial instruments derivative financial instruments derivative commodity instruments market risks inherent instruments represented potential loss due adverse changes commodity prices equity security prices interest rates described interest rate risk generally related outstanding debt preferred stock trustissued securities exposed equity price risk primarily result equity securities held nuclear decommissioning trusts commodity price risk experienced power generation commodity marketing trading business due exposure market shifts prices received paid natural gas electricity using sensitivity analysis disclose quantitative information exposure commodity price interest rate risks sensitivity analysis estimates potential loss future earnings may result market risk sensitive instruments selected time period due hypothetical changes interest rates commodity prices tabular presentation methodology continues used disclose equity price market risk commodity price risk part strategy market energy generation capacity manage related risks manage portfolio derivative commodity contracts held trading purposes contracts sensitive changes prices natural gas electricity employ established policies procedures manage risks associated price fluctuations use various commodity instruments futures swaps options reduce risk creating offsetting market positions addition seek use generation capacity needed serve customers service territory satisfy commitments sell energy one techniques commonly used measure risk commodity trading portfolio sensitivity analysis determines hypothetical change fair value portfolio would result assumed change market prices related commodities fair value portfolio function underlying commodity contract prices market prices represented derivative commodity contract swaps forward contracts options market value reflects best estimates considering overthe counter quotations time value volatility factors underlying commitments exchangetraded futures options marked market based closing exchange prices determined hypothetical loss calculating hypothetical fair value contract assuming 10 unfavorable change market prices related commodity comparing fair value contracts based market prices december 31 1999 1998 hypothetical 10 change commodity prices would resulted hypothetical loss approximately 5 million 13 million fair value commodity contracts december 31 1999 1998 respectively commodity contracts sensitivity unfavorable price changes decreased 1999 primarily due reduced price exposure options included portfolio december 31 1999 compared december 31 1998 sensitivity analysis include price risks associated utility operations including underlying utility fuel requirements normal course business also face risks either nonfinancial nonquantifiable risks principally include credit risk reflected sensitivity analysis interest rate risk manage exposure interest rate risk maintaining portfolio fixed variablerate debt instruments addition participate interest rate sensitive derivatives interest rate swaps manage risk part risk management policies may participate similar types derivatives future sensitivity analysis estimates impact hypothetical change interest rates variablerate longterm shortterm financial instruments interest rate sensitive derivatives financial instruments outstanding december 31 1999 hypothetical 10 increase market interest rates would decrease annual earnings approximately 8 million similar hypothetical increase market interest rates determined december 31 1998 resulted decrease annual earnings 4 million equity price risk following table presents description marketable equity securities held december 31 1999 1998 accordance sfas 115 accounting certain investments debt equity securities reported balance sheet fair value virginia electric power company item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion energy’s results operations general financial condition virginia power’s dominion energy gas’ results operations mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data virginia power dominion energy gas meet conditions file reduced disclosure format therefore omitted certain sections mda contents mda consists following information • forwardlooking statements • accounting mattersdominion energy • dominion energy • results operations • segment results operations • virginia power • results operations • dominion energy gas • results operations • liquidity capital resourcesdominion energy • future issues mattersdominion energy forwardlooking statements report contains statements concerning companies’ expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words companies make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited • unusual weather conditions effect energy sales customers energy commodity prices • extreme weather events natural disasters including limited hurricanes high winds severe storms earthquakes flooding changes water temperatures availability cause outages property damage facilities • federal state local legislative regulatory developments including changes federal state tax laws regulations including provisions 2017 tax reform act take effect beginning 2018 • changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs substances extensive permitting requirements regulation additional substances • cost environmental compliance including costs related climate change • changes implementation enforcement practices regulators relating environmental standards litigation exposure remedial activities • difficulty anticipating mitigation requirements associated environmental regulatory approvals related appeals • risks associated operation nuclear facilities including costs associated disposal spent nuclear fuel decommissioning plant maintenance changes existing regulations governing facilities • unplanned outages facilities companies ownership interest • fluctuations energyrelated commodity prices effect could dominion energy’s dominion energy gas’ earnings companies’ liquidity position underlying value assets • counterparty credit performance risk • global capital market conditions including availability credit ability obtain financing reasonable terms • risks associated virginia power’s membership participation pjm including risks related obligations created default participants • fluctuations value investments held nuclear decommissioning trusts dominion energy virginia power benefit plan trusts dominion energy dominion energy gas • fluctuations interest rates foreign currency exchange rates • changes rating agency requirements credit ratings effect availability cost capital • changes financial regulatory accounting principles policies imposed governing bodies • employee workforce factors including collective bargaining agreements labor negotiations union employees • risks operating businesses regulated industries subject changing regulatory structures • impacts acquisitions divestitures transfers assets joint ventures dominion energy midstream retirements assets based asset portfolio reviews • expected timing likelihood completion proposed acquisition scana including ability obtain requisite approvals scana’s shareholders terms condition regulatory approvals • receipt approvals timing closing dates acquisitions divestitures • timing execution dominion energy midstream’s growth strategy • changes rules regional transmission organizations independent system operators dominion energy virginia power participate including changes rate designs changes ferc’s interpretation market rules new evolving capacity models • political economic conditions including inflation deflation • domestic terrorism threats companies’ physical intangible assets well threats cybersecurity management’s discussion analysis financial condition results operations continued • changes demand companies’ services including industrial commercial residential growth decline companies’ service areas changes supplies natural gas delivered dominion energy dominion energy gas’ pipeline processing systems failure maintain replace customer contracts favorable terms changes customer growth usage patterns including result energy conservation programs availability energy efficient devices use distributed generation methods • additional competition industries companies operate including electric markets dominion energy’s merchant generation facilities operate potential competition development deployment alternative energy sources selfgeneration distributed generation technologies availability market alternatives large commercial industrial customers • competition development construction ownership certain electric transmission facilities virginia power’s service territory connection ferc order 1000 • changes technology particularly respect new developing alternative sources generation smart grid technologies • changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion energy dominion energy gas • changes operating maintenance construction costs • timing receipt regulatory approvals necessary planned construction growth projects compliance conditions associated regulatory approvals • inability complete planned construction conversion growth projects outcomes within terms time frames initially anticipated including result increased public involvement intervention projects • adverse outcomes litigation matters regulatory proceedings • impact operational hazards including adverse developments respect pipeline plant safety integrity equipment loss malfunction failure operator error catastrophic events additionally risks could cause actual results differ predicted results set forth item 1a risk factors companies’ forwardlooking statements based beliefs assumptions using information available time statements made companies caution reader place undue reliance forwardlooking statements assumptions beliefs expectations projections future events may often differ materially actual results companies undertake obligation update forwardlooking statement reflect developments occurring statement made accounting matters critical accounting policies estimates dominion energy identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion energy discussed development selection disclosure policies audit committee board directors accounting regulated operations accounting dominion energy’s regulated electric gas operations differs accounting nonregulated operations dominion energy required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator dominion energy evaluates whether recovery regulatory assets future rates probable makes various assumptions analysis expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made see notes 12 13 consolidated financial statements additional information asset retirement obligations dominion energy recognizes liabilities expected cost retiring tangible longlived assets legal obligation exists aro reasonably estimated aros recognized fair value incurred sufficient information becomes available determine fair value generally capitalized part cost related longlived assets absence quoted market prices dominion energy estimates fair value aros using present value techniques makes various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates impact measurements new aros remeasurements existing aros using different cost escalation creditadjusted risk free rates future may significant dominion energy revises assumptions used calculate fair value existing aros adjusts carrying amount aro liability related longlived asset assets service assets ceased operations dominion energy adjusts carrying amount aro liability changes recognized income dominion energy accretes aro liability reflect passage time 2017 2016 2015 dominion energy recognized 117 million 104 million 93 million respectively accretion expects recognize 117 million 2018 dominion energy records accretion depreciation associated utility nuclear decommissioning aros regulated pipeline replacement aros adjustment regulatory liabilities related items significant portion dominion energy’s aros relates future decommissioning merchant utility nuclear facilities nuclear decommissioning aros reported power generation segment december 31 2017 dominion energy’s nuclear decommissioning aros totaled 15 billion representing approximately 62 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated dominion energy’s nuclear decommissioning obligations dominion energy obtains thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition dominion energy’s cost estimates include cost escalation rates applied base year costs dominion energy determines cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility selection cost escalation rates dependent subjective factors considered critical assumptions income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws including provisions 2017 tax reform act involves uncertainty since tax authorities may interpret laws differently addition states operate may conform provisions 2017 tax reform act ultimate resolution clarification income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2017 dominion energy 38 million unrecognized tax benefits changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion energy evaluates quarterly probability realizing deferred tax assets considering current historical financial results expectations future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets dominion energy establishes valuation allowance morelikelythannot portion deferred tax asset realized december 31 2017 dominion energy established 146 million valuation allowances 2017 tax reform act includes broad range tax reform provisions affecting companies including changes corporate tax rates business deductions many provisions differ significantly prior us tax law resulting pervasive financial reporting implications companies 2017 tax reform act includes significant changes internal revenue code 1986 including amendments significantly change taxation individuals business entities includes specific provisions related regulated public utilities including dominion energy subsidiaries questar gas wexpro hope virginia power dominion energy gas’ subsidiaries deti east ohio significant changes impact companies included 2017 tax reform act reducing corporate federal income tax rate 35 21 ii limiting deductibility interest expense 30 adjusted taxable income certain businesses iii permitting 100 expensing 100 bonus depreciation certain qualified property iv eliminating deduction qualified domestic production activities v limiting utilization net operating losses arising december 31 2017 80 taxable income indefinite carryforward specific provisions related regulated public utilities 2017 tax reform act generally allow continued deductibility interest expense exclusion full expensing tax purposes certain property acquired placed service september 27 2017 continues certain rate normalization requirements accelerated depreciation benefits date enactment companies’ deferred taxes remeasured based upon new tax rate expected apply temporary differences realized settled regulated operations many changes deferred taxes represent amounts probable collection refund customers recorded either increase regulatory asset liability 2017 tax reform act includes provisions stipulate excess deferred taxes may passed back customers certain accelerated tax depreciation benefits potential refunds deferred taxes may determined state federal regulators nonregulated operations changes deferred taxes recorded adjustment deferred tax expense accounting derivative contracts financial instruments fair value dominion energy uses derivative contracts physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair management’s discussion analysis financial condition results operations continued value majority investments held dominion energy’s nuclear decommissioning rabbi trusts pension postretirement funds also subject fair value accounting see notes 6 21 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services dominion energy considers whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available dominion energy believes observable pricing information indicative fair value judgment required develop estimates fair value cases dominion energy must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions dominion energy maximizes use observable inputs minimizes use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2017 dominion energy reported 64 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 dominion energy questar combination 2016 april year dominion energy tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2017 2016 2015 annual tests interim tests result recognition goodwill impairment general dominion energy estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies fair value estimates dependent subjective factors dominion energy’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion energy’s estimates future cash flows could result future impairment goodwill although dominion energy consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 11 consolidated financial statements additional information use estimates longlived asset equity method investment impairment testing impairment testing individual group longlived assets including intangible assets definite lives equity method investments required circumstances indicate assets may impaired longlived asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount equity method investment’s carrying amount exceeds fair value decline value deemed otherthantemporary impairment recognized extent fair value less carrying amount performing impairment test longlived assets equity method investments involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets case longlived assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing expectations operations longlived assets equity method investments selection appropriate discount rate determining whether longlived asset group impaired management groups assets lowest level identifiable cash flows although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset underlying assets equity method investees including future production sales levels expected fluctuations prices commodities sold consumed expected proceeds dispositions see note 9 consolidated financial statements discussion impairments related certain equity method investments employee benefit plans dominion energy sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit obligations mortality rates anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion energy’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates critical assumptions dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets strategic target asset allocation dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments private equity investments strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions dominion energy calculated pension cost using expected longterm rate return plan assets assumption 875 2017 2016 2015 2018 expected longterm rate return pension cost assumption 875 dominion energy calculated postretirement benefit cost using expected longterm rate return plan assets assumption 850 2017 2016 2015 2018 expected longterm rate return postretirement benefit cost assumption 850 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost ranged 331 450 pension plans 392 447 postretirement benefit plans 2017 ranged 287 499 pension plans 356 494 postretirement benefit plans 2016 440 2015 dominion energy selected discount rate ranging 380 381 pension plans 376 postretirement benefit plans determining december 31 2017 projected benefit obligations dominion energy establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion energy’s healthcare cost trend rate assumption december 31 2017 700 expected gradually decrease 500 2022 continue rate years thereafter mortality rates developed actual projected plan experience postretirement benefit plans dominion energy’s actuary conducts experience study periodically part process select best estimate mortality dominion energy considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate 2016 dominion energy conducted new experience study scheduled result updated mortality assumptions following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2017 025 decrease discount rate would increase dominion energy’s projected pension benefit obligation 338 million accumulated postretirement benefit obligation 44 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 158 million see note 21 consolidated financial statements additional information dominion energy’s employee benefit plans new accounting standards see note 2 consolidated financial statements discussion new accounting standards management’s discussion analysis financial condition results operations continued dominion energy results operations presented summary dominion energy’s consolidated results overview vs 2016 net income attributable dominion energy increased 41 primarily due benefits resulting remeasurement deferred income taxes new corporate income tax rate dominion energy questar combination absence charges related future ash pond landfill closures increases partially offset lower renewable energy investment tax credits charges associated equity method investments windpowered generation facilities 2016 vs 2015 net income attributable dominion energy increased 12 primarily due higher renewable energy investment tax credits new pjm capacity performance market effective june 2016 increases partially offset decrease gains agreements convey shale development rights underneath several natural gas storage fields charges related future ash pond landfill closure costs certain utility generation facilities analysis consolidated operations presented selected amounts related dominion energy’s results operations analysis dominion energy’s results operations follows 2017 vs 2016 net revenue increased 8 primarily reflecting • 663 million increase operations acquired dominion energy questar combination included 2017 • 97 million electric capacity benefit related nonutility generators 133 million benefit due annual pjm capacity performance market effective june 2016 123 million partially offset annual pjm capacity performance market effective june 2017 159 million • 86 million increase due additional generation output merchant solar generating projects • 71 million increase sales electric utility retail customers due effect changes customer usage factors including 25 million related customer growth • 63 million increase regulated natural gas transmission growth projects placed service • 46 million increase rate adjustment clauses associated electric utility operations • 34 million increase services performed atlantic coast pipeline increases partially offset • 144 million decrease cove point import contracts • 114 million decrease due unfavorable pricing merchant generation facilities • decrease sales electric utility retail customers decrease cooling degree days cooling season 2017 53 million reduction heating degree days heating season 2017 28 million operations maintenance decreased 6 primarily reflecting • 197 million absence charges related future ash pond landfill closure costs certain utility generation facilities • 115 million decrease certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • 78 million benefit sale certain assets associated nonregulated retail energy marketing operations • absence organizational design initiative costs 64 million • 46 million decrease storm damage service restoration costs associated electric utility operations partially offset • 162 million increase operations acquired dominion energy questar combination included 2017 • 92 million increase salaries wages benefits • 36 million increase outage costs • 33 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income depreciation depletion amortization increased 22 primarily due operations acquired dominion energy questar combination included 2017 162 million various growth projects placed service 151 million taxes increased 12 primarily due operations acquired dominion energy questar combination included 2017 35 million increased property taxes related growth projects placed service 27 million income decreased 34 primarily due charges associated equity method investments windpowered generation facilities 158 million partially offset increase earnings excluding charges equity method investments 29 million increase afudc associated rateregulated projects 23 million interest related charges increased 19 primarily due higher longterm debt interest expense resulting debt issuances 2016 2017 171 million debt acquired dominion energy questar combination 37 million income tax expense decreased 685 million primarily due benefits resulting remeasurement deferred income taxes new corporate income tax rate 851 million partially offset lower renewable energy investment tax credits 133 million 2016 vs 2015 net revenue increased 10 primarily reflecting • 544 million increase electric utility operations primarily reflecting • 225 million electric capacity benefit primarily due new pjm capacity performance market effective june 2016 155 million expiration nonutility generator contracts 2015 58 million • increase rate adjustment clauses 183 million • absence 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 • 305 million increase due dominion energy questar combination increases partially offset • 47 million decrease merchant generation operations primarily due lower realized prices certain merchant generation facilities 64 million increase planned unplanned outage days 2016 26 million partially offset additional solar generating facilities placed service 37 million • 19 million decrease regulated natural gas transmission operations primarily due • 14 million decrease gas transportation storage activities primarily due decreased demand charges 28 million increased fuel costs 13 million contract rate changes 11 million decreased revenue gathering extraction services 8 million partially offset expansion projects placed service 18 million increased regulated gas sales 20 million • 17 million decrease ngl activities due decreased prices 15 million volumes 2 million partially offset • 12 million increase revenues primarily due increase services performed atlantic coast pipeline 21 million partially offset decreased amor tization deferred revenue associated conveyed shale development rights 4 million • 12 million decrease regulated natural gas distribution operations primarily due decrease rate adjustment clause revenue related low income assistance programs 26 million decrease sales customers due reduction heating degree days 6 million partially offset increase amr pir program revenues 18 million operations maintenance increased 18 primarily reflecting • 148 million increase due dominion energy questar combination including 58 million transaction transition costs • 98 million increase charges related future ash pond landfill closure costs certain utility generation facilities • 78 million decrease gains agreements convey shale development rights underneath several natural gas storage fields • organizational design initiative costs 64 million • 50 million increase storm damage service restoration costs including 23 million hurricane matthew • 20 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 16 million increase due labor contract renegotiations well costs resulting union workforce temporary work stoppage partially offset • 26 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs bad debt expenses recovered rates impact net income depreciation depletion amortization increased 12 primarily due various expansion projects placed service income increased 28 primarily due increase earnings equity method investments 55 million increase afudc associated rateregulated projects 12 million partially offset lower realized gains net investment income nuclear decommissioning trust funds 19 million interest related charges increased 12 primarily due higher longterm debt interest expense resulting debt issuances 2016 134 million partially offset increase capitalized interest associated cove point liquefaction project 45 million income tax expense decreased 28 primarily due higher renewable energy investment tax credits 189 million impact state legislative change 14 million partially offset higher pretax income 15 million outlook dominion energy’s strategy continue focusing regulated longterm contracted businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide eps growth growing dividend maintain stable credit profile dominion energy expects approximately 90 earnings primary operating segments come regulated longterm contracted businesses management’s discussion analysis financial condition results operations continued dominion energy’s 2018 net income expected decrease per share basis compared 2017 primarily following • absence benefit remeasurement deferred income taxes 2017 tax reform act • reduction solar investment tax credits • increases interest related charges • increase depreciation depletion amortization • share dilution decreases expected partially offset following • revenues liquefaction project • return normal weather electric utility operations • growth weathernormalized electric utility sales approximately 15 • construction operation growth projects electric utility operations associated rate adjustment clause revenue • construction operation growth projects gas transmission distribution • absence additional refueling outages millstone • lower effective tax rate driven tax reform addition merger scana completed 2018 would result decrease net income result charges incurred refunds sceg electric customers writeoffs regulatory assets transaction costs segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion energy’s operating segments net income attributable dominion energy power delivery presented operating statistics related power delivery’s operations 1 period average presented aftertax basis key factors impacting power delivery’s net income contribution 2017 vs 2016 vs 2015 power generation presented operating statistics related power generation’s operations presented aftertax basis key factors impacting power generation’s net income contribution 2017 vs 2016 vs 2015 1 represents noncontrolling interest related merchant solar partnerships gas infrastructure presented selected operating statistics related gas infrastructure’s operations 1 includes dominion energy questar effective september 2016 2 period average 3 includes dominion energy questar customer accounts entire year presented aftertax basis key factors impacting gas infrastructure’s net income contribution 2017 vs 2016 1 represents portion earnings attributable dominion energy midstream’s public unitholders 2016 vs 2015 corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion energy’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources see note 25 consolidated financial statements discussion items detail corporate also includes specific items attributable corporate segment 2017 primarily included 124 million tax benefits resulting remeasurement deferred income taxes new corporate income tax rate 2016 primarily included 53 million aftertax transaction transition costs associated dominion energy questar combination management’s discussion analysis financial condition results operations continued virginia power results operations presented summary virginia power’s consolidated results overview 2017 vs 2016 net income increased 26 primarily due absence charges related future ash pond landfill closures costs benefit remeasurement deferred income taxes new corporate income tax rate electric capacity benefit 2016 vs 2015 net income increased 12 primarily due new pjm capacity performance market effective june 2016 increase rate adjustment clause revenue absence writeoff deferred fuel costs associated virginia legislation enacted february 2015 increases partially offset charges related future ash pond landfill closure costs certain utility generation facilities analysis consolidated operations presented selected amounts related virginia power’s results operations analysis virginia power’s results operations follows 2017 vs 2016 net revenue increased 2 primarily reflecting • 97 million electric capacity benefit related nonutility generators 133 million benefit due annual pjm capacity performance market effective june 2016 123 million partially offset annual pjm capacity performance market effective june 2017 159 million • 71 million increase sales retail customers due effect changes customer usage factors including 25 million related customer growth • 46 million increase rate adjustment clauses partially offset • decrease sales retail customers decrease cooling degree days cooling season 2017 53 million reduction heating degree days heating season 2017 28 million operations maintenance decreased 20 primarily reflecting • 197 million decrease due absence charges related future ash pond landfill closure costs certain utility generation facilities • 115 million decrease certain electric transmissionrelated expenditures expenses primarily recovered state ferc rates impact net income • 46 million decrease storm damage service restoration costs • absence organizational design initiative costs 32 million partially offset • 37 million increase salaries wages benefits general administrative expenses depreciation amortization increased 11 primarily due various growth projects placed service 58 million revised depreciation rates 40 million income increased 36 primarily reflecting • 11 million increase interest income associated settlement state income tax refund claims • 11 million increase assignment virginia power’s electric transmission tower rental portfolio • 8 million increase afudc associated rateregulated projects partially offset • 16 million charge associated customer settlement income tax expense increased 6 primarily due higher pretax income 139 million partially offset benefits resulting remeasurement deferred income taxes new corporate income tax rate 93 million 2016 vs 2015 net revenue increased 11 primarily reflecting • 225 million electric capacity benefit primarily due new pjm capacity performance market effective june 2016 155 million expiration nonutility generator contracts 2015 58 million • increase rate adjustment clauses 183 million • absence 85 million writeoff deferred fuel costs associated virginia legislation enacted february 2015 operations maintenance increased 14 primarily reflecting • 98 million increase charges related future ash pond landfill closure costs certain utility generation facilities • 50 million increase storm damage service restoration costs including 23 million hurricane matthew • 37 million increase salaries wages benefits general administrative expenses • organizational design initiative costs 32 million income tax expense increased 10 primarily reflecting higher pretax income dominion energy gas results operations presented summary dominion energy gas’ consolidated results overview vs 2016 net income increased 57 primarily due benefit remeasurement deferred income taxes new corporate income tax rate gas transportation storage activities growth projects placed service 2016 vs 2015 net income decreased 14 primarily due decrease gains agreements convey shale development rights underneath several natural gas storage fields analysis consolidated operations presented selected amounts related dominion energy gas’ results operations analysis dominion energy gas’ results operations follows 2017 vs 2016 net revenue increased 9 primarily reflecting • 55 million increase due regulated natural gas transmission growth projects placed service • 34 million increase services performed atlantic coast pipeline • 24 million increase pir program revenues • 16 million increase rate recovery low income assistance programs associated regulated natural gas distribution operations maintenance increased 11 primarily reflecting • 33 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income • 16 million increase bad debt expense regulated natural gas distribution operations primarily related low income assistance programs bad debt expenses recovered rates impact net income • 15 million increase due charge writeoff balance regulatory asset longer considered probable recovery • 13 million increase salaries wages benefits general administrative expenses partially offset • 25 million increase gains agreements convey shale development rights underneath several natural gas storage fields depreciation amortization increased 11 primarily due growth projects placed service income increased 82 primarily due 12 million increase afudc associated rateregulated projects partially offset absence 2016 sale portion dominion energy gas’ interest iroquois 5 million income tax expense decreased 76 primarily due benefits resulting remeasurement deferred income taxes new corporate income tax rate 197 million partially offset higher pretax income 22 million vs 2015 net revenue decreased 3 primarily reflecting • 34 million decrease regulated natural gas transmission operations primarily reflecting • 36 million decrease gas transportation storage activities primarily due decreased demand charges 28 million increased fuel costs 13 million contract rate changes 11 million decreased revenue gathering extraction services 8 million partially offset increased regulated gas sales 16 million expansion projects placed service 9 million • 18 million decrease ngl activities due decreased prices 16 million volumes 2 million partially offset • 21 million increase services performed atlantic coast pipeline • 12 million decrease regulated natural gas distribution operations primarily reflecting • decrease rate adjustment clause revenue related low income assistance programs 26 million • 9 million decrease revenue primarily due decrease pooling metering activities 3 million decrease blue racer management fees 3 million decrease gathering activities 2 million partially offset • 18 million increase amr pir program revenues • 8 million increase offsystem sales management’s discussion analysis financial condition results operations continued operations maintenance increased 22 primarily reflecting • 78 million decrease gains agreements convey shale development rights underneath several natural gas storage fields • 20 million increase services performed atlantic coast pipeline expenses billed atlantic coast pipeline significantly impact net income partially offset • 26 million decrease bad debt expense regulated natural gas distribution operations primarily related low income assistance programs bad debt expenses recovered rates impact net income increased 10 million primarily due gain sale 065 noncontrolling partnership interest iroquois 5 million increase afudc associated rateregulated projects 5 million interest related charges increased 29 primarily due higher interest expense resulting issuances senior notes november 2015 second quarter 2016 28 million partially offset increase deferred rate adjustment clause interest expense 7 million income tax expense decreased 24 primarily reflecting lower pretax income liquidity capital resources dominion energy depends internal external sources liquidity provide working capital bridge longterm debt financings shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2017 dominion energy 21 billion unused capacity credit facilities see additional discussion credit facilities shortterm debt summary dominion energy’s cash flows presented operating cash flows net cash provided dominion energy’s operating activities increased 422 million primarily due operations acquired dominion energy questar combination included 2017 derivative activities lower income tax payments partially offset lower deferred fuel cost recoveries virginia jurisdiction higher interest expense lower revenue cove point’s import contracts higher pension postretirement benefit payments funding dominion energy believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares december 2017 dominion energy’s board directors established annual dividend rate 2018 334 per share common stock 100 increase 2017 rate dividends subject declaration board directors january 2018 dominion energy’s board directors declared dividends payable march 2018 835 cents per share common stock beginning 2018 2017 tax reform act expected reduce customer rates due lower income tax expense recoveries settlement income taxes refundable future rates companies’ regulated utilities continue work respective regulatory commissions determine amount timing 2017 tax reform act benefits customers ferc yet issued guidance 2017 tax reform act ultimate resolution amount timing rate reductions companies’ regulators could material companies’ operating cash flows dominion energy’s operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion energy’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion energy’s credit exposure december 31 2017 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 14 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 7 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 5 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 38 total net credit exposure investing cash flows net cash used dominion energy’s investing activities decreased 47 billion primarily due absence acquisition dominion energy questar decreases plant construction property additions partially offset increase acquisitions solar development projects increased contributions atlantic coast pipeline financing cash flows liquidity dominion energy relies capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings dominion energy’s ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances dominion energy currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows dominion energy use automatic shelf registration statements register offering securities exchange offers business combination transactions time dominion energy may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions tender offers otherwise net cash provided dominion energy’s financing activities decreased 49 billion primarily due absence issuances debt common stock dominion energy midstream common convertible preferred units utilized finance dominion energy questar combination 2016 credit facilities shortterm debt dominion energy uses shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties connection commodity hedging activities dominion energy required provide collateral counterparties circumstances certain collateral arrangements dominion energy may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time dominion energy may vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates dominion energy issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion energy’s commercial paper letters credit outstanding well capacity available credit facilities follows 1 credit facilities mature april 2020 used support bank borrowings issuance commercial paper well support combined 20 billion letters credit 2 weightedaverage interest rate outstanding commercial paper supported dominion energy’s credit facilities 161 december 31 2017 dominion energy indicated intention replace existing two joint revolving credit facilities 60 billion joint revolving credit facility first quarter 2018 terms covenants new credit facility expected similar existing credit facilities including virginia power dominion energy gas questar gas remain coborrowers except maturity five years maximum allowed total debt total capital ratio respect dominion energy increased 65 675 february 2018 virginia power coborrower filed virginia commission approval february 2018 dominion energy borrowed 950 million 364day term loan agreement bears interest variable rate addition agreement contains maximum allowed total debt total capital ratio 675 proceeds used general corporate purposes repay debt july 2017 dominion energy questar repaid 250 million variable rate term loan due august 2017 amount principal outstanding plus accrued interest november 2017 dominion energy filed sec shelf registration sale 30 billion variable denomination floating rate demand notes called dominion energy reliability investmentsm registration limits principal amount may outstanding one time 10 billion notes offered continuous basis bear interest floating rate per annum determined dominion energy reliability investment committee designee weekly basis notes stated maturity date nontransferable may redeemed whole part dominion energy investor’s option time balance december 31 2017 less 01 million notes shortterm debt obligations dominion energy reflected shortterm debt dominion energy’s consolidated balance sheets proceeds used general corporate purposes repay debt management’s discussion analysis financial condition results operations continued longterm debt 2017 dominion energy issued following longterm public debt 2017 dominion energy also issued following longterm private debt • march 2017 dominion energy issued private placement 300 million 3496 senior notes mature 2024 proceeds used general corporate purposes repay shortterm debt including commercial paper • june 2017 dominion energy issued private placement 500 million variable rate senior notes mature 2019 proceeds used general corporate purposes repay shortterm debt including commercial paper • november 2017 questar gas issued private placement 100 million 338 senior notes mature 2032 proceeds used general corporate purposes repay shortterm debt • december 2017 dominion energy issued private placement 300 million variable rate senior notes mature 2020 proceeds used general corporate purposes repay shortterm debt including commercial paper 2017 dominion energy also remarketed following longterm debt • may 2017 dominion energy successfully remarketed 10 billion 2014 series 150 rsns due 2020 pursuant terms 2014 equity units connection remarketing interest rate junior subordinated notes reset 2579 dominion energy receive proceeds remarketing see note 17 consolidated financial statements information 2017 dominion energy also borrowed following term loan agreement • may 2017 dominion solar projects iii inc borrowed 280 million term loan agreement bears interest variable rate term loan amortizes 18year period matures may 2024 debt nonrecourse dominion energy secured dominion solar projects iii inc’s interest certain solar facilities proceeds used general corporate purposes 2017 dominion energy repaid following longterm debt • august 2017 dominion energy retired 75 million variable rate massachusetts development finance agency solid waste disposal revenue bonds series 2010b due 2041 amount principal outstanding plus accrued interest 2017 dominion energy repaid repurchased 16 billion longterm debt october 2017 questar gas entered agreement certain investors issue private placements april 2018 50 million 330 12year senior notes 100 million 397 30year senior notes proceeds used general corporate purposes repay shortterm debt january 2018 dominion energy questar pipeline issued private placement 100 million 353 senior notes 150 million 391 senior notes mature 2028 2038 respectively proceeds used general corporate purposes pay maturing longterm debt issuance common stock equity securities dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion energy began purchasing common stock open market plans april 2014 dominion energy began issuing new common shares direct stock purchase plans 2017 dominion energy issued 43 million shares common stock totaling 335 million employee savings plans direct stock purchase dividend reinvestment plans employee director benefit plans dominion energy received cash proceeds 302 million issuance 38 million shares dominion energy direct® employee savings plans july 2017 dominion energy issued 125 million shares related stock purchase contracts entered part dominion energy’s 2014 equity units received proceeds 10 billion january 2018 dominion energy issued 66 million shares received cash proceeds 495 million net fees commissions paid 5 million atthemarket program see note 19 consolidated financial statements description atthemarket program 2018 dominion energy plans issue shares employee savings plans direct stock purchase dividend reinvestment plans addition merger scana realized dominion energy would issue 06690 shares dominion energy common stock share scana common stock outstanding closing repurchase common stock dominion energy repurchase shares 2017 plan repurchase shares 2018 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion energy believes current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion energy may affect ability access funding sources cause increase return required investors dominion energy’s credit ratings affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion energy affected financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions january 2018 moody’s affirmed dominion energy’s senior unsecured debt commercial paper ratings baa2 p2 respectively standard poor’s affirmed dominion energy’s senior unsecured debt commercial paper ratings bbb a2 respectively moody’s standard poor’s changed dominion energy’s rating outlook negative stable dominion energy cannot predict potential impact negative outlook moody’s standard poor’s could cost borrowing january 2018 fitch affirmed dominion energy’s senior unsecured debt commercial paper ratings bbb respectively maintained stable outlook ratings credit ratings february 23 2018 follow 1 securities interest deferral feature 2 securities interest deferral feature february 23 2018 fitch maintained stable outlook respective ratings dominion energy moody’s standard poor’s maintained negative outlook respective ratings dominion energy downgrade individual company’s credit rating necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade could result increase cost borrowing dominion energy works closely fitch moody’s standard poor’s objective achieving targeted credit ratings dominion energy may find necessary modify business plan maintain achieve appropriate credit ratings changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion energy must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion energy typical covenants include • timely payment principal interest • information requirements including submitting financial reports filed sec information changes dominion energy’s credit ratings lenders • performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets • compliance collateral minimums requirements related mortgage bonds • limitations liens dominion energy required pay annual commitment fees maintain credit facilities addition dominion energy’s credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2017 calculated total debt total capital ratio pursuant terms agreements follows 1 950 million 364day term loan credit agreement borrowed february 2018 maximum allowed total debt total capital ratio 675 addition 60 billion replacement joint revolving credit facility expected executed first quarter 2018 expected increase maximum allowed total debt total capital ratio 65 675 2 indebtedness defined bank agreements excludes certain junior subordinated remarketable subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets dominion energy material subsidiaries fails make payment various debt obligations excess 100 million lenders could require defaulting company borrower dominion energy’s credit facilities accelerate repayment outstanding borrowings lenders could terminate commitments lend funds company credit facilities addition defaulting company virginia power dominion energy’s obligations repay outstanding borrowing credit facilities could also accelerated lenders’ commitments dominion energy could terminate management’s discussion analysis financial condition results operations continued dominion energy executed rccs connection issuance june 2006 hybrids september 2006 hybrids see note 17 consolidated financial statements additional information including terms rccs december 31 2017 termination dates covered debt rccs associated dominion energy’s hybrids follows dominion energy monitors debt covenants regular basis order ensure events default occur december 31 2017 events default dominion energy’s debt covenants dividend restrictions certain agreements associated dominion energy’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion energy’s ability pay dividends receive dividends subsidiaries december 31 2017 see note 17 consolidated financial statements description potential restrictions dividend payments dominion energy connection deferral interest payments contract adjustment payments certain junior subordinated notes equity units initially form corporate units information incorporated herein reference future cash payments contractual obligations planned capital expenditures contractual obligations dominion energy party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion energy party december 31 2017 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion energy’s current liabilities paid cash 2018 1 based stated maturity dates rather earlier redemption dates could elected instrument holders february 2018 250 million dominion energy questar pipeline’s senior notes repaid using proceeds january 2018 issuance private placements 100 million 150 million senior notes mature 2028 2038 respectively result december 31 2017 250 million senior notes 2018 maturity included longterm debt consolidated balance sheets 2 includes interest payments terms debt payments related stock purchase contracts interest calculated using applicable interest rate forward interest rate curve december 31 2017 outstanding principal instrument terms ending instrument’s stated maturity see note 17 consolidated financial statements reflect dominion energy’s ability defer interest stock purchase contract payments certain junior subordinated notes rsns equity units initially form corporate units 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 includes capital operations maintenance commitments 6 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 12 14 21 consolidated financial statements due uncertainty timing amounts ultimately paid 27 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 5 consolidated financial statements 7 includes interest rate foreign currency swap agreements planned capital expenditures dominion energy’s planned capital expenditures expected total approximately 55 billion 52 billion 48 billion 2018 2019 2020 respectively dominion energy’s planned expenditures expected include construction expansion electric generation natural gas transmission storage facilities construction improvements expansion electric transmission distribution assets purchases nuclear fuel maintenance dominion energy’s portion atlantic coast pipeline dominion energy expects fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors see power delivery power generation gas infrastructure properties item 1 business discussion dominion energy’s expansion plans estimates based capital expenditures plan reviewed endorsed dominion energy’s board directors late 2017 subject continuing review adjustment actual capital expenditures may vary estimates dominion energy may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements leasing arrangement july 2016 dominion energy signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 365 million fund estimated project costs project expected completed mid2019 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 139 million december 31 2017 project terminated certain events default dominion energy could required pay 899 funded amount specific full recourse events dominion energy could required pay 100 funded amount fiveyear lease term commence construction substantially complete facility able occupied end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 87 project costs difference project costs sale proceeds respective transactions structured dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements financial accounting treatment lease agreement impacted new accounting standard issued february 2016 see note 2 consolidated financial statements additional information dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense guarantees dominion energy primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others addition dominion energy provided guarantee support portion atlantic coast pipeline’s obligation 34 billion revolving credit facility see note 22 consolidated financial statements additional information incorporated herein reference future issues matters see item 1 business notes 13 22 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations financial condition andor cash flows environmental matters dominion energy subject costs resulting number federal state tribal local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion energy incurred 200 million 394 million 298 million expenses including accretion depreciation 2017 2016 2015 respectively connection environmental protection monitoring activities expects expenses approximately 190 million 185 million 2018 2019 respectively addition capital expenditures related environmental controls 201 million 191 million 94 million 2017 2016 2015 respectively expenditures expected approximately 205 million 135 million 2018 2019 respectively future environmental regulations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum delegated states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements august 2015 epa issued final carbon standards existing fossil fuel power plants known clean power plan rule uses set measures reducing emissions existing sources includes efficiency improvements coal plants displacing coalfired generation increased utilization natural gas combined cycle units expanding renewable resources final rule challenged us court appeals dc circuit february 2016 us supreme court issued stay clean power plan disposition petitions challenging rule court appeals petitions filed future us supreme court pursuant executive order directing epa undertake review clean power plan epa issued proposed rule october 2017 repeal clean power plan basis rule promulgated 2015 exceeds management’s discussion analysis financial condition results operations continued epa’s authority caa december 2017 epa issued advanced notice proposed rulemaking solicit input whether proceed rule replace clean power plan scope rule given developments associated federal state regulatory legal uncertainties dominion energy cannot predict potential financial statement impacts believes potential expenditures comply could material climate change december 2015 paris agreement formally adopted united nations framework convention climate change key element initial us commitment agreement implementation clean power plan epa proposed repeal june 2017 administration announced us intends file withdraw paris agreement 2019 several states including virginia subsequently announced commitment achieving carbon reduction goals paris agreement possible time predict timing impact withdrawal legal requirements us federal state local levels pursuant paris agreement could impact companies’ customers business march 2016 epa began development regulations reducing methane emissions existing sources oil natural gas sectors november 2016 epa issued information collection request collect information existing sources upstream local distribution companies sector march 2017 epa withdrew information collection request remains unclear whether epa may propose new regulations existing sources dominion energy cannot currently estimate potential impacts results operations financial condition andor cash flows related matter state actions related air ghg emissions august 2017 ozone transport commission released draft model rule control nox emissions natural gas pipeline compressor fuelfire prime movers states within ozone transport region including states dominion energy natural gas operations expected develop reasonably achievable control technology rules existing sources based ozone transport commission model rule states outside ozone transport commission may also consider model rules setting new reasonably achievable control technology standards several states dominion energy operates including pennsylvania new york maryland developing statespecific regulations control ghg emissions including methane january 2018 vdeq published comment proposed state carbon regulation program linked rggi dominion energy cannot currently estimate potential financial statements impacts results operations financial condition andor cash flows related matters phmsa regulation recent reauthorization phmsa included new provisions historical records research maximumallowed operating pressure validation use automated remotecontrolled valves new replaced lines increased civil penalties evaluation expanding integrity management beyond highconsequence areas phmsa yet issued new rulemaking items doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets cea amended title vii doddfrank act requires certain overthe counter derivatives swaps cleared derivatives clearing organization swap subject clearing requirement executed designated contract market swap execution facility nonfinancial entities use swaps hedge mitigate commercial risk often referred end users may elect enduser exception cea’s clearing requirements dominion energy elected exempt swaps cea’s clearing requirements result changes rulemaking process dominion energy’s derivative activities exempted clearing exchange trading margin requirements could subject higher costs due decreased market liquidity increased margin payments addition dominion energy’s swap dealer counterparties may attempt passthrough additional trading costs connection changes elimination rulemaking implements title vii doddfrank act due evolving rulemaking process dominion energy currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows virginia legislation proposed grid transformation security act 2018 january 2018 legislation introduced virginia general assembly reinstate base rate reviews triennial basis first review quadrennial review occurring virginia power 2021 four successive 12month test periods beginning january 1 2017 ending december 31 2020 review virginia power occur one year earlier regulation act legislation enacted february 2015 triennial review proceedings earnings 70 basis points utility’s authorized return equity might refunded customers may reduced prior investment amounts new solar wind generation facilities 5000 mw new solar wind generation facilities electric distribution grid transformation projects virginia power elects include customer credit reinvestment offset legislation declares electric distribution grid transformation projects public interest provides costs projects may recovered rate adjustment clause subject customer credit reinvestment offset costs subject customer credit reinvestment offset may recovered base rates service life projects may included base rates future triennial review proceedings legislation also includes provisions requiring virginia power provide current customers onetime bill credit 200 million reduce base rates reflect reductions federal tax liability resulting enactment 2017 tax reform act legislation pending matters management currently plans may affect carrying value millstone based potential future economic factors including limited market power prices results capacity auctions legislative regulatory solutions ensure nuclear plants fairly compensated carbonfree generation impact potential epa carbon rules risk millstone may evaluated early retirement date management make decision potential early retirement date precise date resulting financial statement impacts could material dominion energy may affected number factors including potential regulatory legislative solutions results transmission system reliability study assessments decommissioning requirements among factors item 7a item 7 management’s discussion analysis financial condition results operations mda discusses dominion’s virginia power’s results operations general financial condition mda read conjunction item 1 business consolidated financial statements item 8 financial statements supplementary data contents mda consists following information  forwardlooking statements  accounting matters  dominion  results operations  segment results operations  virginia power  results operations  segment results operations  liquidity capital resources  future issues matters forwardlooking statements report contains statements concerning dominion’s virginia power’s expectations plans objectives future financial performance statements historical facts statements “forwardlooking statements” within meaning private securities litigation reform act 1995 cases reader identify forwardlooking statements words “anticipate” “estimate” “forecast” “expect” “believe” “should” “could” “plan” “may” “continue” “target” similar words dominion virginia power make forwardlooking statements full knowledge risks uncertainties exist may cause actual results differ materially predicted results factors may cause actual results differ often presented forwardlooking statements additionally factors may cause actual results differ materially indicated forwardlooking statement factors include limited  unusual weather conditions effect energy sales customers energy commodity prices  extreme weather events including hurricanes high winds severe storms cause outages property damage facilities  federal state local legislative regulatory developments  changes federal state local environmental laws regulations including related climate change tightening emission discharge limits ghgs emissions extensive permitting requirements regulation additional substances  cost environmental compliance including costs related climate change  risks associated operation nuclear facilities  unplanned outages companies’ facilities  fluctuations energyrelated commodity prices effect could dominion’s earnings dominion’s virginia power’s liquidity position underlying value assets  counterparty credit performance risk  capital market conditions including availability credit ability obtain financing reasonable terms  risks associated virginia power’s membership participation pjm related obligations created default participants  price risk due investments held nuclear decommissioning trusts dominion virginia power benefit plan trusts dominion  fluctuations interest rates  changes federal state tax laws regulations  changes rating agency requirements credit ratings effect availability cost capital  changes financial regulatory accounting principles policies imposed governing bodies  employee workforce factors including collective bargaining agreements labor negotiations union employees  risks operating businesses regulated industries subject changing regulatory structures  receipt approvals timing closing dates acquisitions divestitures  changes rules rtos isos dominion virginia power participate including changes rate designs new evolving capacity models  political economic conditions including threat domestic terrorism inflation deflation  industrial commercial residential growth decline companies’ service areas changes customer growth usage patterns including result energy conservation programs  additional competition electric markets dominion’s merchant generation facilities operate  changes technology particularly respect new developing alternative sources generation smart grid technologies  changes regulated electric rates collected virginia power regulated gas distribution transportation storage rates including lng storage collected dominion  timing receipt regulatory approvals necessary planned construction expansion projects  inability complete planned construction projects within terms time frames initially anticipated  adverse outcomes litigation matters additionally risks could cause actual results differ predicted results set forth item 1a risk factors accounting matters critical accounting policies estimates dominion virginia power identified following accounting policies including certain inherent estimates result judgments uncertainties uniqueness complexities underlying accounting standards operations involved could result material changes financial condition results operations different conditions using different assumptions dominion virginia power discussed development selection disclosure policies audit committee board directors virginia power’s board directors also serves audit committee management’s discussion analysis financial condition results operations continued accounting regulated operations accounting virginia power’s regulated electric dominion’s regulated gas operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs deferred regulatory assets otherwise would expensed nonregulated companies likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made companies currently believe recovery regulatory assets probable see notes 13 14 consolidated financial statements asset retirement obligations dominion virginia power recognize liabilities expected cost retiring tangible longlived assets legal obligation exists aros recognized fair value incurred capitalized part cost related longlived assets absence quoted market prices companies estimate fair value aros using present value techniques make various assumptions including estimates amounts timing future cash flows associated retirement activities creditadjusted risk free rates cost escalation rates aros currently reported consolidated balance sheets measured period historically low interest rates impact measurements new aros remeasurements existing aros using different cost escalation rates future may significant companies revise assumptions used calculate fair value existing aros adjust carrying amount aro liability related longlived asset companies accrete aro liability reflect passage time 2010 2009 2008 dominion recognized 85 million 89 million 94 million respectively accretion expects recognize 81 million 2011 2010 2009 2008 virginia power recognized 35 million 35 million 38 million respectively accretion expects recognize 37 million 2011 virginia power records accretion depreciation associated utility nuclear decommissioning aros adjustment regulatory liability nuclear decommissioning significant portion companies’ aros relates future decommissioning dominion’s merchant virginia power’s utility nuclear facilities nuclear decommissioning aros reported dominion generation segment december 31 2010 dominion’s nuclear decommissioning aros totaled 14 billion representing approximately 87 total aros december 31 2010 virginia power’s nuclear decommissioning aros totaled 620 million representing approximately 92 total aros based significance following discussion critical assumptions inherent determining fair value aros relates associated companies’ nuclear decommissioning obligations companies obtain thirdparty specialists periodic sitespecific base year cost studies order estimate nature cost timing planned decommissioning activities nuclear plants cost studies based relevant information available time performed however estimates future cash flows extended periods time nature highly uncertain may vary significantly actual results addition companies’ cost estimates include cost escalation rates applied base year costs selection cost escalation rates dependent subjective factors considered critical assumption companies determine cost escalation rates represent projected cost increases time due general inflation increases cost specific decommissioning activities nuclear facility result updated decommissioning cost studies applicable escalation rates obtained 2009 dominion recorded decrease 309 million nuclear decommissioning aros units including 103 million 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service virginia power recorded decrease 119 million nuclear decommissioning aros units income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material given uncertainty judgment involved determination filing income taxes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information december 31 2010 dominion 307 million virginia power 117 million unrecognized tax benefits substantial amount unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility deferred income tax assets liabilities recorded representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power evaluate quar terly probability realizing deferred tax assets reviewing forecast future taxable income availability tax planning strategies implemented necessary realize deferred tax assets failure achieve forecasted taxable income successfully implement tax planning strategies may affect realization deferred tax assets companies establish valuation allowance morelikelythannot portion deferred tax asset realized december 31 2010 dominion established 68 million valuation allowances virginia power valuation allowances accounting derivative contracts instruments fair value dominion virginia power use derivative contracts futures swaps forwards options ftrs manage commodity financial market risks business operations derivative contracts certain exceptions reported consolidated balance sheets fair value accounting requirements derivatives related hedging activities complex may subject clarification standardsetting bodies majority investments held dominion’s virginia power’s nuclear decommissioning dominion’s rabbi benefit plan trust funds also subject fair value accounting see notes 7 22 consolidated financial statements information fair value measurements fair value based activelyquoted market prices available absence activelyquoted market prices management seeks indicative price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing information indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information use statistical methods including regression analysis reflect market assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value use estimates goodwill impairment testing december 31 2010 dominion reported 31 billion goodwill consolidated balance sheet significant portion resulted acquisition former cng 2000 april year dominion tests goodwill potential impairment performs additional tests frequently event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount 2010 2009 2008 annual tests interim tests result recognition goodwill impairment general dominion estimates fair value reporting units using combination discounted cash flows valuation techniques use multiples earnings peer group companies analyses recent business combinations involving peer group companies dominion’s appalachian ep operations peoples hope certain dci operations negotiated sales prices used fair value tests conducted 2010 2009 2008 fair value estimates dependent subjective factors dominion’s estimate future cash flows selection appropriate discount growth rates selection peer group companies recent transactions underlying assumptions estimates made point time subsequent modifications particularly changes discount rates growth rates inherent dominion’s estimates future cash flows could result future impairment goodwill although dominion consistently applied methods developing assumptions estimates underlie fair value calculations estimates future cash flows based estimates relevant information available time cash flow estimates highly uncertain nature may vary significantly actual results estimates future cash flows used recent tests 10 lower resulting fair values would still greater carrying values reporting units tested indicating impairment present see note 12 consolidated financial statements additional information use estimates longlived asset impairment testing impairment testing individual group longlived assets intangible assets definite lives required circumstances indicate assets may impaired asset’s carrying amount exceeds undiscounted estimated future cash flows associated asset considered impaired extent asset’s fair value less carrying amount performing impairment test longlived assets involves judgment areas identifying circumstances indicate impairment may exist identifying grouping affected assets developing undiscounted discounted estimated future cash flows used estimate fair value absence marketbased value associated asset including probability weighting cash flows reflect expectations possible variations amounts timing selection appropriate discount rate although cash flow estimates based relevant information available time estimates made estimates future cash flows nature highly uncertain may vary significantly actual results example estimates future cash flows would contemplate factors may change time expected use asset including future production sales levels expected fluctuations prices commodities sold consumed see note 7 consolidated financial statements discussion impairments related certain longlived assets employee benefit plans dominion sponsors noncontributory defined benefit pension plans postretirement benefit plans eligible active employees retirees qualifying dependents projected costs providing benefits plans dependent part historical information employee demographics level contributions made plans earnings plan assets assumptions future including expected longterm rate return plan assets discount rates applied benefit management’s discussion analysis financial condition results operations continued obligations anticipated rate increase healthcare costs participant compensation also significant impact employee benefit costs impact changes factors well differences dominion’s assumptions actual experience generally recognized consolidated statements income remaining average service period plan participants rather immediately expected longterm rates return plan assets discount rates healthcare cost trend rates critical assumptions dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination  historical return analysis determine expected future risk premiums asset volatilities correlations  forwardlooking return expectations derived yield longterm bonds price earnings ratios major stock market indices  expected inflation riskfree interest rate assumptions  investment allocation plan assets strategic target asset allocation dominion’s pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments private equity investments strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include mentioned employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target dominion develops assumptions compared forecasts independent investment advisors ensure reasonableness internal committee selects final assumptions dominion calculated pension cost using expected longterm rate return plan assets assumption 850 2010 2009 2008 dominion calculated postretirement benefit cost using expected longterm rate return plan assets assumption 775 2010 2009 2008 rate used calculating postretirement benefit cost lower rate used calculating pension cost differences relative amounts various types investments held plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans discount rates used calculate pension cost postretirement benefit cost 660 2010 2009 compared 660 650 respectively 2008 dominion selected discount rate 590 determining december 31 2010 projected pension postretirement benefit obligations dominion establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants dominion’s healthcare cost trend rate assumption december 31 2010 70 expected gradually decrease 460 2060 continue rate years thereafter following table illustrates effect cost changing critical actuarial assumptions previously discussed holding assumptions constant addition effects cost december 31 2010 025 decrease discount rate would increase dominion’s projected pension benefit obligation 138 million accumulated postretirement benefit obligation 52 million 100 increase healthcare cost trend rate would increase accumulated postretirement benefit obligation 217 million see note 22 consolidated financial statements additional information revenue recognitionunbilled revenue virginia power recognizes records revenues energy delivered customer determination sales individual customers based reading meters performed systematic basis throughout month end month amounts electric energy delivered customers yet billed estimated recorded unbilled revenue estimate reversed following month actual revenue recorded based meter readings virginia power’s customer receivables included 397 million 355 million accrued unbilled revenue december 31 2010 2009 respectively calculation unbilled revenues complex includes numerous estimates assumptions including historical usage applicable customer rates weather factors total daily electric generation supplied adjusted line losses changes generation patterns customer usage patterns factors basis estimates unbilled revenues could significant effect calculation therefore virginia power’s results operations financial condition accounting standards policies 2009 2008 dominion virginia power required adopt several new accounting standards discussed note 3 consolidated financial statements dominion results operations presented summary dominion’s consolidated results overview 2010 vs 2009 net income attributable dominion increased 118 favorable drivers include gain sale dominion’s appalachian ep operations lower ceiling test impairment charges related properties absence charge connection settlement virginia power’s 2009 base rate case proceedings impact favorable weather electric utility operations unfavorable drivers include charges related workforce reduction program loss sale peoples lower margins merchant generation operations impairment charges related certain merchant generation facilities 2009 vs 2008 net income attributable dominion decreased 30 unfavorable drivers include impairment charge related carrying value dominion’s ep properties due declines gas oil prices first quarter 2009 charge connection settlement virginia power’s 2009 base rate case proceedings favorable drivers include higher margins dominion’s merchant generation operations higher contribution dominion’s gas transmission operations due completion cove point expansion project analysis consolidated operations presented selected amounts related dominion’s results operations analysis dominion’s results operations follows 2010 vs 2009 net revenue increased 8 primarily reflecting  11 billion increase electric utility operations primarily reflecting  absence charge settlement virginia power’s 2009 base rate case proceedings 570 million  impact riders c1 c2 r 279 million  increase sales retail customers primarily due increase cooling degree days 248 million  increase ancillary revenues received pjm 78 million primarily reflecting increase scheduled dispatch gas oilfired generation units meet higher demand partially offset  decrease primarily due impact unfavorable economic conditions customer usage factors 75 million  98 million increase regulated natural gas distribution operations primarily reflecting increased rider revenue associated recovery bad debt expense 60 million increase base rates 40 million  46 million increase related natural gas transmission operations largely due completion cove point expansion project increases partially offset  356 million decrease merchant generation operations due decrease certain nuclear generating facilities 237 million primarily due lower realized prices decline margins certain fossil generation facilities 70 million management’s discussion analysis financial condition results operations continued primarily due increase fuel prices expiration certain requirementsbased power sales contracts december 2009 49 million  222 million decrease reflecting sale substantially dominion’s appalachian ep operations april 2010  40 million decrease producer services primarily related unfavorable price changes economic hedging positions lower physical margins associated natural gas aggregation marketing trading activities operations maintenance increased 12 million primarily reflecting  240 million net increase salaries wages benefits primarily related workforce reduction program result program dominion expects avoid future annualized operations maintenance expenses approximately 100 million would otherwise incurred  impairment charges related certain merchant generating facilities 194 million  103 million increase due absence benefit 2009 downward revision nuclear decommissioning aro unit longer service  56 million increase bad debt expense regulated natural gas distribution operations primarily related low income assistance programs 60 million expenses recovered rates impact net income  42 million increase certain electric transmissionrelated expenditures increases partially offset  434 million decrease ceiling test impairment charges related carrying value dominion’s ep properties  absence 142 million writeoff previously deferred rto costs connection settlement virginia power’s 2009 base rate case proceedings  48 million decrease outage costs due decrease scheduled outage days primarily certain merchant generation facilities dda decreased 7 primarily due sale dominion’s appalachian ep operations 45 million lower amortization due decreased cost emissions allowances consumed 37 million taxes increased 10 primarily due additional property tax increased investments higher rates 16 million increase gross receipts tax due new nonregulated retail energy customers 14 million higher payroll taxes associated workforce reduction program 12 million gain sale appalachian ep operations reflects gain sale operations described note 4 consolidated financial statements income decreased 13 primarily reflecting increase charitable contributions 46 million decrease interest income 15 million partially offset absence impairment loss equity method investment 30 million higher realized gains including investment income nuclear decommissioning trust funds 12 million interest related charges decreased 6 primarily due benefit resulting net effect discontinuance hedge accounting certain interest rate hedges subsequent changes fair value interest rate derivatives 73 million partially offset increase interest expense associated june 2009 hybrid issuance 26 million income tax expense increased 15 billion primarily reflecting higher federal state taxes largely due gain sale dominion’s appalachian ep business loss discontinued operations primarily reflects loss sale peoples 2009 vs 2008 net revenue decreased 5 primarily reflecting  614 million decrease net revenue electric utility operations primarily due charge settlement virginia power’s 2009 base rate case proceedings  86 million decrease sales gas production ep operations primarily reflecting expiration vpp royalty interests  21 million decrease net gas revenue retail energy marketing operations primarily due lower prices 39 million partially offset higher volumes 18 million decreases partially offset  161 million increase merchant generation operations primarily reflecting lower fuel expenses due impact lower commodity prices 190 million higher sales volumes primarily fewer scheduled nuclear refueling outages higher demand natural gas generation 143 million partially offset lower sales prices 79 million increased fuel consumption 93 million certain fossil generation facilities  158 million increase related gas transmission operations largely due completion cove point expansion project  70 million increase net electric revenue retail energy marketing operations primarily attributable higher volumes 36 million acquisition retail energy marketing business september 2008 34 million operations maintenance expense increased 13 primarily reflecting combined effects  455 million ceiling test impairment charge related carrying value ep properties due declines natural gas oil prices  142 million writeoff previously deferred rto costs connection settlement virginia power’s 2009 base rate case proceedings  74 million increase salaries wages benefits largely due higher pension postretirement benefit costs increases partially offset  103 million downward revision nuclear decommissioning aro power station unit longer service  absence 59 million charge related impairment dci investment sold 2008  29 million decrease largely due deferral electric transmissionrelated expenditures collectible certain rate adjustment clauses dda increased 10 principally due higher depreciation property additions 100 million higher amortization due increased consumption emissions allowances 37 million partially offset decreased dda reflecting lower gas oil production 19 million decrease dda rates 28 million dominion’s ep properties income loss increased 236 million primarily due impact net realized gains including investment income merchant nuclear decommissioning trust funds 2009 compared net realized losses net investment income 2008 interest related charges increased 7 primarily due impact additional borrowings 34 million absence 23 million benefit related redemption virginia power’s callable puttable enhanced securities 2008 income tax expense decreased 37 primarily reflecting lower pretax income 2009 outlook order deliver favorable returns investors dominion’s strategy continue focusing regulated businesses maintaining upside potential wellpositioned nonregulated businesses goals strategy provide earnings per share growth growing dividend stable credit profile dominion’s 2010 results positively impacted gain sale substantially appalachian ep operations 2011 dominion’s operating businesses likely experience decrease net income per share basis compared 2010 dominion’s anticipated 2011 results reflect following significant factors  lower realized margins merchant generation operations due lower commodity prices increase planned outages certain nuclear fossil facilities  return normal weather electric utility operations  absence earnings appalachian ep operations sold april 2010 partially offset  growth electric sales resulting recovering economy  benefit rate adjustment clause revenue associated bear garden virginia city hybrid energy center  reduction certain operations maintenance expenses resulting largely implementation costcontainment measures including workforce reduction program discussed note 23 consolidated financial statements  lower outage costs certain electric utility generating facilities dominion also expects bonus depreciation provisions tax legislation recently enacted us congress 2010 discussed note 6 consolidated financial statements reduce income taxes otherwise payable 12 billion 21 billion 2011 2013 acceleration tax deductions expected reduce domestic production activities income tax deduction 2012 also increase deferred taxes thereby reducing rate base regulated operations however dominion plans partially mitigate earnings per share impact items using cash tax savings repurchase common stock 2011 reduce amount debt would otherwise issued next three years addition dominion plan market issuances common stock 2011 2012 dominion expects operating businesses provide five percent six percent growth net income per share basis 2012 compared 2011 primarily due assumptions regarding construction operation new infrastructure utility operations fewer merchant outages anticipated rise commodity prices energy demand segment results operations segment results include impact intersegment revenues expenses may result intersegment profit loss presented summary contributions dominion’s operating segments net income attributable dominion dvp presented operating statistics related dvp’s operations 1 cooling degree days units measuring extent average daily temperature greater 65 degrees calculated difference 65 degrees average temperature day 2 heating degree days units measuring extent average daily temperature less 65 degrees calculated difference 65 degrees average temperature day 3 thirteenmonth average management’s discussion analysis financial condition results operations continued presented aftertax basis key factors impacting dvp’s net income contribution 2010 vs 2009 1 reflects increase storm damage service restoration costs associated electric distribution operations resulting severe weather 2010 2009 vs 2008 1 primarily reflects impact unfavorable economic conditions customer usage factors 2 reflects decrease storm damage service restoration costs associated electric distribution operations resulting less severe weather 2009 dominion generation presented operating statistics related dominion generation’s operations presented aftertax basis key factors impacting dominion generation’s net income contribution 2010 vs 2009 1 reflects 2010 implementation cost containment measures including workforce reduction program 2 reflects absence 2009 investment tax credits related fowler ridge decrease domestic production activities deduction primarily due absence 2009 benefit remeasurement tax uncertainties related deduction well 2010 impact bonus depreciation deduction 2009 vs 2008 1 reflects incremental impact rider 2 primarily reflects lower sales wholesale customers well impact unfavorable economic conditions customer usage factors dominion energy presented selected operating statistics related dominion energy’s operations discussed note 4 april 2010 dominion completed sale substantially appalachian ep operations result productionrelated operating statistics dominion energy segment longer significant 1 thirteenmonth average presented aftertax basis key factors impacting dominion energy’s net income contribution 2010 vs 2009 1 primarily reflects allowed return investment amr pir programs 2 reflects east ohio’s sale 3 bcf base gas december 2010 company determined could operate storage system meet existing anticipated contractual commitments less base gas 2009 vs 2008 1 primarily reflects decrease volumes associated vpp royalty interests expired february 2009 2 reflects absence 2008 benefit resulting reduction deferred tax liabilities related enactment west virginia income tax rate reductions corporate presented corporate segment’s aftertax results total specific items corporate includes specific items attributable dominion’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 27 consolidated financial statements discussion items virginia power results operations presented summary virginia power’s consolidated results overview 2010 vs 2009 net income increased 139 primarily reflecting absence charge connection settlement 2009 base rate case proceedings favorable weather benefit rate adjustment clauses partially offset charges related workforce reduction program 2009 vs 2008 net income decreased 59 primarily due charge connection settlement 2009 base rate case proceedings increase outage costs related scheduled outages certain nuclear fossil generating facilities analysis consolidated operations presented selected amounts related virginia power’s results operations management’s discussion analysis financial condition results operations continued analysis virginia power’s results operations follows 2010 vs 2009 net revenue increased 33 primarily reflecting  absence charge settlement 2009 base rate case proceedings 570 million  impact riders c1 c2 r 279 million  increase sales retail customers primarily due increase cooling degree days 248 million  increase ancillary revenues received pjm 78 million primarily reflecting increase scheduled dispatch gas oilfired generation units meet higher demand increases partially offset  decrease primarily due impact unfavorable economic conditions customer usage factors 75 million operations maintenance increased 8 primarily reflecting  177 million net increase salaries wages benefits primarily due workforce reduction program result program virginia power expects avoid future annualized operations maintenance expenses approximately 50 million would otherwise incurred  42 million increase certain electric transmissionrelated expenditures  19 million increase storm damage service restoration costs increases partially offset  absence 130 million writeoff previously deferred rto costs connection settlement virginia power’s 2009 base rate case proceedings depreciation amortization expense increased 5 primarily due property additions taxes increased 14 primarily reflecting additional property tax due increased investments higher rates 12 million incremental use tax recoverable customer surcharge 8 million higher payroll taxes associated workforce reduction program 7 million income tax expense increased 395 million primarily reflecting higher pretax income 2010 vs 2008 net revenue decreased 16 primarily due charge settlement 2009 base rate case proceedings operations maintenance expense increased 16 primarily reflecting  130 million writeoff previously deferred rto costs connection settlement virginia power’s 2009 base rate case proceedings  64 million increase outage costs related scheduled outages certain nuclear fossil generating facilities  43 million increase resulting higher salaries wages benefits largely due higher pension postretirement benefit costs general administrative costs  28 million decrease gains sale emissions allowances increases partially offset  29 million decrease largely due deferral transmissionrelated expenditures collectible certain rate adjustment clauses depreciation amortization expense increased 5 primarily due property additions income increased 52 million primarily due increase equity component afudc result construction expansion projects interest related charges increased 13 primarily due absence 23 million benefit related redemption virginia power’s callable puttable enhanced securities 2008 17 million impact largely due impact additional borrowings income tax expense decreased 71 reflecting lower pretax income 2009 outlook virginia power expects provide growth net income 2011 virginia power’s anticipated 2011 results reflect following significant factors  growth electric sales resulting recovering economy  benefit rate adjustment clause revenue associated bear garden virginia city hybrid energy center  reduction certain operations maintenance expenses resulting largely implementation costcontainment measures including workforce reduction program discussed note 23 consolidated financial statements  lower outage costs certain generating facilities partially offset  return normal weather electric utility operations virginia power also expects bonus depreciation provisions tax legislation recently enacted us congress 2010 discussed note 6 consolidated financial statements reduce income taxes otherwise payable 600 million 12 billion 2011 2013 acceleration tax deductions expected reduce domestic production activities income tax deduction 2012 also increase deferred taxes thereby reducing regulated rate base however virginia power plans partially mitigate earnings impact items using cash tax savings reduce amount debt would otherwise issued next three years segment results operations presented summary contributions virginia power’s operating segments net income dvp presented operating statistics related virginia power’s dvp segment 1 cooling degree days units measuring extent average daily temperature greater 65 degrees calculated difference 65 degrees average temperature day 2 heating degree days units measuring extent average daily temperature less 65 degrees calculated difference 65 degrees average temperature day 3 thirteenmonth average presented aftertax basis key factors impacting dvp’s net income contribution 2010 vs 2009 1 reflects increase storm damage service restoration costs associated electric distribution operations resulting severe weather 2010 2009 vs 2008 1 primarily reflects impact unfavorable economic conditions customer usage factors 2 reflects decrease storm damage service restoration costs associated electric distribution operations resulting less severe weather 2009 dominion generation presented operating statistics related virginia power’s dominion generation segment presented aftertax basis key factors impacting dominion generation’s net income contribution 2010 vs 2009 1 reflects decrease domestic production activities deduction primarily due absence 2009 benefit remeasurement tax uncertainties related deduction well 2010 impact bonus depreciation deduction 2 primarily reflects reduced benefit ftrs due crediting certain ftrs allocated virginia power virginia jurisdictional fuel factor expenses subject deferral accounting beginning july 1 2009 vs 2008 1 reflects incremental impact rider 2 primarily reflects lower sales wholesale customers well impact unfavorable economic conditions customer usage factors corporate presented corporate segment’s aftertax results management’s discussion analysis financial condition results operations continued specific items attributable operating segments corporate primarily includes specific items attributable virginia power’s primary operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 27 consolidated financial statements discussion items liquidity capital resources dominion virginia power depend internal external sources liquidity provide working capital fund capital requirements shortterm cash requirements met cash provided operations generally satisfied proceeds shortterm borrowings longterm cash needs met issuances debt andor equity securities december 31 2010 dominion 2 billion unused capacity credit facilities including 559 million unused capacity joint credit facilities available virginia power see additional discussion credit facilities shortterm debt summary dominion’s cash flows presented 1 2009 2008 amounts include 2 million 5 million respectively cash classified held sale dominion’s consolidated balance sheets summary virginia power’s cash flows presented operating cash flows 2010 net cash provided dominion’s operating activities decreased approximately 2 billion primarily due lower deferred fuel gas cost recoveries contributions dominion’s pension plans absence disposed appalachian ep operations lower merchant generation margins refunds related 2009 virginia power base rate case settlement partially offset lower income tax payments lower margin collateral requirements favorable impact weather rate adjustment clauses electric utility operations 2010 net cash provided virginia power’s operating activities decreased 561 million primarily due lower deferred fuel cost recoveries virginia jurisdiction refunds related 2009 virginia base rate case settlement contributions dominion’s pension plans partially offset favorable impact weather rate adjustment clauses cash received income tax benefits 2010 compared income taxes paid 2009 dominion’s lower income tax payments virginia power’s realization income tax benefits 2010 resulted part bonus depreciation provisions tax legislation recently enacted us congress discussed note 6 consolidated financial statements dominion believes operations provide stable source cash flow contribute planned levels capital expenditures maintain grow dividend common shares 2011 dominion’s board directors adopted new dividend policy raised target payout ratio board established annual dividend rate 197 per share common stock 77 increase 2010 rate quarterly dividends subject declaration board virginia power believes operations provide stable source cash flow contribute planned levels capital expenditures provide dividends dominion companies’ operations subject risks uncertainties may negatively impact timing amounts operating cash flows discussed item 1a risk factors credit risk dominion’s exposure potential concentrations credit risk results primarily energy marketing price risk management activities presented summary dominion’s credit exposure december 31 2010 activities gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights 1 designations investment grade based upon minimum credit ratings assigned moody’s standard poor’s five largest counterparty exposures combined category represented approximately 33 total net credit exposure 2 five largest counterparty exposures combined category represented approximately 1 total net credit exposure 3 five largest counterparty exposures combined category represented approximately 11 total net credit exposure 4 five largest counterparty exposures combined category represented approximately 8 total net credit exposure virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers considered material december 31 2010 investing cash flows 2010 net cash provided dominion’s investing activities 419 million compared net cash used investing activities 37 billion 2009 change primarily due proceeds received sale substantially dominion’s appalachian ep operations april 2010 sale peoples february 2010 taxes costs sales reflected cash flow operations gross proceeds sales reported cash flow investing activities 2010 net cash used virginia power’s investing activities decreased 143 million primarily due lower capital expenditures partially offset increase restricted cash equivalents designated finance certain qualifying facilities financing cash flows liquidity dominion virginia power rely capital markets significant sources funding capital requirements satisfied cash provided operations discussed credit ratings companies’ ability borrow funds issue securities return demanded investors affected credit ratings addition raising external capital subject certain regulatory requirements including registration sec certain issuances case virginia power approval virginia commission companies currently meets definition wellknown seasoned issuer sec rules governing registration communications offering processes securities act 1933 rules provide streamlined shelf registration process provide registrants timely access capital allows companies use automatic shelf registration statements register offering securities business combination transactions 2010 net cash used dominion’s financing activities increased 21 billion primarily due net debt repayments 2010 compared net debt issuances 2009 net repurchases common stock 2010 compared issuances common stock 2009 reflects use proceeds sales dominion’s appalachian ep operations peoples 2010 net cash provided virginia power’s financing activities increased 412 million primarily due higher net debt issuances 2010 compared 2009 result lower cash flow operations credit facilities shortterm debt dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties dominion virginia power replaced certain existing credit facilities september 2010 noted connection commodity hedging activities companies required provide collateral counterparties circumstances certain collateral arrangements companies may satisfy requirements electing either deposit cash post letters credit cases utilize forms security time companies vary form collateral provided counterparties weighing costs benefits various factors associated different forms collateral factors include shortterm borrowing shortterm investment rates spread shortterm rates companies issue commercial paper balance sheet impacts costs fees alternative collateral postings counterparties overall liquidity management objectives dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rate outstanding commercial paper supported dominion’s credit facilities 041 december 31 2010 virginia power virginia power’s shortterm financing supported two threeyear joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion follows 1 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year management’s discussion analysis financial condition results operations continued 2 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rate outstanding commercial paper supported credit facilities 041 december 31 2010 addition credit facility commitments mentioned virginia power also threeyear 120 million credit facility entered september 2010 facility terminates september 2013 supports certain taxexempt financings virginia power longterm debt 2010 dominion virginia power issued following longterm debt november 2010 virginia power borrowed 105 million connection industrial development authority wise county solid waste sewage disposal revenue bonds series 2010 mature 2040 bear coupon rate 2375 first five years bear interest market rate determined time using remarketing process proceeds used finance certain qualifying facilities virginia city hybrid energy center december 2010 september 2009 virginia power borrowed 100 million 60 million respectively connection 160 million industrial development authority wise county solid waste sewage disposal revenue bonds series 2009 mature 2040 bear interest initial period variable rate due unfavorable market conditions virginia power acquired bonds upon issuance intention remarketing third parties later time proceeds used finance certain qualifying facilities virginia city hybrid energy center december 31 2010 bonds remarketed thus reflected consolidated balance sheets december 2010 virginia power borrowed 100 million connection industrial development authority halifax county virginia recovery zone facility revenue bonds series 2010 mature 2041 bear interest variable rate first seven years bear interest market rate determined time using remarketing process proceeds used finance certain qualifying facilities halifax county andor wise county december 2010 brayton point borrowed approximately 160 million approximately 75 million connection massachusetts development finance agency recovery zone facility bonds series 2010 solid waste disposal revenue bonds series 2010 b respectively mature 2041 bear interest initial period variable rate due unfavorable market conditions dominion acquired bonds upon issuance december 2010 intention remarketing third parties later time proceeds used finance certain qualifying facilities brayton point december 31 2010 bonds remarketed thus reflected consolidated balance sheets 2010 dominion virginia power repaid repurchased 15 billion 347 million respectively longterm debt notes payable issuance common stock 2010 dominion issued 23 million shares common stock cash proceeds 74 million shares issued cash proceeds received 2010 dominion direct® employee savings plans exercise employee stock options dominion currently plan market issuances common stock 2011 2012 february 2010 dominion began purchasing common stock open market proceeds received dominion direct® employee savings plans rather issuing additional new common shares 2010 virginia power issued 33013 shares common stock dominion approximately 1 billion proceeds used pay shortterm demand note borrowings dominion repurchase common stock march 2010 dominion began repurchasing common shares anticipation proceeds sale appalachian ep operations 2010 dominion purchased 214 million shares common stock approximately 900 million january 28 2011 dominion announced intends repurchase 400 million 700 million common stock cash tax savings resulting extension bonus depreciation allowance discussed note 6 consolidated financial statements first quarter 2011 dominion began repurchasing shares open market program borrowings parent virginia power ability borrow funds dominion shortterm longterm borrowing arrangements december 31 2010 nonregulated subsidiaries outstanding borrowings net repayments dominion money pool 24 million virginia power’s shortterm demand note borrowings dominion 79 million december 31 2010 longterm borrowings dominion december 31 2010 credit ratings credit ratings intended provide banks capital market participants framework comparing credit quality securities recommendation buy sell hold securities dominion virginia power believe current credit ratings provide sufficient access capital markets however disruptions banking capital markets specifically related dominion virginia power may affect ability access funding sources cause increase return required investors dominion’s virginia power’s credit ratings may affect liquidity cost borrowing credit facilities collateral posting requirements commodity contracts well rates able offer debt securities quantitative financial strength qualitative business operating characteristics factors considered credit rating agencies establishing individual company’s credit rating credit ratings evaluated independently subject revision withdrawal time assigning rating organization credit ratings dominion virginia power affected company’s financial profile mix regulated nonregulated businesses respective cash flows changes methodologies used rating agencies event risk applicable major acquisitions dispositions january 2010 fitch lowered credit ratings virginia power’s preferred stock dominion’s junior subordinated debt securities enhanced junior subordinated notes solely due revision fitch’s ratings methodology rates securities two notches credit rating senior unsecured debt securities december 2010 moody’s raised credit ratings virginia power reflecting sustained improvements virginia power’s financial performance measured credit metrics agency’s views generally supportive regulatory political environment virginia power’s service territory credit ratings february 23 2011 follow february 23 2011 fitch moody’s standard poor’s maintained stable outlook respective ratings dominion virginia power downgrade individual company’s credit rating would necessarily restrict ability raise shortterm longterm financing long credit rating remains investment grade would likely increase cost borrowing dominion virginia power work closely fitch moody’s standard poor’s objective maintaining current credit ratings order maintain current ratings companies may find necessary modify business plans changes may adversely affect growth eps debt covenants part borrowing funds issuing debt shortterm longterm preferred securities dominion virginia power must enter enabling agreements contain covenants event default could result acceleration principal interest payments restrictions distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments cases termination credit commitments unless waiver requirements agreed lenderssecurity holders provisions customary agreement specifying covenants apply provisions necessarily unique dominion virginia power typical covenants include  timely payment principal interest  information requirements including submitting financial reports filed sec information changes dominion’s virginia power’s credit ratings lenders  performance obligations auditsinspections continuation basic nature business restrictions certain matters related merger consolidation restrictions disposition substantially assets  compliance collateral minimums requirements related mortgage bonds  limitations liens dominion virginia power required pay annual commitment fees maintain credit facilities addition credit agreements contain various terms conditions could affect ability borrow facilities include maximum debt total capital ratios crossdefault provisions december 31 2010 calculated total debt total capital ratio pursuant terms agreements follows 1 indebtedness defined bank agreements excludes junior subordinated notes reflected longterm debt well aoci reflected equity consolidated balance sheets provisions apply separately dominion virginia power dominion virginia power either company’s material subsidiaries fails make payment various debt obligations excess 100 million lenders could require company accelerate repayment outstanding borrowings credit facility lenders could terminate commitment lend funds company accordingly default dominion affect lenders’ commitment virginia power however default virginia power would affect lenders’ commitment dominion joint credit agreements dominion executed rccs connection issuance following hybrid securities  june 2006 hybrids  september 2006 hybrids  june 2009 hybrids terms rccs dominion covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids management’s discussion analysis financial condition results operations continued time fully described rccs proceeds dominion receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price december 31 2010 termination dates covered debt rccs associated dominion’s hybrids follows 1 automatically extended set forth rcc additional quarterly periods extent maturity date extended dominion virginia power monitor debt covenants regular basis order ensure events default occur december 31 2010 events default changes dominion’s debt covenants dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2010 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion virginia power’s ability pay dividends receive dividends subsidiaries december 31 2010 see note 18 consolidated financial statements description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes future cash payments contractual obligations planned capital expenditures contractual obligations dominion virginia power party numerous contracts arrangements obligating make cash payments future years contracts include financing arrangements debt agreements leases well contracts purchase goods services financial derivatives presented table summarizing cash payments may result contracts dominion virginia power parties december 31 2010 purchase obligations liabilities amounts based upon contract terms including fixed minimum quantities purchased fixed marketbased prices actual cash payments based upon actual quantities purchased prices paid likely differ amounts presented table excludes amounts classified current liabilities consolidated balance sheets current maturities longterm debt interest payable certain derivative instruments majority dominion’s virginia power’s current liabilities paid cash 2011 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 reflect dominion’s ability defer interest payments junior subordinated notes 3 primarily consists operating leases 4 amounts exclude open purchase orders services provided demand timing cannot determined 5 represents summation settlement amounts contracts due dominion physical financial transactions among counterparties dominion liquidated terminated 6 includes capital operations maintenance commitments 7 excludes regulatory liabilities aros employee benefit plan obligations contractually fixed timing amount see notes 13 15 22 consolidated financial statements due uncertainty timing amounts ultimately paid 253 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 6 consolidated financial statements 8 includes interest rate swap agreements 1 based stated maturity dates rather earlier redemption dates could elected instrument holders 2 primarily consists operating leases 3 amounts exclude open purchase orders services provided demand timing cannot determined 4 excludes regulatory liabilities aros employee benefit plan contributions contractually fixed timing amount see notes 13 15 22 consolidated financial statements due uncertainty timing amounts ultimately paid 113 million income taxes payable associated unrecognized tax benefits excluded deferred income taxes also excluded since cash payments based primarily taxable income discrete fiscal year see note 6 consolidated financial statements planned capital expenditures dominion’s planned capital expenditures expected total approximately 39 billion 47 billion 44 billion 2011 2012 2013 respectively dominion’s expenditures expected include construction expansion electric generation natural gas transmission storage facilities environmental upgrades construction improvements expansion electric transmission distribution assets purchases nuclear fuel virginia power’s planned capital expenditures expected total approximately 22 billion 30 billion 33 billion 2011 2012 2013 respectively virginia power’s expenditures expected include construction expansion electric generation facilities environmental upgrades construction improvements expansion electric transmission distribution assets purchases nuclear fuel dominion virginia power expect fund capital expenditures cash operations combination securities issuances shortterm borrowings planned capital expenditures include capital projects subject approval regulators board directors based available generation capacity current estimates growth customer demand virginia power need additional generation future see dominion generationproperties item 1 business discussion virginia power’s expansion plans estimates subject continuing review adjustment actual capital expenditures may vary estimates companies may also choose postpone cancel certain planned capital expenditures order mitigate need future debt financings equity issuances use offbalance sheet arrangements guarantees dominion primarily enters guarantee arrangements behalf consolidated subsidiaries arrangements subject provisions fasb guidance dictate guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others december 31 2010 dominion issued 131 million guarantees primarily support equity method investees significant amounts related guarantees recorded december 31 2010 dominion’s exposure guarantees 54 million primarily related certain reserve requirements associated nonrecourse financing leasing arrangement dominion leases fairless pennsylvania began commercial operations june 2004 construction dominion acted construction agent lessor controlled design construction facility since reimbursed project costs 898 million advanced lessor dominion makes annual lease payments 53 million lease expires 2013 time dominion may renew lease negotiated amounts based original project costs current market conditions subject lessor approval purchase fairless original construction cost plus 51 appraised value excess original construction cost sell fairless behalf lessor independent third party fairless sold proceeds sale less original construction cost dominion would required make payment lessor amount 7075 original project costs adjusted certain costs specified lease agreement contain provisions involve credit rating stock price trigger events benefits arrangement include  certain tax benefits dominion considered owner leased property tax purposes result dominion entitled tax deductions depreciation recognized financial accounting purposes  operating lease financial accounting purposes asset related borrowings used finance construction asset included consolidated balance sheets although improves measures leverage calculated using amounts reported consolidated financial statements credit rating agencies view lease obligations debt equivalents evaluating dominion’s credit profile future issues matters see item 1 business item 3 legal proceedings notes 14 23 consolidated financial statements additional information various environmental regulatory legal matters may impact future results operations andor financial condition environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations environmental protection monitoring expenditures dominion incurred approximately 228 million 252 million 205 million expenses including depreciation 2010 2009 2008 respectively connection environmental protection monitoring activities expects expenses approximately 231 million 251 million 2011 2012 respectively addition capital expenditures related environmental controls 351 million 266 million 254 million 2010 2009 2008 respectively expenditures expected approximately 398 million 553 million 2011 2012 respectively management’s discussion analysis financial condition results operations continued virginia power incurred approximately 144 million 134 million 125 million expenses including depreciation 2010 2009 2008 respectively connection environmental protection monitoring activities expects expenses approximately 142 million 156 million 2011 2012 respectively addition capital expenditures related environmental controls 101 million 109 million 116 million 2010 2009 2008 respectively expenditures expected approximately 72 million 341 million 2011 2012 respectively future environmental regulations already federal state legislative proposals regulatory action regarding regulation ghg emissions dominion virginia power expect may federal legislation andor regulatory action regarding compliance stringent air emission standards regarding coal combustion byproducts regarding regulation cooling water intake structures discharges future respect ghg emissions december 2010 epa announced schedule propose regulations would establish ghg performance standards new modified existing fossilfired electric generating units regulations expected proposed july 2011 finalized may 2012 means dominion’s new modified existing fossilfired electric generating units become subject ghg performance standards rules finalized epa provided detail yet performance standard might measures facilities might make reach standard respect emission reductions so2 nox mercury haps addition mercury specific requirements depend following  final outcome epa’s scheduled rulemaking developing mact standards mercury haps replace camr vacated federal court 2008  final outcome epa’s transport rule proposed july 2010 response federal court remand cair well future state regulations implementing requirements address epa’s promulgation revised naaqs so2 no2  epa’s impending rulemaking revise ozone naaqs respect cooling water intakes discharges companies expect future federal regulation cooling water intake structures quality water discharges focus epa state regulatory authorities thermal discharge issues respect coal combustion byproducts dominion virginia power expect federal regulation coal combustion byproduct handling disposal practices new proposals adopted additional significant expenditures may required doddfrank act doddfrank act enacted law july 2010 effort improve regulation financial markets doddfrank act includes provisions require certain overthecounter derivatives swaps centrally cleared executed exchange approved trading platform nonfinancial entities use swaps hedge mitigate commercial risk often referred end users exempted clearing exchange trading requirements addi tion doddfrank act allows cftc sec impose initial variation margin requirements entities execute swaps end users expressly exempt requirements noncleared swaps however key legislators indicated public letter intention exclude commercial hedging transactions end users requirements final rules overthecounter derivativerelated provisions doddfrank act including clearing exchange trading margin requirements established cftc’s sec’s rulemaking process required completed july 2011 result rulemaking process dominion’s virginia power’s derivative activities exempted clearing exchange trading margin requirements companies could subject higher costs derivative activities including higher margin requirements addition implementation compliance overthecounter derivative provisions doddfrank act companies’ swap counterparties could result increased costs related companies’ derivative activities due ongoing rulemaking process companies currently unable assess potential impact doddfrank act’s derivativerelated provisions financial condition results operations cash flows item 7a item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs part ii item 7 management’s discussion analysis financial condition results operations form 10k reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may affect future market risk sensitive instruments risk management financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk due exposure market shifts prices received paid electricity natural gas commodities interest rate risk generally related outstanding debt addition exposed equity price risk various portfolios equity securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk primarily hold commoditybased financial derivative instruments nontrading purposes associated purchase electricity natural gas energy related products derivatives used manage commodity price risk executed within established policies procedures may include instruments futures swaps forwards options ftrs sensitive changes related commodity prices sensitivity analysis purposes fair value commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based activelyquoted market prices hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 27 million 3 million fair value nontrading commoditybased financial derivatives december 31 2007 2006 respectively increase primarily due increase electricityrelated derivatives executed 2007 impact change energy commodity prices nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled example expenses power purchases combined settlement commodity derivative instruments used hedging purposes generally result range prices purchases contemplated risk management strategy interest rate risk manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2007 2006 hypothetical 10 increase market interest rates would resulted decrease annual earnings approximately 3 million 6 million respectively decrease primarily due decrease variable rate debt investment price risk subject investment price risk due marketable securities held investments decommissioning trust funds marketable securities managed thirdparty investment managers reported consolidated balance sheets fair value following reapplication sfas 71 virginia jurisdiction generation operations gains losses decommissioning trust investments deferred regulatory liabilities recognized net realized gains including investment income nuclear decommissioning trust investments 28 million 36 million 2007 2006 respectively 2007 recorded unrealized gains investments 13 million regulatory liabilities aoci recorded aoci unrealized gains investments 86 million 2006 dominion sponsors employee pension postretirement benefit plans employees participate hold investments trusts fund benefit payments extent values investments held trusts decline effect reflected recognition periodic cost employee benefit plans determination amount cash provide dominion representing share employee benefit plan contributions risk management policies established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries including company dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based dominion’s credit policies december 31 2007 provision credit losses management believes unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact companies market risk sensitive instruments risk management companies’ financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s dominion gas’ natural gas procurement marketing operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt future issuances debt addition companies exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk dominion virginia power primarily hold commoditybased financial derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products dominion gas primarily holds commoditybased financial derivative instruments held nontrading purposes associated purchases sales natural gas energyrelated products repositioning dominion’s producer services business completed first quarter 2014 combined dominion’s sale electric retail energy marketing business reduced dominion’s commodity price risk exposure derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 unfavorable change commodity prices dominion’s commoditybased financial derivative instruments would resulted increase fair value approximately 101 million 171 million december 31 2014 2013 respectively decline sensitivity largely due decreased commodity derivative activity lower commodity prices hypothetical 10 unfavorable change commodity prices would resulted material change fair value virginia power’s commoditybased financial derivatives december 31 2014 2013 hypothetical 10 unfavorable change commodity prices dominion gas’ commoditybased financial derivative instru ments would resulted increase fair value approximately 2 million decrease fair value 14 million december 31 2014 2013 respectively decline sensitivity largely due decreased commodity derivative activity impact change energy commodity prices companies’ commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk companies manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements variable rate debt interest rate swaps designated fair value hedging outstanding companies hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2014 2013 companies may also use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2014 dominion virginia power dominion gas 41 billion 15 billion 250 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease approximately 46 million 25 million 2 million respectively fair value dominion’s virginia power’s dominion gas’ interest rate derivatives december 31 2014 december 31 2013 dominion virginia power dominion gas 11 billion 600 million 450 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease approximately 20 million 13 million 8 million respectively fair value dominion’s virginia power’s dominion gas’ interest rate derivatives december 31 2013 impact change interest rates companies’ interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 176 million 163 million 2014 2013 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2014 2013 dominion recorded aoci regulatory liabilities net increase unrealized gains investments 172 million 417 million respectively virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 77 million 52 million 2014 2013 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2014 2013 virginia power recorded aoci regulatory liabilities net increase unrealized gains investments 87 million 193 million respectively dominion sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power dominion gas employees participate plans aggregate actual returns dominion’s pension postretirement plan assets 706 million 2014 959 million 2013 versus expected returns 610 million 554 million respectively aggregate actual returns pension postretirement benefit plan assets dominion gas employees represented collective bargaining units 157 million 2014 214 million 2013 versus expected returns 138 million 125 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost approximately 15 million 14 million december 31 2014 2013 respectively pension benefits 3 million december 31 2014 2013 postretirement benefits hypothetical 025 decrease assumed longterm rates return dominion gas’ plan assets employees represented collective bargaining units would result increase net periodic cost approximately 4 million 3 million december 31 2014 2013 respectively pension benefits 1 million december 31 2014 2013 postretirement benefits risk management policies companies established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion gas dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies companies’ december 31 2014 provision credit losses management believes unlikely material adverse effect companies’ financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact companies market risk sensitive instruments risk management companies’ financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion energy virginia power’s electric operations dominion energy dominion energy gas’ natural gas procurement marketing operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt future issuances debt addition companies exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 change commodity prices interest rates commodity price risk manage price risk dominion energy virginia power hold commoditybased derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products dominion energy gas’ operations contracted primarily longterm fixed reservation agreements accordingly management believes dominion energy gas subject material commodity price risk derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 decrease commodity prices would resulted decrease fair value 50 million 6 million dominion energy’s commoditybased derivative instruments december 31 2019 december 31 2018 respectively hypothetical 10 decrease commodity prices virginia power’s commoditybased derivative instruments would resulted decrease fair value 54 million 51 million december 31 2019 december 31 2018 respectively impact change energy commodity prices companies’ commoditybased derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commoditybased financial derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk companies manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt variable rate debt outstanding dominion energy hypothetical 10 increase market interest rates would resulted material change earnings december 31 2019 would resulted 24 million decrease earnings december 31 2018 variable rate debt outstanding virginia power hypothetical 10 increase market interest rates would resulted material change earnings december 31 2019 december 31 2018 variable rate debt outstanding dominion energy gas hypothetical 10 increase market interest rates would resulted material change earnings december 31 2019 would resulted 16 million decrease earnings december 31 2018 companies also use interest rate derivatives including forwardstarting swaps interest rate swaps interest rate lock agreements manage interest rate risk december 31 2019 dominion energy virginia power dominion energy gas 64 billion 19 billion 13 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 135 million 88 million 17 million respectively fair value dominion energy virginia power dominion energy gas’ interest rate derivatives december 31 2019 december 31 2018 dominion energy virginia power dominion energy gas 66 billion 19 billion 14 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 142 million 94 million 17 million respectively fair value dominion energy virginia power dominion energy gas’ interest rate derivatives december 31 2018 dominion energy gas holds foreign currency swaps purpose hedging foreign currency exchange risk associated euro denominated debt december 31 2019 december 31 2018 dominion energy dominion energy gas € 250 million aggregate notional amounts foreign currency swaps outstanding hypothetical 10 decrease market interest rates would resulted material decrease fair value dominion energy gas’ foreign currency swaps december 31 2019 would resulted decrease 8 million fair value dominion energy gas’ foreign currency swaps december 31 2018 impact change interest rates companies’ interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion energy virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty management’s discussion analysis financial condition results operations continued investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion energy recognized net investment gains including investment income nuclear decommissioning rabbi trust investments 1 billion year ended december 31 2019 dominion energy recognized net investment losses including investment income nuclear decommissioning trust investments 135 million year ended december 31 2018 net realized gains losses include gains losses sale investments well otherthantemporary declines fair value dominion energy recorded aoci regulatory liabilities net increase unrealized gains debt investments 74 million year ended december 31 2019 recorded net decrease unrealized gains debt investments 36 million year ended december 31 2018 virginia power recognized net investment gains including investment income nuclear decommissioning trust investments 481 million year ended december 31 2019 virginia power recognized net investment losses including investment income nuclear decommissioning trust investments 44 million year ended december 31 2018 net realized gains losses include gains losses sale investments well otherthantemporary declines fair value virginia power recorded aoci regulatory liabilities net increase unrealized gains debt investments 30 million year ended december 31 2019 recorded net decrease unrealized gains debt investments 21 million year ended december 31 2018 dominion energy sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power dominion energy gas employees participate plans dominion energy’s pension postretirement plan assets experienced aggregate actual returns losses 21 billion 605 million 2019 2018 respectively versus expected returns 848 million 806 million respectively dominion energy gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns losses 167 million 129 million 2019 2018 respectively versus expected returns 70 million 178 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion energy’s plan assets would result increase net periodic cost 23 million 19 million december 31 2019 2018 respectively pension benefits 5 million 4 million december 31 2019 2018 respectively postretirement benefits hypothetical 025 decrease assumed longterm rates return dominion energy gas’ plan assets employees represented collective bargaining units would result increase net periodic cost 2 million 4 million december 31 2019 2018 respectively pension benefits 1 million december 31 2018 postretirement benefits hypothetical decrease would result immaterial change net periodic cost dominion energy gas postretirement benefits december 31 2019 risk management policies companies established operating procedures corporate management ensure proper internal controls maintained addition dominion energy established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion energy gas dominion energy maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion energy also monitors financial condition existing counterparties ongoing basis based credit policies companies’ december 31 2019 provision credit losses management believes unlikely material adverse effect companies’ financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs part ii item 7 mda form 10k reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact company market risk sensitive instruments risk management financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk due exposure market shifts prices paid commodities interest rate risk generally related outstanding debt addition exposed investment price risk various portfolios debt equity securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk hold commoditybased financial derivative instruments nontrading purposes associated purchases electricity natural gas energyrelated products derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 23 million 27 million fair value nontrading commoditybased financial derivatives december 31 2008 2007 respectively impact change energy commodity prices nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled example expenses power purchases combined settlement commodity derivative instruments used hedging purposes generally result range prices purchases contemplated risk management strategy interest rate risk manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2008 2007 hypothetical 10 increase market interest rates would resulted decrease annual earnings approximately 2 million investment price risk subject investment price risk due securities held investments decommissioning trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value following reapplication sfas 71 virginia jurisdiction generation operations gains losses decommissioning trust investments deferred regulatory liabilities recognized net realized losses net investment income nuclear decommissioning trust investments 57 million 2008 net realized gains including investment income 28 million 2007 net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2008 recorded aoci regulatory liabilities reduction unrealized gains investments 233 million 2007 recorded aoci regulatory liabilities increase unrealized gains investments 13 million dominion sponsors employee pension postretirement benefit plans employees participate hold investments trusts fund benefit payments investmentrelated declines trusts experienced 2008 result future increases periodic cost recognized employee benefit plans included determination amount cash provide dominion share employee benefit plan contributions risk management policies established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries including company dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based dominion’s credit policies december 31 2008 provision credit losses management believes unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs part ii item 7 mda form 10k reader’s attention directed paragraphs risk factors cautionary statements may affect future results mda discussion various risks uncertainties may affect future company market rate sensitive instruments risk management company’s financial instruments commodity contracts related derivative instruments exposed potential losses due adverse changes interest rates foreign currency exchange rates commodity prices equity security prices described interest rate risk generally related company’s outstanding debt commodity price risk present company’s electric operations energy marketing trading operations due exposure market shifts prices received paid natural gas electricity commodities company uses derivative instruments manage price risk exposures operations company exposed equity price risk various portfolios equity securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity interest rates foreign currency exchange rates commodity price risktrading activities part strategy market energy manage related risks company manages portfolio commoditybased derivative instruments held trading purposes contracts sensitive changes prices natural gas electricity certain commodities company uses established policies procedures manage risks associated price fluctuations uses derivative instruments futures forwards swaps options mitigate risk creating offsetting market positions addition company may use generation capacity satisfy commitments sell energy needed serve customers service territory hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 100 million 26 million fair value commoditybased financial derivatives held trading purposes december 31 2003 2002 respectively impact change energy commodity prices company’s trading derivative commodity instruments point time necessarily representative results realized contracts ultimately settled interest rate risk company manages interest rate risk exposure predominantly maintaining balance fixed variable rate debt company also enters interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2003 hypothetical 10 increase market interest rates would decrease annual earnings approximately 3 million hypothetical 10 increase market interest rates determined december 31 2002 would resulted decrease annual earnings approximately 2 million foreign exchange risk company manages foreign exchange risk exposure associated anticipated future purchases nuclear fuel processing services denominated foreign currencies utilizing currency forward contracts result holding contracts hedges company’s exposure foreign currency risk purchases minimal hypothetical 10 unfavorable change relevant foreign exchange rates would resulted decrease approximately 15 million 17 million fair value currency forward contracts held company december 31 2003 2002 respectively investment price risk company subject investment price risk due marketable securities held investments nuclear decommissioning trust funds accordance current accounting standards marketable securities reported consolidated balance sheets fair value described note 8 consolidated financial statements company recognized net realized gain including investment income 36 million net unrealized gain 100 million decommissioning trust investments 2003 year ended december 31 2002 company recognized net realized gain including investment income 11 million unrealized loss 67 million dominion sponsors employee pension postretirement benefit plans company’s employees participate hold investments trusts fund benefit payments extent values investments held trusts decline effect reflected company’s recognition periodic cost employee benefit plans determination amount cash contributed company employee benefit plans risk management policies company operating procedures place administered experienced management help ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries including company dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion monitors financial condition existing counterparties ongoing basis based dominion’s credit policies company’s december 31 2003 provision credit losses management believes unlikely material adverse effect company’s financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact companies market risk sensitive instruments risk management companies’ financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present companies’ electric operations dominion energy’s natural gas procurement marketing operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt future issuances debt addition companies exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 change commodity prices interest rates commodity price risk manage price risk companies hold commoditybased derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 decrease commodity prices would resulted increase 2 million decrease 50 million fair value dominion energy’s commoditybased derivative instruments december 31 2020 december 31 2019 respectively hypothetical 10 decrease commodity prices would resulted decrease 35 million 54 million fair value virginia power’s commoditybased derivative instruments december 31 2020 december 31 2019 respectively impact change energy commodity prices companies’ commoditybased derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commoditybased financial derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk companies manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements variable rate debt outstanding dominion energy virginia power hypothetical 10 increase market interest rates would resulted material change earnings december 31 2020 2019 companies also use interest rate derivatives including forwardstarting swaps interest rate swaps interest rate lock agreements manage interest rate risk december 31 2020 dominion energy virginia power 69 billion 21 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 124 million 75 million respectively fair value dominion energy virginia power interest rate derivatives december 31 2020 december 31 2019 dominion energy virginia power 64 billion 19 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 135 million 88 million respectively fair value dominion energy virginia power interest rate derivatives december 31 2019 prior completing gts transaction dominion energy held foreign currency swaps purpose hedging foreign currency exchange risk associated euro denominated debt december 31 2019 dominion energy €250 million aggregate notional amounts foreign currency swaps outstanding hypothetical 10 decrease market interest rates would resulted material decrease fair value dominion energy’s foreign currency swaps december 31 2019 impact change interest rates companies’ interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk companies subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion energy recognized net investment gains including investment income nuclear decommissioning rabbi trust investments 07 billion 10 billion years ended december 31 2020 2019 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value dominion energy recorded aoci regulatory liabilities net increase unrealized gains debt investments 57 million 74 million years ended december 31 2020 2019 respectively virginia power recognized net investment gains including investment income nuclear decommissioning trust investments 287 million 481 million years ended december 31 2020 2019 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value virginia power recorded aoci regulatory liabilities net increase unrealized gains debt investments 29 million 30 million years ended december 31 2020 2019 respectively dominion energy sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power employees participate plans dominion energy’s pension postretirement plan assets experienced aggregate actual returns losses 19 billion 21 billion 2020 2019 respectively versus expected returns 933 million 848 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion energy’s plan assets would result increase net periodic cost 25 million 23 million december 31 2020 2019 respectively pension benefits 5 million december 31 2020 2019 postretirement benefits risk management policies companies established operating procedures corporate management ensure proper internal controls maintained addition dominion energy established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion energy maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion energy also monitors financial condition existing counterparties ongoing basis based credit policies companies’ december 31 2020 provision credit losses management believes unlikely material adverse effect companies’ financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk see market risk sensitive instruments risk management item 7 managements discussion analysis financial condition results operations item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact dominion virginia power market risk sensitive instruments risk management dominion’s virginia power’s financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s gas procurement operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt addition exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk dominion virginia power primarily hold commoditybased financial derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products second quarter 2013 dominion commenced restructuring producer services business result termination natural gas trading certain energy marketing activities combined dominion’s decision january 2014 exit electric retail energy marketing business reduce dominion’s commodity price risk exposure derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 unfavorable change commodity prices dominion’s nontrading commoditybased financial derivative instruments would resulted increase fair value approximately 171 million 126 million december 31 2013 2012 respectively hypothetical 10 unfavorable change commodity prices dominion’s commoditybased financial derivative instruments held trading purposes would resulted decrease fair value approximately 17 million 18 million december 31 2013 2012 respectively hypothetical 10 unfavorable change commodity prices would resulted material change fair value virginia power’s nontrading commoditybased financial derivatives december 31 2013 2012 impact change energy commodity prices dominion’s virginia power’s nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk dominion virginia power manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock management’s discussion analysis financial condition results operations continued agreements variable rate debt interest rate swaps designated fair value hedging outstanding dominion virginia power hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2013 2012 dominion virginia power may also use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2013 dominion virginia power 11 billion 600 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease approximately 20 million 13 million respectively fair value dominion’s virginia power’s interest rate derivatives december 31 2013 december 31 2012 dominion virginia power 18 billion 750 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease approximately 21 million 9 million respectively fair value dominion’s virginia power’s interest rate derivatives december 31 2012 impact change interest rates dominion’s virginia power’s interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 163 million 126 million 2013 2012 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2013 2012 dominion recorded aoci regulatory liabilities net increase unrealized gains investments 417 million 210 million respectively virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 52 million 53 million 2013 2012 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2013 2012 virginia power recorded aoci regulatory liabilities net increase unrealized gains investments 193 million 89 million respectively dominion sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power employees participate plans aggregate actual returns dominion’s pension postretirement plan assets 959 million 2013 743 million 2012 versus expected returns 554 million 509 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost approximately 14 million 13 million december 31 2013 2012 respectively pension benefits 3 million december 31 2013 2012 postretirement benefits risk management policies dominion virginia power established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies dominion’s virginia power’s december 31 2013 provision credit losses management believes unlikely material adverse effect dominion’s virginia power’s financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs part ii item 7 mda form 10k reader’s attention directed paragraphs risk factors cautionary statements may affect future results mda discussion various risks uncertainties may affect future company market rate sensitive instruments risk management company’s financial instruments commodity contracts related derivative instruments exposed potential losses due adverse changes interest rates foreign currency exchange 2004 page 26 rates commodity prices equity security prices described interest rate risk generally related company’s outstanding debt commodity price risk present company’s electric operations energy marketing trading operations due exposure market shifts prices received paid natural gas electricity commodities company uses derivative instruments manage price risk exposures operations company exposed equity price risk various portfolios equity securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates foreign currency exchange rates commodity price risk trading activities part strategy market energy manage related risks company manages portfolio commoditybased derivative instruments held trading purposes contracts sensitive changes prices natural gas electricity certain commodities company uses established policies procedures manage risks associated price fluctuations uses derivative instruments futures forwards swaps options mitigate risk creating offsetting market positions hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 104 million 100 million fair value commoditybased financial derivatives held trading purposes december 31 2004 2003 respectively impact change energy commodity prices company’s trading derivative commodity instruments point time necessarily representative results realized contracts ultimately settled nontrading activities company manages price risk associated purchases sales natural gas electricity using derivative commodity instruments including futures forwards options swaps sensitivity analysis purposes fair value company’s nontrading derivative commodity instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments market prices volatility principally determined based quoted prices futures exchange hypothetical 10 unfavorable change market prices company’s nontrading commoditybased financial derivative instruments would resulted decrease fair value approximately 12 million 6 million december 31 2004 2003 respectively impact change energy commodity prices company’s nontrading commodity based financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses derivative commodity instruments used hedging purposes extent realized substantially offset recognition hedged transaction revenue sales interest rate risk company manages interest rate risk exposure predominantly maintaining balance fixed variable rate debt company also enters interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2004 hypothetical 10 increase market interest rates would decrease annual earnings approximately 3 million hypothetical 10 increase market interest rates determined december 31 2003 would resulted decrease annual earnings approximately 2 million foreign currency exchange risk company manages foreign exchange risk exposure associated anticipated future purchases nuclear fuel processing services denominated foreign currencies utilizing currency forward contracts result holding contracts hedges company’s exposure foreign currency risk purchases minimal hypothetical 10 unfavorable change relevant foreign exchange rates would resulted decrease approximately 10 million 15 million fair value currency forward contracts held company december 31 2004 2003 respectively investment price risk company subject investment price risk due marketable securities held investments nuclear decommissioning trust funds accordance current accounting standards marketable securities reported consolidated balance sheets fair value company recognized net realized gains net investment income nuclear decommissioning trust investments 24 million 2004 36 million 2003 company recorded aoci net unrealized gains decommissioning trust investments 49 million 2004 net unrealized gains 100 million 2003 dominion sponsors employee pension postretirement benefit plans company’s employees participate hold investments trusts fund benefit payments extent values investments held trusts decline effect reflected company’s recognition periodic cost employee benefit plans determination amount cash contributed company employee benefit plans risk management policies company operating procedures place administered experienced management help ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries including company dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based dominion’s credit policies company’s december 31 2004 provision credit losses management believes unlikely material adverse effect company’s financial position results operations cash flows would occur result counterparty nonperformance 2004 page 27 item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact dominion virginia power market risk sensitive instruments risk management dominion’s virginia power’s financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s gas production procurement operations dominion’s energy marketing trading operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt addition exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk dominion virginia power primarily hold commoditybased financial derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products part strategy market energy manage related risks dominion also holds commoditybased financial derivative instruments trading purposes derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 unfavorable change market prices dominion’s nontrading commoditybased financial derivative instruments would resulted decrease fair value approximately 150 million 236 million december 31 2009 2008 respectively decline largely reflects settlements commodity derivative positions existing beginning 2009 hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 11 million 5 million fair value dominion’s commoditybased financial derivative instruments held trading purposes december 31 2009 2008 respectively increase largely reflects decrease commodity prices well increased commodity derivative activity hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 3 million 23 million fair value virginia power’s nontrading commoditybased financial derivatives december 31 2009 2008 respectively decline largely reflects settlements management’s discussion analysis financial condition results operations continued commodity derivative positions existing beginning 2009 impact change energy commodity prices dominion’s virginia power’s nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk dominion virginia power manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding dominion december 31 2009 2008 hypothetical 10 increase market interest rates would resulted decrease annual earnings approximately 2 million 4 million respectively financial instruments outstanding virginia power december 31 2009 2008 hypothetical 10 increase market interest rates would resulted decrease annual earnings less 1 million approximately 2 million respectively additionally dominion virginia power may use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2009 dominion virginia power 17 billion 850 million respectively aggregate notional amounts interest rate derivatives outstanding december 31 2009 hypothetical 10 decrease market interest rates would resulted decrease approximately 62 million 33 million fair value interest rate derivatives held dominion virginia power respectively dominion virginia power significant amount interest rate derivatives outstanding december 31 2008 impact change market interest rates anticipatory hedges point time necessarily representative results realized contracts settled net gains andor losses interest rate derivatives used anticipatory hedging purposes extent realized generally amortized life respective debt issuance hedged investment price risk dominion virginia power subject investment price risk due securities held investments decommissioning trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value following reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations april 2007 gains losses decommissioning trust investments deferred regulatory liabilities dominion recognized net realized gains including investment income nuclear decommissioning trust investments 29 million 2009 dominion recognized net realized losses net investment income nuclear decommissioning trust investments 192 million 2008 net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2009 dominion recorded aoci regulatory liabilities net increase unrealized gains investments 349 million 2008 dominion recorded aoci regulatory liabilities reduction unrealized gains investments 451 million virginia power recognized net realized losses net investment income nuclear decommissioning trust investments 3 million 57 million 2009 2008 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2009 virginia power recorded aoci regulatory liabilities net increase unrealized gains investments 149 million 2008 virginia power recorded aoci regulatory liabilities reduction unrealized gains investments 233 million dominion sponsors pension postretirement benefit plans hold investments trusts fund employee benefit payments virginia power employees participate plans aggregate actual returns dominion’s pension postretirement plan assets 777 million 2009 negative 14 billion 2008 versus expected returns 462 million 484 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts experienced 2008 result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans december 31 2009 2008 hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost approximately 12 million pension benefits 2 million postretirement benefits risk management policies dominion virginia power established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries including virginia power dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies dominion’s virginia power’s december 31 2009 provision credit losses management believes unlikely material adverse effect dominion’s virginia power’s financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk see risk factors cautionary statements may affect future results market rate sensitive instruments risk management item 7 management’s discussion analysis financial condition results operations item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact companies market risk sensitive instruments risk management companies’ financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s dominion gas’ natural gas procurement marketing operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt future issuances debt addition companies exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 change commodity prices interest rates commodity price risk manage price risk dominion virginia power hold commoditybased derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products dominion gas primarily holds commoditybased financial derivative instruments held nontrading purposes associated purchases sales natural gas energyrelated products derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 decrease commodity prices would resulted decrease fair value 27 million 24 million dominion’s commoditybased derivative instruments december 31 2016 december 31 2015 respectively hypothetical 10 decrease commodity prices would resulted decrease fair value 62 million 42 million virginia power’s commoditybased derivative instruments december 31 2016 december 31 2015 respectively increase sensitivity largely due increase commodity derivative activity higher commodity prices hypothetical 10 increase commodity prices dominion gas’ commoditybased financial derivative instruments would resulted decrease fair value 4 million 5 million december 31 2016 2015 respectively impact change energy commodity prices companies’ commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk companies manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements variable rate debt interest rate swaps designated fair value hedging outstanding companies hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2016 2015 companies may also use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2016 dominion virginia power 29 billion 17 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 58 million 45 million respectively fair value dominion’s virginia power’s interest rate derivatives december 31 2016 december 31 2015 dominion virginia power dominion gas 46 billion 20 billion 250 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 71 million 52 million 2 million respectively fair value dominion’s virginia power’s dominion gas’ interest rate derivatives december 31 2015 june 2016 dominion gas entered foreign currency swaps purpose hedging foreign currency exchange risk associated euro denominated debt december 31 2016 dominion gas 280 million  250 million aggregate notional amounts foreign currency swaps outstanding hypothetical 10 increase market interest rates would resulted 5 million decrease fair value dominion’s dominion gas’ foreign currency swaps december 31 2016 impact change interest rates companies’ interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 144 million 184 million 2016 2015 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value dominion recorded aoci regulatory liabilities net increase unrealized gains 183 million 2016 net decrease unrealized gains 157 million 2015 virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 67 million 88 million 2016 2015 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value virginia power recorded aoci regulatory liabilities net increase unrealized gains 93 million 2016 net decrease unrealized gains 76 million 2015 dominion sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power dominion gas employees participate plans dominion’s pension postretirement plan assets experienced aggregate actual returns 534 million 2016 aggregate actual losses 72 million 2015 versus expected returns 691 million 648 million respectively dominion gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns 130 million 2016 aggregate actual losses 13 million 2015 versus expected returns 157 million 150 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost 18 million 16 million december 31 2016 2015 respectively pension benefits 4 million 3 million december 31 2016 2015 respectively postretirement benefits hypothetical 025 decrease assumed longterm rates return dominion gas’ plan assets employees represented collective bargaining units would result increase net periodic cost 4 million december 31 2016 2015 pension benefits 1 million december 31 2016 2015 postretirement benefits risk management policies companies established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion gas dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies companies’ december 31 2016 provision credit losses management believes unlikely material adverse effect companies’ financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact companies market risk sensitive instruments risk management companies’ financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion energy virginia power’s electric operations dominion energy dominion energy gas’ natural gas procurement marketing operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt future issuances debt addition companies exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 change commodity prices interest rates commodity price risk manage price risk dominion energy virginia power hold commoditybased derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products dominion energy gas primarily holds commoditybased financial derivative instruments held nontrading purposes associated sales ngls derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 decrease commodity prices would resulted decrease fair value 6 million 5 million dominion energy’s commoditybased derivative instruments december 31 2018 december 31 2017 respectively hypothetical 10 decrease commodity prices virginia power’s commoditybased derivative instruments would resulted decrease fair value 51 million december 31 2018 december 31 2017 respectively hypothetical 10 increase commodity prices dominion energy gas’ commoditybased financial derivative instruments would resulted decrease fair value 1 million 4 million december 31 2018 december 31 2017 respectively impact change energy commodity prices companies’ commoditybased derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commoditybased financial derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk companies manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements variable rate debt interest rate swaps designated fair value hedging outstanding dominion energy hypothetical 10 increase market interest rates would result 24 million 12 million decrease earnings december 31 2018 december 31 2017 respectively variable rate debt outstanding virginia power dominion energy gas hypothetical 10 increase market interest rates would resulted material change earnings december 31 2018 december 31 2017 companies also use interest rate derivatives including forwardstarting swaps cash flow hedges forecasted interest payments december 31 2018 dominion energy virginia power dominion energy gas 59 billion 19 billion 11 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 147 million 94 million 17 million respectively fair value dominion energy virginia power dominion energy gas’ interest rate derivatives december 31 2018 december 31 2017 dominion energy virginia power 35 billion 15 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 86 million 67 million respectively fair value dominion energy virginia power’s interest rate derivatives december 31 2017 dominion energy gas interest rate derivatives outstanding december 31 2017 2016 dominion energy gas entered foreign currency swaps purpose hedging foreign currency exchange risk associated euro denominated debt december 31 2018 december 31 2017 dominion energy dominion energy gas 280 million  250 million aggregate notional amounts foreign currency swaps outstanding hypothetical 10 decrease market interest rates would resulted decrease 8 million 6 million fair value dominion energy gas’ foreign currency swaps december 31 2018 december 31 2017 respectively impact change interest rates companies’ interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion energy virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion energy recognized net investment losses including investment income nuclear decommissioning rabbi trust investments 135 million year ended december 31 2018 dominion energy recognized net realized gains including investment income nuclear decommissioning trust investments 167 million year ended december 31 2017 net realized gains losses include gains losses sale investments well otherthantemporary declines fair value dominion energy recorded aoci regulatory liabilities net decrease unrealized gains debt investments 36 million year ended december 31 2018 recorded net increase unrealized gains debt equity investments 462 million year ended december 31 2017 virginia power recognized net investment losses including investment income nuclear decommissioning trust investments 44 million year ended december 31 2018 virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 76 million year ended december 31 2017 net realized gains losses include gains losses sale investments well otherthantemporary declines fair value virginia power recorded aoci regulatory liabilities net decrease unrealized gains debt investments 21 million year ended december 31 2018 recorded net increase unrealized gains debt equity investments 216 million year ended december 31 2017 dominion energy sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power dominion energy gas employees participate plans dominion energy’s pension postretirement plan assets experienced aggregate actual returns losses 605 million 16 billion 2018 2017 respectively versus expected returns 806 million 767 million respectively dominion energy gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns losses 129 million 335 million 2018 2017 respectively versus expected returns 178 million 165 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion energy’s plan assets would result increase net periodic cost 19 million december 31 2018 2017 pension benefits 4 million december 31 2018 2017 postretirement benefits hypothetical 025 decrease assumed longterm rates return dominion energy gas’ plan assets employees represented collective bargaining units would result increase net periodic cost 4 million december 31 2018 2017 pension benefits 1 million december 31 2018 2017 postretirement benefits management’s discussion analysis financial condition results operations continued risk management policies companies established operating procedures corporate management ensure proper internal controls maintained addition dominion energy established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion energy gas dominion energy maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion energy also monitors financial condition existing counterparties ongoing basis based credit policies companies’ december 31 2018 provision credit losses management believes unlikely material adverse effect companies’ financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs part ii item 7 management’s discussion analysis financial condition results operations form 10k reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may affect future market risk sensitive instruments risk management financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates foreign currency exchange rates equity security prices described commodity price risk due exposure market shifts prices received paid natural gas electricity commodities interest rate risk generally related outstanding debt exposed foreign currency exchange rate risks related purchase fuel services denominated foreign currency addition exposed equity price risk various portfolios equity securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates foreign currency exchange rates commodity price risk manage price risk associated purchases sales natural gas electricity certain commodities hold commoditybased financial derivatives part vpem’s strategy market energy manage related risks holds commoditybased financial derivative instruments held trading purposes also manages price risk associated purchases sales natural gas electricity certain commodities using commoditybased financial derivative instruments held nontrading purposes derivatives used manage risk executed within established policies procedures include instruments futures forwards swaps options sensitive changes related commodity prices sensitivity analysis purposes fair value commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based actively quoted market prices hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 104 million fair value commoditybased financial derivatives held trading purposes december 31 2004 hypothetical 10 unfavorable change market prices nontrading commoditybased financial derivative instruments would resulted decrease fair value approximately 12 million december 31 2004 discussed note 8 consolidated financial statements december 31 2005 completed transfer vpem dominion result december 31 2005 significant exposure commodity price risk associated financial derivative instruments impact change energy commodity prices nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses derivative commodity instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue sales interest rate risk manage interest rate risk exposure predominantly maintaining portfolio fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2005 hypothetical 10 increase market interest rates would resulted decrease annual earnings approximately 6 million hypothetical 10 increase market interest rates determined december 31 2004 would resulted decrease annual earnings approximately 3 million foreign currency exchange risk manage foreign exchange risk exposure associated anticipated future purchases nuclear fuel processing services denominated foreign currencies utilizing currency forward contracts result holding contracts hedges exposure foreign currency risk purchases minimal hypothetical 10 unfavorable change relevant foreign exchange rates would resulted decrease approximately 6 million 10 million fair value currency forward contracts held us december 31 2005 2004 respectively investment price risk subject investment price risk due marketable securities held investments nuclear decommissioning trust funds marketable securities reported consolidated balance sheets fair value recognized net realized gains including investment income nuclear decommissioning trust investments 32 million 2005 24 million 2004 recorded aoci net unrealized gains decommissioning trust investments 10 million 49 million 2005 2004 respectively dominion sponsors employee pension postretirement benefit plans employees participate hold investments trusts fund benefit payments extent values investments held trusts decline effect reflected recognition periodic cost employee benefit plans determination amount cash contribute employee benefit plans risk management policies operating procedures place administered experienced management help ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries including us dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based dominion’s credit policies december 31 2005 provision credit losses management believes unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact dominion virginia power market risk sensitive instruments risk management dominion’s virginia power’s financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s gas procurement operations dominion’s energy marketing trading operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt addition exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk dominion virginia power primarily hold commoditybased financial derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products part strategy market energy manage related risks dominion also holds commoditybased financial derivative instruments trading purposes derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 unfavorable change commodity prices dominion’s nontrading commoditybased financial derivative instruments would resulted decrease fair value approximately 179 million 183 million december 31 2011 2010 respectively hypothetical 10 unfavorable change commodity prices dominion’s commoditybased financial derivative instruments held trading purposes would resulted decrease fair value approximately 8 million 5 million december 31 2011 2010 respectively hypothetical 10 unfavorable change commodity prices would resulted material change fair value virginia power’s nontrading commoditybased financial derivatives december 31 2011 2010 impact change energy commodity prices dominion’s virginia power’s nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk dominion virginia power manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments designated fair value hedging outstanding dominion virginia power hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2011 2010 dominion virginia power may also use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2010 dominion virginia power interest rate derivatives outstanding therefore dominion virginia power sensitivity changes interest rates related interest rate derivatives december 31 2011 dominion virginia power 23 billion 13 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease approximately 31 million 15 million respectively fair value interest rate derivatives held dominion virginia power december 31 2011 impact change market interest rates anticipatory hedges point time necessarily representative results realized contracts settled net gains andor losses interest rate derivatives used anticipatory hedging purposes extent realized generally amortized life respective debt issuance hedged investment price risk dominion virginia power subject investment price risk due securities held investments decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 54 million 95 million 2011 2010 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2011 2010 dominion recorded aoci regulatory liabilities net increase unrealized gains investments 52 million 182 million respectively virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 24 million 44 million 2011 2010 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2011 2010 virginia power recorded aoci regulatory liabilities net increase unrealized gains investments 25 million 67 million respectively dominion sponsors pension postretirement benefit plans hold investments trusts fund employee benefit payments virginia power employees participate plans aggregate actual returns dominion’s pension post retirement plan assets 273 million 2011 624 million 2010 versus expected returns 519 million 479 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans december 31 2011 2010 hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost approximately 13 million pension benefits 3 million postretirement benefits risk management policies dominion virginia power established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies dominion’s virginia power’s december 31 2011 provision credit losses management believes unlikely material adverse effect dominion’s virginia power’s financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact dominion virginia power market risk sensitive instruments risk management dominion’s virginia power’s financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s gas procurement operations dominion’s energy marketing trading operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt addition exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk dominion virginia power primarily hold commoditybased financial derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products part strategy market energy manage related risks dominion also holds commoditybased financial derivative instruments trading purposes derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 unfavorable change commodity prices dominion’s nontrading commoditybased financial derivative instruments would resulted decrease fair value approximately 128 million 179 million december 31 2012 2011 respectively hypothetical 10 unfavorable change commodity prices dominion’s commoditybased financial derivative instruments held trading purposes would resulted decrease fair value approximately 18 million 8 million december 31 2012 2011 respectively hypothetical 10 unfavorable change commodity prices would resulted material change fair value virginia power’s nontrading commoditybased financial derivatives december 31 2012 2011 impact change energy commodity prices dominion’s virginia power’s nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk dominion virginia power manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements variable rate debt interest rate swaps designated fair value hedging outstanding dominion virginia power hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2012 2011 dominion virginia power may also use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2012 dominion virginia power 18 billion 750 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease approximately 21 million 9 million respectively fair value dominion’s virginia power’s interest rate derivatives december 31 2012 december 31 2011 dominion virginia power 23 billion 13 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease approximately 31 million 15 million respectively fair value dominion’s virginia power’s interest rate derivatives december 31 2011 impact change interest rates dominion’s virginia power’s interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 126 million 54 million 2012 2011 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2012 2011 dominion recorded aoci regulatory liabilities net increase unrealized gains investments 210 million 52 million respectively virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 53 million 24 million 2012 2011 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2012 2011 virginia power recorded aoci regulatory liabilities net increase unrealized gains investments 89 million 25 million respectively dominion sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power employees participate plans aggregate actual returns dominion’s pension postretirement plan assets 743 million 2012 273 million 2011 versus expected returns 509 million 519 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans december 31 2012 2011 hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost approximately 13 million pension benefits 3 million postretirement benefits risk management policies dominion virginia power established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies dominion’s virginia power’s december 31 2012 provision credit losses management believes unlikely material adverse effect dominion’s virginia power’s financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs part ii item 7 management’s discussion analysis financial condition results operations form 10k reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may affect future market risk sensitive instruments risk management financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices foreign currency exchange rates interest rates equity security prices described commodity price risk due exposure market shifts prices received paid natural gas electricity commodities exposed foreign currency exchange rate risks related purchases fuel services denominated foreign currencies interest rate risk generally related outstanding debt addition exposed equity price risk various portfolios equity securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices foreign currency exchange rates interest rates commodity price risk manage price risk primarily hold commoditybased financial derivative instruments nontrading purposes associated purchase electricity natural gas derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options sensitive changes related commodity prices sensitivity analysis purposes fair value commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based actively quoted market prices hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 3 million fair value nontrading commoditybased financial derivatives december 31 2006 december 31 2005 significant exposure commodity price risk associated financial derivative instruments impact change energy commodity prices nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled example expenses power purchases combined settlement commodity derivative instruments used hedging purposes generally result range prices purchases contemplated risk management strategy foreign currency exchange risk manage foreign exchange risk exposure associated anticipated future purchases nuclear fuel processing services denominated foreign currencies utilizing currency forward contracts result holding contracts hedges exposure foreign currency risk minimal hypothetical 10 unfavorable change relevant foreign exchange rates would resulted decrease approximately 3 million 6 million fair value currency forward contracts held us december 31 2006 2005 respectively interest rate risk manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments outstanding december 31 2006 2005 hypothetical 10 increase market interest rates would resulted decrease annual earnings approximately 6 million respectively investment price risk subject investment price risk due marketable securities held investments decommissioning trust funds marketable securities managed thirdparty investment managers reported consolidated balance sheets fair value recognized net realized gains including investment income nuclear decommissioning trust investments 36 million 32 million 2006 2005 respectively recorded aoci gross unrealized gains investments 86 million 2006 net unrealized gains 10 million 2005 dominion sponsors employee pension postretirement benefit plans employees participate hold investments trusts fund benefit payments extent values investments held trusts decline effect reflected recognition periodic cost employee benefit plans determination amount cash provide dominion representing share employee benefit plan contributions risk management policies established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance risk management policies subsidiaries including company dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based dominion’s credit policies december 31 2006 provision credit losses management believes unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance page intentionally left blank item 8 item 7a quantitative qualitative disclosures market risk see cautionary statements regarding forwardlooking information market rate sensitive instruments risk management item 7 management’s discussion analysis financial condition results operations item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact companies market risk sensitive instruments risk management companies’ financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s dominion gas’ natural gas procurement marketing operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt future issuances debt addition companies exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 change commodity prices interest rates commodity price risk manage price risk dominion virginia power primarily hold commoditybased financial derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products dominion gas primarily holds commoditybased financial derivative instruments held nontrading purposes associated purchases sales natural gas energyrelated products repositioning dominion’s producer services business completed first quarter 2014 combined dominion’s sale electric retail energy marketing business reduced dominion’s commodity price risk exposure derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 increase commodity prices dominion’s commoditybased financial derivative instruments would resulted decrease fair value 62 million 101 million december 31 2015 2014 respectively decline sensitivity largely due decreased commodity derivative activity lower commodity prices hypothetical 10 increase commodity prices would resulted material change fair value virginia power’s commoditybased financial derivatives december 31 2015 2014 hypothetical 10 increase commodity prices dominion gas’ commoditybased financial derivative instruments would resulted decrease fair value 5 million 2 million december 31 2015 2014 respectively increase sensitivity largely due increase commodity derivative volume impact change energy commodity prices companies’ commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk companies manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements variable rate debt interest rate swaps designated fair value hedging outstanding companies hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2015 2014 companies may also use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2015 dominion virginia power domin ion gas 46 billion 20 billion 250 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 71 million 52 million 2 million respectively fair value dominion’s virginia power’s dominion gas’ interest rate derivatives december 31 2015 december 31 2014 dominion virginia power dominion gas 41 billion 15 billion 250 million respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 46 million 25 million 2 million respectively fair value dominion’s virginia power’s dominion gas’ interest rate derivatives december 31 2014 impact change interest rates companies’ interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 184 million 176 million 2015 2014 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value dominion recorded aoci regulatory liabilities net decrease unrealized gains 157 million 2015 net increase unrealized gains 172 million 2014 virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 88 million 77 million 2015 2014 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value virginia power recorded aoci regulatory liabilities net decrease unrealized gains 76 million 2015 net increase unrealized gains 87 million 2014 dominion sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power dominion gas employees participate plans dominion’s pension postretirement plan assets experienced aggregate actual losses 72 million 2015 aggregate actual returns 706 million 2014 versus expected returns 648 million 610 million respectively dominion gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual losses 13 million 2015 aggregate actual returns 157 million 2014 versus expected returns 150 million 138 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost 16 million 15 million december 31 2015 2014 respectively pension benefits 3 million december 31 2015 2014 postretirement benefits hypothetical 025 decrease assumed longterm rates return dominion gas’ plan assets employees represented collective bargaining units would result increase net periodic cost 4 million december 31 2015 2014 pension benefits 1 million december 31 2015 2014 postretirement benefits risk management policies companies established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion gas dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies companies’ december 31 2015 provision credit losses management believes unlikely material adverse effect companies’ financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a market risk sensitive instruments risk management virginia power subject market risk result use various financial instruments derivative commodity instruments interest rate risk generally associated outstanding debt preferred stock trustissued securities also exposed interest rate risk well equity price risk result nuclear decommissioning trust investments debt equity securities commodity price risk part strategy market energy generation capacity manage related risks manage portfolio derivative commodity contracts held trading purposes contracts sensitive changes prices natural gas electricity employ established policies procedures manage risks associated price fluctuations use various commodity instruments futures swaps options reduce risk creating offsetting market positions addition seek use generation capacity needed serve customers service territory satisfy commitments sell energy one techniques commonly used measure risk commodity trading portfolio sensitivity analysis determines hypothetical change fair value portfolio would result assumed change market prices related commodities fair value portfolio function underlying commodity contract prices market prices represented derivative commodity contract exchangeforphysical contracts basis swaps fixed price forward contracts options require physical delivery underlying commodity market value reflects best estimates considering overthecounter quotations time value volatility factors underlying commitments exchangetraded futures options marked market based closing exchange prices determined hypothetical loss calculating hypothetical fair value contract assuming 10 unfavorable change market prices related commodity comparing fair value contracts based market prices december 31 1998 1997 hypothetical 10 change commodity prices would resulted hypothetical loss approximately 135 million 25 million fair value commodity contracts december 31 1998 1997 respectively commodity contracts sensitivity unfavorable price changes increased 1998 compared 1997 primarily due increased volume contracts associated commodities sensitivity analysis include price risks associated utility operations including underlying utility fuel requirements normal course business also face risks either nonfinancial nonquantifiable risks principally include credit risk reflected sensitivity analysis interestrate risk virginia power uses fixed rate variable rate debt preferred securities sources capital following table presents financial instruments held issued company december 31 1998 1997 sensitive interest rate changes way weighted average variable rates based implied forward rates derived appropriate annual spot rate observations december 31 1998 1997 1 rates based average yield entire portfolio december 31 1998 1997 2 interest rates taxexempt bonds based shortterm taxexempt market rates reset periods one 270 days length option convert bonds fixed rate securities upon 40 days written notice see note h consolidated financial statements 3 notional amount contracts 150 million february 5 1999 contracts closed resulting gain 56 million equity price risk following table presents description marketable equity securities held company december 31 1998 1997 accordance sfas 115 accounting certain investments debt equity securities reported balance sheet fair value see future issues nrc nuclear decommissioning rule item 8 item 7a quantitative qualitative disclosures market risk see market risk sensitive instruments risk management managements discussion analysis financial condition results operations item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact companies market risk sensitive instruments risk management companies’ financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion energy’s virginia power’s electric operations dominion energy’s dominion energy gas’ natural gas procurement marketing operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt future issuances debt addition companies exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 change commodity prices interest rates commodity price risk manage price risk dominion energy virginia power hold commoditybased derivative instruments held nontrading purposes associated purchases sales electricity natural gas energyrelated products dominion energy gas primarily holds commoditybased financial derivative instruments held nontrading purposes associated purchases sales natural gas energyrelated products derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 decrease commodity prices would resulted decrease fair value 5 million 27 million dominion energy’s commoditybased derivative instruments december 31 2017 december 31 2016 respectively decrease sensitivity largely due decrease commodity derivative activity changes commodity prices hypothetical 10 decrease commodity prices would resulted decrease fair value 51 million 62 million virginia power’s commoditybased derivative instruments december 31 2017 december 31 2016 respectively decrease sensitivity largely due decrease commodity derivative activity lower commodity prices hypothetical 10 increase commodity prices dominion energy gas’ commoditybased financial derivative instruments would resulted decrease fair value 4 million december 31 2017 2016 impact change energy commodity prices companies’ commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk companies manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements variable rate debt interest rate swaps designated fair value hedging outstanding companies hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2017 2016 companies also use interest rate derivatives including forwardstarting swaps cash flow hedges forecasted interest payments december 31 2017 dominion energy virginia power 35 billion 15 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 86 million 67 million respectively fair value dominion energy’s virginia power’s interest rate derivatives december 31 2017 december 31 2016 dominion energy virginia power management’s discussion analysis financial condition results operations continued 29 billion 17 billion respectively aggregate notional amounts interest rate derivatives outstanding hypothetical 10 decrease market interest rates would resulted decrease 58 million 45 million respectively fair value dominion energy’s virginia power’s interest rate derivatives december 31 2016 dominion energy gas entered foreign currency swaps purpose hedging foreign currency exchange risk associated euro denominated debt december 31 2017 dominion energy dominion energy gas 280 million  250 million aggregate notional amounts foreign currency swaps outstanding hypothetical 10 increase market interest rates would resulted 6 million decrease fair value dominion energy’s dominion energy gas’ foreign currency swaps december 31 2017 december 31 2016 dominion energy dominion energy gas 280 million  250 million aggregate notional amounts foreign currency swaps outstanding hypothetical 10 increase market interest rates would resulted 5 million decrease fair value dominion energy’s dominion energy gas’s foreign currency swaps december 31 2016 impact change interest rates companies’ interest ratebased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net gains andor losses interest rate derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction investment price risk dominion energy virginia power subject investment price risk due securities held investments nuclear decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion energy recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 167 million 144 million 2017 2016 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value dominion energy recorded aoci regulatory liabilities net increase unrealized gains 462 million 183 million 2017 2016 respectively virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 76 million 67 million 2017 2016 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value virginia power recorded aoci regulatory liabilities net increase unrealized gains 216 million 93 million 2017 2016 respectively dominion energy sponsors pension postretirement employee benefit plans hold investments trusts fund employee benefit payments virginia power dominion energy gas employees participate plans dominion energy’s pension postretirement plan assets experienced aggregate actual returns 16 billion 534 million 2017 2016 respectively versus expected returns 767 million 691 million respectively dominion energy gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns 335 million 130 million 2017 2016 respectively versus expected returns 165 million 157 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans hypothetical 025 decrease assumed longterm rates return dominion energy’s plan assets would result increase net periodic cost 19 million 18 million december 31 2017 2016 respectively pension benefits 4 million december 31 2017 2016 postretirement benefits hypothetical 025 decrease assumed longterm rates return dominion energy gas’ plan assets employees represented collective bargaining units would result increase net periodic cost 4 million december 31 2017 2016 pension benefits 1 million december 31 2017 2016 postretirement benefits risk management policies companies established operating procedures corporate management ensure proper internal controls maintained addition dominion energy established independent function corporate level monitor compliance credit commodity risk management policies subsidiaries including virginia power dominion energy gas dominion energy maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion energy also monitors financial condition existing counterparties ongoing basis based credit policies companies’ december 31 2017 provision credit losses management believes unlikely material adverse effect companies’ financial position results operations cash flows would occur result counterparty nonperformance item 8 item 7a quantitative qualitative disclosures market risk matters discussed item may contain “forwardlooking statements” described introductory paragraphs item 7 mda reader’s attention directed paragraphs item 1a risk factors discussion various risks uncertainties may impact dominion virginia power market risk sensitive instruments risk management dominion’s virginia power’s financial instruments commodity contracts related financial derivative instruments exposed potential losses due adverse changes commodity prices interest rates equity security prices described commodity price risk present dominion’s virginia power’s electric operations dominion’s gas procurement operations dominion’s energy marketing trading operations due exposure market shifts prices received paid electricity natural gas commodities companies use commodity derivative contracts manage price risk exposures operations interest rate risk generally related outstanding debt addition exposed investment price risk various portfolios equity debt securities following sensitivity analysis estimates potential loss future earnings fair value market risk sensitive instruments selected time period due 10 unfavorable change commodity prices interest rates commodity price risk manage price risk dominion virginia power primarily hold commoditybased financial derivative instruments held nontrading purposes associated purchases sales elec tricity natural gas energyrelated products part strategy market energy manage related risks dominion also holds commoditybased financial derivative instruments trading purposes derivatives used manage commodity price risk executed within established policies procedures may include instruments futures forwards swaps options ftrs sensitive changes related commodity prices sensitivity analysis purposes hypothetical change market prices commoditybased financial derivative instruments determined based models consider market prices commodities future periods volatility market prices period well time value factors derivative instruments prices volatility principally determined based observable market prices hypothetical 10 unfavorable change market prices dominion’s nontrading commoditybased financial derivative instruments would resulted decrease fair value approximately 183 million 150 million december 31 2010 2009 respectively hypothetical 10 unfavorable change commodity prices would resulted decrease approximately 5 million 11 million fair value dominion’s commoditybased financial derivative instruments held trading purposes december 31 2010 2009 respectively hypothetical 10 unfavorable change commodity prices would resulted material change fair value virginia power’s nontrading commoditybased financial derivatives december 31 2010 2009 impact change energy commodity prices dominion’s virginia power’s nontrading commoditybased financial derivative instruments point time necessarily representative results realized contracts ultimately settled net losses commodity derivative instruments used hedging purposes extent realized generally offset recognition hedged transaction revenue physical sales commodity interest rate risk dominion virginia power manage interest rate risk exposure predominantly maintaining balance fixed variable rate debt also enter interest rate sensitive derivatives including interest rate swaps interest rate lock agreements financial instruments designated fair value hedging outstanding dominion virginia power hypothetical 10 increase market interest rates would resulted material change annual earnings december 31 2010 2009 dominion virginia power may also use forwardstarting interest rate swaps interest rate lock agreements anticipatory hedges december 31 2009 dominion virginia power 17 billion 850 million respectively aggregate notional amounts interest rate derivatives outstanding december 31 2009 hypothetical 10 decrease market interest rates would resulted decrease approximately 62 million 33 million fair value interest rate derivatives held dominion virginia power respectively subsequent june 30 2010 forwardstarting interest rate swap contracts terminated therefore dominion virginia power sensitivity changes interest rates related interest rate swaps impact change market interest rates anticipatory hedges point time necessarily representative results realized contracts settled net gains andor losses interest rate derivatives used anticipatory hedging purposes extent realized generally amortized life respective debt issuance hedged investment price risk dominion virginia power subject investment price risk due securities held investments decommissioning rabbi trust funds managed thirdparty investment managers trust funds primarily hold marketable securities reported consolidated balance sheets fair value dominion recognized net realized gains including investment income nuclear decommissioning rabbi trust investments 95 million 25 million 2010 2009 respectively net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2010 2009 dominion recorded aoci regulatory liabilities net increase unrealized gains investments 182 million 360 million respectively virginia power recognized net realized gains including investment income nuclear decommissioning trust investments 44 million 2010 virginia power recognized net realized losses net investment income nuclear decommissioning trust investments 3 million 2009 net realized gains losses include gains losses sale investments well otherthantemporary declines fair value 2010 2009 virginia power recorded aoci regulatory liabilities net increase unrealized gains investments 67 million 149 million respectively dominion sponsors pension postretirement benefit plans hold investments trusts fund employee benefit payments virginia power employees participate plans aggregate actual returns dominion’s pension postretirement plan assets 624 million 2010 777 million 2009 versus expected returns 479 million 462 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans december 31 2010 2009 hypothetical 025 decrease assumed longterm rates return dominion’s plan assets would result increase net periodic cost approximately 13 million pension benefits 3 million postretirement benefits risk management policies dominion virginia power established operating procedures corporate management ensure proper internal controls maintained addition dominion established independent function corporate level monitor compliance credit commodity risk management policies management’s discussion analysis financial condition results operations continued subsidiaries including virginia power dominion maintains credit policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty addition dominion also monitors financial condition existing counterparties ongoing basis based credit policies dominion’s virginia power’s december 31 2010 provision credit losses management believes unlikely material adverse effect dominion’s virginia power’s financial position results operations cash flows would occur result counterparty nonperformance item 8 item 8 financial statements supplementary data index page report management 27 report independent auditors 28 consolidated statements income years ended december 31 1996 1995 1994 29 consolidated balance sheets december 31 1996 1995 30 consolidated statements earnings reinvested business years ended december 31 1996 1995 1994 32 consolidated statements cash flows years ended december 31 1996 1995 1994 33 notes consolidated financial statements 34 report management companys management responsible information representations contained consolidated financial statements sections companys annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent consolidated financial statements management maintains system internal accounting controls designed provide reasonable assurance reasonable cost companys assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 1996 system internal control adequate accomplish intended objective consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance generally accepted auditing standards included review companys accounting systems procedures internal controls performance tests auditing procedures sufficient provide reasonable assurance consolidated financial statements materially misleading contain material errors audit committee board directors composed entirely directors officers employees company meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time management recognizes responsibility fostering strong ethical climate companys affairs conducted according highest standards personal corporate conduct responsibility characterized reflected companys code ethics distributed throughout company code ethics addresses among things importance ensuring open communication within company potential conflicts interest compliance domestic foreign laws including relating financial disclosure confidentiality proprietary information full disclosure public information virginia electric power company j rhodes e roach jr president senior vice presidentfinance chief executive regulation general counsel officer report independent auditors board directors virginia electric power company audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries company december 31 1996 1995 related consolidated statements income earnings reinvested business cash flows three years period ended december 31 1996 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 1996 1995 results operations cash flows three years period ended december 31 1996 conformity generally accepted accounting principles deloitte touche llp richmond virginia february 11 1997 virginia electric power company consolidated statements income accompanying notes integral part financial statements virginia electric power company consolidated balance sheets assets accompanying notes integral part financial statements virginia electric power company consolidated balance sheets liabilities shareholders equity described note j consolidated financial statements 805 junior subordinated notes totalling 1392 million principal amount constitute 100 trusts assets accompanying notes integral part financial statements virginia electric power company consolidated statements earnings reinvested business accompanying notes integral part financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part financial statements virginia electric power company notes consolidated financial statements significant accounting policies general virginia electric power company regulated public utility engaged generation transmission distribution sale electric energy within 30000 square mile area virginia northeastern north carolina sells electricity retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities virginia service area comprises 65 percent virginias total land area accounts 80 percent population companys accounting practices generally prescribed uniform system accounts promulgated regulatory commissions jurisdiction accordance generally accepted accounting principles applicable regulated enterprises financial statements include accounts company subsidiaries significant intercompany transactions accounts eliminated consolidation company whollyowned subsidiary dominion resources inc virginia corporation preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates revenues operating revenues recorded basis service rendered property plant equipment utility plant recorded original cost includes labor materials services afc permitted regulators indirect costs cost maintenance repairs charged appropriate operating expense clearing accounts cost additions replacements charged appropriate utility plant account except cost minor additions replacements provided uniform system accounts charged maintenance expense depreciation amortization depreciation utility plant nuclear fuel computed straightline method based projected useful service lives cost depreciable utility plant retired cost removal less salvage charged accumulated depreciation provision depreciation provides recovery cost assets including estimated cost removal net salvage based weighted average depreciable plant using rate 32 percent 1996 1995 1994 operating expenses include amortization nuclear fuel provided unit production basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs federal income taxes company files consolidated federal income tax return dominion resources deferred investment tax credits amortized service lives property giving rise credits allowance funds used construction applicable regulatory uniform system accounts defines afc cost construction period borrowed funds used construction purposes reasonable rate funds used pretax afc rates 1996 1995 1994 81 89 percent respectively afc accrued approximately 82 percent companys construction work progress instead included rate base cash return currently collected portion construction work progress included rate base deferred capacity fuel expense approximately 80 capacity expenses 90 fuel expenses subject deferral accounting difference reasonably incurred actual expenses level expenses included current rates deferred matched future revenues amortization debt issuance costs company defers amortizes expenses incurred issuance longterm debt including premiums discounts associated debt lives respective issues gains losses resulting refinancing debt also deferred amortized lives new issues longterm debt permitted appropriate regulatory jurisdictions gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 1996 1995 companys accounts payable included net effect checks outstanding yet presented payment 648 million 627 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand temporary investments purchased initial maturity three months less reclassification certain amounts 1995 1994 financial statements reclassified conform 1996 presentation b income taxes details income tax expense follows total federal income tax expense differs amount computed applying statutory federal income tax rate pretax income following reasons following chart reconciles total income tax expense shown consolidated statements income companys net accumulated deferred income taxes consist following c nuclear operations decommissioning nuclear plant decommissioning costs accrued recovered rates expected service lives companys nuclear generating units amounts collected customers placed trusts accumulated earnings thereon utilized solely fund future decommissioning obligations approximately every four years sitespecific studies prepared determine decommissioning cost estimate companys four nuclear units decon assumes activities associated decontamination prompt removal radioactive contaminants begin shortly cessation operations property may released unrestricted use accumulated provision decommissioning 4433 million 3514 million included utility plant accumulated depreciation december 31 1996 1995 respectively provisions decommissioning 362 million 285 million 245 million applicable 1996 1995 1994 respectively included depreciation amortization expense net unrealized gains 805 million 407 million associated securities held companys nuclear decommissioning trusts december 31 1996 1995 respectively included accumulated provision decommissioning earnings trust funds 160 million 159 million 152 million 1996 1995 1994 respectively included income companys consolidated statements income accretion accumulated provision decommissioning equal earnings trust funds also recorded income financial accounting standards board fasb reviewing accounting nuclear plant decommissioning current electric utility industry practices decommissioning changed annual provisions decommissioning could increase fasb tentatively determined estimated cost decommissioning reported liability rather accumulated depreciation substantial portion decommissioning obligation recognized earlier operating life nuclear plant deliberations fasb expanded scope project include similar unavoidable obligations perform closure postclosure activities incurred condition operate assets nuclear power plants whether position adopted would impact assets company cannot determined time furthermore fasb tentatively determined would inappropriate account cost removal negative salvage thus forthcoming standard may also cause changes industry plant depreciation practices insurance priceanderson act limits public liability owner nuclear power plant 89 billion single nuclear incident priceanderson amendments act 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risk sharing program event nuclear incident licensed nuclear reactor united states company could assessed 817 million including 3 insurance premium tax virginia four licensed reactors exceed 103 million including 3 insurance premium tax virginia per year per reactor limit number incidents retrospective premium assessed nuclear liability coverage claims made nuclear workers first hired january 1 1988 except arising extraordinary nuclear occurrence provided master worker insurance program first hired nuclear industry prior january 1 1988 covered policy discussed aggregate limit coverage industry 400 million 200 million policy limit automatic reinstatements additional 200 million companys maximum retrospective assessment approximately 125 million including 3 insurance premium tax virginia companys current level property insurance coverage 255 billion north anna 240 billion surry exceeds nrcs minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc companys nuclear property insurance provided nuclear mutual limited nml nuclear electric insurance limited neil two mutual insurance companies subject retrospective premium assessments policy year losses exceed funds available insurance companies maximum assessment current policy period 448 million based severity incident boards directors companys nuclear insurers discretion lower maximum retrospective premium assessment eliminate either completely losses exceed limits insurance proceeds available must first used stabilization decontamination company financial responsibility losses company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program virginia power subject retrospective premium assessment policy year losses exceed funds available neil current policy periods maximum assessment 9 million part owner north anna power station odec responsible proportionate share 116 percent insurance premiums applicable station including retrospective premium assessments losses covered insurance sale receivables company agreement sell limited recourse certain accounts receivable including unbilled amounts maximum 200 million agreement allowed expire october 1 1996 december 31 1995 amounts outstanding agreement e utility plant utility plant consisted following f jointly owned plants following information relates companys proportionate share jointly owned plants december 31 1996 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest companys share operating costs classified appropriate operating expense fuel maintenance depreciation taxes etc consolidated statements income g regulatory assets certain expenses normally reflected income deferred balance sheet regulatory assets recognized income related amounts included rates recovered customers companys regulatory assets included following income taxes recoverable future rates represent principally tax effect depreciation differences normalized earlier years ratemaking purposes amounts amortized related temporary differences reverse costs decommissioning department energys doe uranium enrichment facilities deferred represent unamortized portion virginia powers required contributions fund decommissioning decontaminating uranium enrichment facilities virginia power making contributions fifteenyear period escalation inflation costs recovered fuel rates losses gains reacquired debt deferred amortized lives new issues longterm debt gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues construction north anna unit 3 terminated november 1982 retail jurisdictions permitted recovery incurred costs virginia ferc jurisdictional customers amounts deferred amortized date termination costs first includible rates incurred costs underlying regulatory assets may represent expenditures company may represent recognition liabilities ultimately settled time future regulatory assets representing past expenditures included companys rate base used adjust companys capital structure company allowed earn return unrecovered balance 7739 million regulatory assets december 31 1996 approximately 117 million represent past expenditures effectively excluded rate base virginia state corporation commission primary jurisdiction companys rates however amount 731 million represent present value amounts recovered future rates north anna unit 3 project termination costs thus reflect reduction actual dollars recovered future rates time value money company earn return remaining 439 million regulatory assets effectively excluded rate base recovered various recovery periods 23 years depending nature deferred costs addition companys depreciation practices early retirements plant equipment cost removal along changing operating plant scenarios resulted accumulated depreciation reserve deficiency estimated 245 million december 31 1996 currently company allowed amortize reserve deficiencies estimated remaining functional plant lives regulatory jurisdictions serves h leases plant property capital leases included following company leases principal office building parent dominion resources capitalized cost property lease net accumulated amortization represented 23 million 24 million december 31 1996 1995 respectively rental payments lease 3 million three years ended december 31 1996 1995 1994 company responsible expenses connection leases noted including maintenance future minimum lease payments noncancellable capital leases operating leases initial remaining lease terms excess one year december 31 1996 follows rents leases charged operation expenses 128 million 98 million 96 million 1996 1995 1994 respectively longterm debt longterm debt included following 1 substantially companys property subject lien mortgage securing first refunding mortgage bonds 2 certain pollution control facilities companys generating facilities pledged conveyed secure financings 3 interest rates vary based shortterm taxexempt market rates weighted average daily interest rates 357 389 1996 1995 respectively pollution control bonds subject remarketing within one year classified longterm debt extent companys intention maintain debt supported longterm bank commitments maturities 2001 follows millions 1997 3113 1998 3335 1999 261 2000 1955 2001 1607 january 1997 company filed registration statement securities exchange commission 400 million junior subordinated debentures february 1997 company issued 200 million first refunding mortgage bonds proceeds primarily used refund portion companys debt matured february march 1997 j company obligated mandatorily redeemable preferred securities subsidiary trust 1995 company established virginia power capital trust vp capital trust vp capital trust sold 5400000 shares preferred securities 135 million representing preferred beneficial interests 97 beneficial ownership assets held vp capital trust company issued 1392 million 1995 series 805 junior subordinated notes exchange 135 million realized sale preferred securities 42 million common securities vp capital trust common securities represent remaining 3 beneficial ownership interest assets held vp capital trust notes constitute 100 vp capital trusts assets notes due september 30 2025 may extended additional ten years subject satisfying certain conditions however company may redeem notes september 30 2000 certain circumstances preferred securities subject mandatory redemption upon repayment notes maturity earlier redemption preferred security shall entitled receive liquidation amount 25 plus accrued unpaid distributions including interest thereon k preferred stock subject mandatory redemption preferred stock subject mandatory redemption 100 liquidation preference december 31 1996 follows shares noncallable prior redemption b shares redeemed 312000 c shares redeemed 912000 years 1994 1996 following shares redeemed total number authorized shares preferred stock 10000000 shares upon involuntary liquidation presently outstanding preferred stock entitled receive 100 per share plus accrued dividends cumulative l preferred stock subject mandatory redemption preferred stock subject mandatory redemption 100 liquidation preference december 31 1996 follows money market preferred mmp dividend rates variable set every 49 days via auction process combined weighted average rates series 1996 1995 1994 including fees brokerdealer agreements 448 493 375 respectively years 1994 1996 following shares redeemed common stock years 1994 1996 following changes common stock occurred n shortterm debt company established commercial paper program maximum borrowing capacity 500 million supported two credit facilities one 300 million fiveyear credit facility effective june 7 1996 expires june 7 2001 200 million credit facility also effective june 7 1996 initial term 364 days provisions subsequent 364day extensions total amount commercial paper outstanding 3124 million 1690 million december 31 1996 1995 respectively weighted average interest rate commercial paper 551 579 december 31 1996 1995 respectively retirement plan postretirement benefits terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits retirement plan company participates dominion resources inc retirement plan retirement plan defined benefit pension plan retirement plan covers virtually employees dominion resources subsidiaries including company benefits based years service average base compensation consecutive 60month period pay highest pension plan expenses 248 million 203 million 193 million 1996 1995 1994 respectively amounts funded 284 million 427 million 427 million 1996 1995 1994 respectively postretirement benefits net periodic postretirement benefit expense follows following table sets forth funded status plan one percent increase health care cost trend rate would result increase 318 million service interest cost components 2680 million increase accumulated postretirement benefit obligation significant assumptions used determining postretirement benefit obligation company recovering costs rates accrual basis material respects jurisdictions funds collected postretirement benefits opeb accruals rates excess opeb benefits actually paid year contributed external benefit trusts companys current funding policy see competition managements discussion analysis financial condition results operations benefits 1994 company offered early retirement program employees aged 50 older offered voluntary separation program regular fulltime employees approximately 1400 employees accepted offers programs costs associated programs 901 million company capitalized 259 million based upon regulatory precedent expensed 642 million p restructuring march 1995 company announced implementation phase vision 2000 program phase company began reviewing operations objective outsourcing services economical appropriate engineering remaining functions streamline operations reengineering process resulting outsourcing decentralization reorganization downsizing portions companys operations part process company reevaluating utilization capital resources operations company identify opportunities operational efficiencies outsourcing reengineering processes restructuring charges 916 million 1179 million 1996 1995 respectively included severance costs purchased power contract restructuring negotiated settlement costs capital project cancellation costs incurred directly result vision 2000 initiatives company may incur additional charges severance 1997 amounts expected significant 1995 company established comprehensive involuntary severance package salaried employees may longer employed result initiatives company recognizing cost associated employee terminations accordance emerging issues task force consensus 943 management identifies positions eliminated severance payments made period exceed twenty months december 31 1996 management identified 1811 positions eliminated positions identified result companys review fossil hydroelectric nuclear commercial operations business units portions corporate center operations recognition severance costs resulted charges operations 1996 1995 492 million 512 million respectively december 31 1996 1266 employees terminated severance payments totaling 45 million paid company estimates staffing reductions result annual savings net outsourcing costs range 62 million 90 million however savings may offset part future salary increases possible outsourcing costs increased payroll costs associated staffing growth opportunities energy services business unit savings staffing reductions reflected lower construction expenditures well lower operation maintenance expenses effort minimize exposure potential stranded investment company evaluating longterm purchased power contracts negotiating modifications terms including cancellations determined economically advantageous company also negotiated settlements several parties terminate rights sell power company cost contract modifications contract cancellations negotiated settlements 78 million 81 million 1996 1995 respectively using contract terms estimated quantities power would otherwise delivered relevant factors time transaction company estimated annual future purchased power costs including energy payments would reduced 58 million 1470 million 1996 transactions 1995 transactions respectively cost alternative sources power might ultimately required result settlements expected significantly less estimated reduction purchased power costs restructuring charges reported 1995 included 373 million cancellation project construct facility handle low level radioactive waste companys north anna power station result reevaluating handling low level radioactive waste company concluded facility completed due additional capital investment required decreased company volumes low level radioactive waste resulting improvements station procedures availability economical offsite processing incurrence restructuring charges savings resulting therefrom subsequent periods elements companys cost operations considered cost service information filed company response virginia commissions order issued november 12 1996 see regulation virginia commission item 1 business additional information current rate proceedings increasingly competitive environment company also concluded appropriate utilize available savings cost reductions generated vision 2000 program accelerate writeoff existing unamortized regulatory assets strategically position company anticipation competition also reflects companys commitment mitigate exposure potentially stranded costs see competition managements discussion analysis financial condition results operations december 31 1996 company identified savings 267 million used establish reserve expected adjustments regulatory assets part reengineering operations company adopted plan improve customer service require investment excess 100 million next several years plan includes installation automated electric meters metropolitan inaccessible rural urban locations plan also provides installation mobile data dispatch technology companys service fleet accompanied digitized mapping companys service territory furthermore technological changes made enhance companys ability handle customer calls power outages order increase service reliability company initiated local regional distribution line improvement projects q commitments contingencies company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies regarding matters arising ordinary course business involve substantial amounts management opinion final disposition proceedings material adverse effect results operations financial position company federal energy regulatory commission audit ferc conducted compliance audit companys financial statements years 1990 1994 company received preliminary audit report certain compliance exceptions noted company supplied information ferc staff relating preliminary exceptions based information available time disposition issues expected significant effect companys financial position results operations retrospective premium assessments several companys nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note c consolidated financial statements construction program company made substantial commitments connection construction program nuclear fuel expenditures estimated total 5292 million excluding afc 1997 company presently estimates 1997 construction expenditures including nuclear fuel met cash flow operations purchased power contracts since 1984 company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 65 nonutility purchase contracts combined dependable summer capacity 3524 mw 62 projects aggregating 3509 mw operational end 1996 remaining three projects become operational 1999 table reflects companys minimum commitments december 31 1996 power purchases utility nonutility suppliers payments made virginia power satisfaction minimum purchase commitments shown table subject reduction partial refund 1 nonutility suppliers fail meet performance requirements 2 changes federal state law administrative actions disallow effect disallowing virginia powers recovery costs customers amount payment reductions refunds determined administered provided individual supply contracts although 1 deferral refund obligations 2 disputes applicability payment reductions refund obligations 3 ability nonutility suppliers make refunds could limit virginia powers ability benefit contract provisions addition minimum purchase commitments table contracts company may purchase option additional power needed actual payments purchased power including economy emergency limited term shortterm longterm purchases years 1996 1995 1994 1183 million 1093 million 1025 million respectively discussion companys efforts restructure certain purchased power contracts see note p consolidated financial statements fuel purchase commitments companys estimated fuel purchase commitments next five years system generation follows millions 1997 326 1998 274 1999 194 2000 157 2001 110 sale power company diversity exchange agreement ap delivers 200 mw virginia power summer virginia power delivers 200 mw ap winter addition company entered agreements supply wholesale power various terms firm basis certain upcoming winter summer months agreements company following commitments environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations company costs historically recovered ratemaking process however material costs incurred recovered rates companys results operations financial condition could adversely impacted site remediation epa identified company several entities potentially responsible parties prps two superfund sites located kentucky pennsylvania estimated future remediation costs sites range 615 million 725 million companys proportionate share cost expected range 17 million 25 million based upon allocation formulas volume waste shipped sites december 31 1996 company accrued reserve 17 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay costs apportioned company dominion resources along consolidated natural gas remedial action responsibilities remaining two coal tar sites company accrued 2 million reserve meet estimated liability based site studies investigations performed sites addition two civil actions instituted city norfolk virginia power property owners allege property contaminated toxic pollutants originating one coal tar sites owned city norfolk formerly owned company plaintiffs seeking compensatory damages 12 million punitive damages 6 million early cases company predict outcome company filed answers denying liability trial date august 18 1997 set one two actions seeking fifteen million dollars company generally seeks recover costs associated environmental remediation third party insurers december 31 1996 pending possible claims recognized asset offset recorded obligations company r fair value financial instruments company used available market information appropriate valuation methodologies estimate fair value class financial instrument practicable estimate fair value estimates necessarily indicative amounts company could realize market exchange addition use different market assumptions may material effect estimated fair value amounts cash equivalents pollution control project funds shortterm debt carrying amount items approximates fair value short maturity nuclear decommissioning trust funds fair value based available market information generally average bid asked price first refunding mortgage bonds pollution control bonds fair value based market quotations mediumterm notes valued discounting remaining cash flows rate estimated issue yield curve rate estimated relate treasury bond rates specific issues corresponding maturities money market municipal pollution control notes variable interest rates set fair value approximates carrying value preferred stock subject mandatory redemption fair value based market quotations estimated discounting dividend principal payments representative issue series average remaining life series preferred securities subsidiary trust fair value based market quotations quarterly financial data unaudited following amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions rate relief factors part vision 2000 program see note p consolidated financial statements company recorded 916 million 1179 million restructuring charges 1996 1995 respectively restructuring charges included severance costs purchased power contract restructuring negotiated settlement costs capital project cancellation costs incurred directly result vision 2000 initiatives company expensed 54 million 193 million 46 million 623 million costs first second third fourth quarters 1996 35 million 18 million 306 million 820 million first second third fourth quarters 1995 impact writeoff reduced balance available common stock 35 million 125 million 30 million 406 million first second third fourth quarters 1996 respectively 23 million 11 million 199 million 533 million first second third fourth quarters 1995 respectively subsequent event unaudited november 12 1996 virginia commission instituted proceeding directed company provide certain information including alternative form regulation proposed company time march 31 1997 march 7 1997 proceeding separate annual information filing proceeding virginia commission entered order providing companys rates shall become interim rates subject refund march 1 1997 additional information see regulation item 1 business item 9 item 8 financial statements supplementary data index page report independent registered public accounting firm consolidated statements income years ended december 31 2007 2006 2005 consolidated balance sheets december 31 2007 2006 consolidated statements common shareholder’s equity comprehensive income december 31 2007 2006 2005 years ended consolidated statements cash flows years ended december 31 2007 2006 2005 notes consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “company” december 31 2007 2006 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2007 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2007 2006 results operations cash flows three years period ended december 31 2007 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements company changed methods accounting adopt new accounting standards uncertain tax positions 2007 conditional asset retirement obligations 2005 deloitte touche llp richmond virginia february 26 2008 consolidated statements income 1 net income tax benefit 274 million 2005 2 net income tax benefit 101 million 2007 3 net income tax benefit 3 million 2005 accompanying notes integral part consolidated financial statements consolidated balance sheets accompanying notes integral part consolidated financial statements consolidated statements common shareholder’s equity comprehensive income accompanying notes integral part consolidated financial statements consolidated statements cash flows accompanying notes integral part consolidated financial statements notes consolidated financial statements note 1 nature operations virginia electric power company virginia public service company regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina december 31 2007 served approximately 24 million retail customer accounts including governmental agencies well wholesale customers rural electric cooperatives municipalities member pjm interconnection llc pjm regional transmission organization rto electric transmission facilities integrated pjm wholesale electricity markets common stock owned parent company dominion resources inc dominion discussed note 8 december 31 2005 completed transfer indirect whollyowned subsidiary virginia power energy marketing inc vpem dominion series dividend distributions exchange capital contribution vpem provides fuel risk management services us dominion affiliates engages energy trading activities vpem trading relationships beyond geographic limits retail service territory bought sold natural gas electricity energyrelated commodities result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income 2005 adjusted reflect vpem discontinued operation addition discontinued operations vpem included corporate segment results prior fourth quarter 2007 segment realignment managed daily operations three primary operating segments delivery energy generation fourth quarter 2007 realigned business units began managing daily operations two primary operating segments dominion virginia power dvp generation addition also report corporate segment includes corporate functions corporate also includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments assets remain wholly owned us legal subsidiaries terms “company” “we” “our” “us” used throughout report depending context use may represent following legal entity virginia electric power company one virginia electric power company’s consolidated subsidiaries operating segments entirety virginia electric power company including virginia north carolina operations consolidated subsidiaries note 2 significant accounting policies general make certain estimates assumptions preparing consolidated financial statements accordance accounting principles generally accepted united states america gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates consolidated financial statements include eliminating intercompany transactions balances accounts company majorityowned subsidiaries variable interest entities vies determined primary beneficiary certain amounts 2006 2005 consolidated financial statements footnotes recast conform 2007 presentation reapplication sfas 71 march 1999 discontinued application statement financial accounting standards sfas 71 accounting effects certain types regulation sfas 71 majority generation operations upon enactment deregulation legislation virginia transmission distribution operations continued apply provisions sfas 71 since remained subject costofservice rate regulation april 2007 virginia general assembly passed legislation returns virginia jurisdiction generation operations costofservice rate regulation result reapplied provisions sfas 71 operations april 4 2007 date legislation enacted connection reapplication sfas 71 operations prospectively changed certain accounting policies used costofservice rateregulated entities extraordinary item discussed overall impact changes material results operations financial condition 2007 policy changes discussed derivative instruments nuclear decommissioning trust funds property plant equipment asset retirement obligations reapplication sfas 71 virginia jurisdiction generation operations resulted 259 million 158 million tax extraordinary charge reclassification 195 million 119 million tax unrealized gains accumulated comprehensive income aoci related nuclear decommissioning trust funds established 454 million longterm regulatory liability amounts previously collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning nuclear generation stations excess amounts recorded pursuant sfas 143 accounting asset retirement obligations sfas 143 operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers customer receivables december 31 2007 2006 included 270 million 233 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers estimate unbilled revenue based historical usage applicable customer rates weather factors total daily electric generation supplied adjusting estimated losses energy transmission notes consolidated financial statements continued primary types sales service activities reported operating revenue follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily excess generation sold marketbased rates miscellaneous service revenue electric distribution operations miscellaneous revenue electric fuel purchased energydeferred costs permitted regulatory authorities differences actual electric fuel purchased energy expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability electric fuel purchased energy expenses effective january 1 2004 fuel factor provisions virginia retail customers locked july 1 2007 effective july 1 2007 fuel factor adjusted discussed virginia fuel expenses note 21 approximately 83 cost fuel used electric generation energy purchases used serve utility customers currently subject deferral accounting income taxes file consolidated federal income tax return participate intercompany tax sharing agreement dominion subsidiaries addition applicable file combined income tax returns dominion subsidiaries various states otherwise file separate state income tax returns current income taxes based taxable income loss determined separate company basis sfas 109 accounting income taxes sfas 109 requires asset liability approach accounting income taxes deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes permitted regulatory authorities treatment temporary differences may differ requirements sfas 109 accordingly regulatory asset recognized probable future revenues provided payment deferred tax liabilities establish valuation allowance likely portion deferred tax asset realized effective january 1 2007 adopted financial accounting standards board fasb interpretation 48 accounting uncertainty income taxes fin 48 financial statements recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information conclude morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility unrecognized tax benefits may result increase income taxes payable reduction income tax refund receivable increase deferred tax liabilities decrease deferred tax assets also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refund receivable accompanied decrease deferred tax liabilities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities current payables included accrued interest payroll taxes except amounts presented net amounts receivable amounts prepaid tax authorities prepayments prior adoption fin 48 established liabilities taxrelated contingencies incurrence liability determined probable amount could reasonably estimated accordance sfas 5 accounting contingencies reviewed light changing facts circumstances recognize changes estimated interest payable net underpayments overpayments income taxes interest expense estimated penalties may result settlement uncertain tax positions income consolidated statements income 2007 2006 2005 recognized reductions interest expense 6 million 1 million 2 million respectively penalties december 31 2007 accrued 5 million interest receivable 2 million interest payable penalties december 31 2006 accrued 3 million interest receivable penalties deferred investment tax credits amortized service lives properties giving rise credits december 31 2007 consolidated balance sheet included 136 million prepaid federal state income taxes recorded prepayments 106 million federal state income taxes payable recorded deferred credits liabilities 33 million receivable dominion tax refunds recorded affiliated receivables december 31 2006 consolidated balance sheet included 105 million prepaid federal income taxes recorded prepayments 10 million federal income taxes receivable dominion recorded deferred charges assets 26 million state income taxes payable dominion recorded accrued interest payroll taxes cash equivalents current banking arrangements generally require checks funded presented payment december 31 2007 2006 accounts payable included 31 million 33 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows consider cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments use derivative instruments futures swaps forwards options financial transmission rights manage commodity financial market risks business operations sfas 133 accounting derivative instruments hedging activities sfas 133 requires derivatives except exception applies reported consolidated balance sheets fair value derivative contracts repre senting unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accountingnormal purchases normal salesmay elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates statement income presentation  financiallysettled derivativesnot held trading purposes designated hedging instruments unrealized changes fair value settlements presented operations maintenance expense net basis  physicallysettled derivativesnot held trading purposes designated hedging instruments unrealized changes fair value settlements physical derivative sales contracts presented revenues unrealized changes fair value settlements physical derivative purchase contracts presented expenses recognize revenue expense nonderivative energyrelated contracts gross basis time contract performance settlement termination following reapplication sfas 71 jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities realized gains losses derivative instruments subject regulatory accounting generally recognized related transactions impact earnings derivative instruments designated hedging instruments designate certain derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also exclude certain gains losses hedging instruments measurement hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings discontinue hedge accounting prospectively derivatives cease highly effective hedges cash flow hedgesa portion hedge strategies represents cash flow hedges variable price risk associated purchase natural gas electricity energyrelated products also use foreign currency forward contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions hedging variability cash flows changes fair value derivative reported aoci extent effective offsetting changes hedged item earnings affected hedged item following reapplication sfas 71 jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities realized gains losses derivative instruments subject regulatory accounting generally recognized related transactions impact earnings cash flow hedge transactions discontinue hedge accounting occurrence forecasted transaction determined longer probable reclassify derivative gains losses reported aoci earnings forecasted item included earnings occur earlier becomes probable forecasted transaction occur fair value hedgesprior transfer vpem also used fair value hedges mitigate fixed price exposure inherent certain natural gas inventory continue use designated interest rate swaps fair value hedges certain fixedrate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value following reapplication sfas 71 jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities realized gains losses derivative instruments subject regulatory accounting generally recognized related transactions impact earnings fair value hedge transactions discontinue hedge accounting hedged item longer qualifies hedge accounting reclassify derivative gains losses hedged item earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting statement income presentationgains losses derivatives designated hedges recognized included operating revenue operating expenses interest related charges consolidated statements income specific line item classification determined based nature risk underlying individual hedge strategies portion gains losses hedging instruments determined ineffective portion gains losses hedging instruments excluded measurement hedging relationship’s effectiveness gains losses attributable changes time value options included operations maintenance expense discussed note 8 december 31 2005 completed transfer vpem dominion vpem manages portfolio commodity contracts held trading nontrading purposes result transfer vpem dominion consolidated statement income 2005 reflects vpem discontinued operation notes consolidated financial statements continued valuation methods fair value based activelyquoted market prices available absence activelyquoted market prices seek indicative price information external sources including broker quotes industry publications pricing information external sources available must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis options contracts optionlike characteristics pricing information available external sources generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different valuation models assumptions could material effect contract’s estimated fair value nuclear decommissioning trust funds account classify investments marketable debt equity securities held nuclear decommissioning trusts availableforsale securities availableforsale securities reported fair value net realized unrealized gains losses otherthantemporary impairments recorded regulatory liability certain jurisdictions subject costofservice rate regulation established upon reapplication sfas 71 continue report realized gains losses otherthantemporary declines fair value jurisdictions subject costbased regulation income unrealized gains component aoci net tax analyze securities classified available sale determine whether decline fair value considered temporary use several criteria evaluate otherthantemporary declines including length time market value lower cost percentage decline compared cost expected fair value security decline fair value determined temporary security written fair value end reporting period method assessing otherthantemporary declines requires demonstrating intent ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since regulatory authorities limit ability oversee daytoday management nuclear decommissioning trust fund investments ability hold individual securities trusts accordingly consider securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired property plant equipment property plant equipment including additions replacements recorded original cost consisting labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject cost service rate regulation allowance funds used construction afudc cost repairs maintenance including minor additions replacements charged expense incurred 2007 2006 2005 capitalized interest costs afudc 28 million 21 million 8 million respectively upon reapplication sfas 71 virginia jurisdiction generation operations april 2007 discontinued capitalizing interest generationrelated construction projects since virginia state corporation commission virginia commission previously allowed current recovery construction financing costs property subject costofservice rate regulation includes distribution transmission generation property effective april 2007 undepreciated cost property less salvage value charged accumulated depreciation retirement cost removal collections utility customers expenditures representing asset retirement obligations aros recorded regulatory liabilities prior reapplication sfas 71 virginia jurisdiction generation operations cost removal associated aros charged expense incurred also recorded gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives depreciation rates utility property plant equipment follows 1 october 2007 revised depreciation rates generation assets reflect results new depreciation study incorporates property plant equipment accounting policy changes made upon reapplication sfas 71 well updates assumptions change expected increase annual depreciation expense approximately 54 million 33 million tax nuclear fuel used electric generation amortized estimated service life unitsofproduction basis report amortization nuclear fuel electric fuel energy purchases expense consolidated statements income depreciation amortization consolidated statements cash flows emissions allowances emissions allowances issued environmental protection agency epa permit holder allowance emit certain gaseous byproducts fossil fuel combustion including sulfur dioxide nitrogen oxide allowances may transacted third parties consumed emissions generated allowances allocated acquired generation operations held primarily consumption classified intangible assets consolidated balance sheets carrying amounts based cost acquire allowances issued directly us epa carried zero cost emissions allowances amortized periods emissions generated amortization reflected depreciation amortization expense consolidated statements income report purchases sales allowances investing activities consolidated statements cash flows gains losses resulting sales operations maintenance expense consolidated statements income impairment longlived intangible assets perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount regulatory assets liabilities utility operations subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets amortized expense regulatory liabilities amortized income period authorized regulator asset retirement obligations recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts capitalized costs related tangible longlived assets since relevant market information available estimate fair value using discounted cash flow analyses reapplication sfas 71 virginia jurisdiction generation operations april 4 2007 report accretion aros associated nuclear decommissioning due passage time adjustment related regulatory liability previously reported expense operations maintenance expense consolidated statements income report accretion aros operations maintenance expense consolidated statements income amortization debt issuance costs defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issues note 3 newly adopted accounting standards fin 48 adopted provisions fin 48 january 1 2007 result implementation fin 48 recorded 5 million benefit primarily attributable interest beginning retained earnings cumulative effect change accounting principle may 2007 fasb issued fasb staff position fsp fin 481 definition settlement fasb interpretation 48 fsp fin 481 provide guidance determine whether tax position effectively settled purpose recognizing previously unrecognized tax benefits light delayed issuance enterprise implement fin 48 manner consistent provisions fsp fin 481 required retrospectively apply provisions date initial adoption fin 48 adoption fsp fin 481 impact amounts recorded connection adoption fin 48 january 1 2007 unrecognized tax benefits totaled 225 million majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility eitf 063 effective january 1 2007 emerging issues task force eitf issue 063 taxes collected customers remitted governmental authorities presented income statement gross versus net presentation requires certain disclosures entity collects tax assessed governmental authority imposed concurrent specific revenueproducing transaction entity seller customers collect sales consumption consumer utility taxes exclude amounts revenue fin 47 adopted fasb interpretation 47 accounting conditional asset retirement obligations fin 47 december 31 2005 fin 47 clarifies entity required recognize liability fair value conditional aro obligation incurredgenerally upon acquisition construction development andor normal operation asset fair value liability reasonably estimated conditional aro legal obligation perform asset retirement activity timing andor method settlement conditional future event may within control entity uncertainty timing andor method settlement required factored measurement liability sufficient information exists adoption fin 47 resulted recognition aftertax charge 4 million representing cumulative effect change accounting principle notes consolidated financial statements continued presented pro forma net income 2005 applied provisions fin 47 january 1 2005 applied provisions fin 47 january 1 2005 aros would increased 8 million note 4 recently issued accounting standards sfas 157 september 2006 fasb issued sfas 157 fair value measurements sfas 157 defines fair value establishes framework measuring fair value expands disclosures related fair value measurements sfas 157 clarifies fair value based assumptions market participants would use pricing asset liability establishes fair value hierarchy three levels prioritizes information used develop assumptions fair value hierarchy gives highest priority quoted prices active markets lowest priority unobservable data sfas 157 requires fair value measurements separately disclosed level within fair value hierarchy provisions sfas 157 became effective us beginning january 1 2008 generally provisions statement applied prospectively certain situations however require retrospective application beginning year adoption recognition cumulative effect accounting change retrospective application required financial instruments including derivatives certain hybrid instruments limitations initial gains losses eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities sfas 155 accounting certain hybrid financial instruments impact retrospective application sfas 157 currently evaluating impact sfas 157 results operations financial condition provisions applied prospectively february 2008 fasb issued fsp fas 1571 application fasb statement 157 fasb statement 13 related interpretive accounting pronouncements address leasing transactions excludes leasing transactions scope sfas 157 however exclusion apply fair value measurements assets liabilities recorded result lease transaction measured pursuant pronouncements within scope sfas 157 february 2008 fasb issued fsp fas 1572 effective date fasb statement 157 delays effective date sfas 157 one year nonfinancial assets liabilities except recognized disclosed fair value financial statements recurring basis least annually january 2008 fasb proposed fsp fas 157c measuring liabilities fasb statement 157 issued would clarify principles sfas 157 fair value measurements liabilities specifically fsp would require entity measure liabilities first based quoted price active market identical liability however absence information entity would allowed measure fair value liability amount would receive proceeds issue liability measurement date sfas 159 february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities sfas 159 sfas 159 provides entity option specified election dates measure certain financial assets liabilities items fair value changes fair value recognized earnings changes occur sfas 159 also establishes presentation disclosure requirements include displaying fair value assets liabilities entity elected fair value option face balance sheet providing management’s reasons electing fair value option eligible item provisions sfas 159 became effective us beginning january 1 2008 currently evaluating whether fair value accounting appropriate eligible items cannot estimate impact sfas 159 may results operations financial condition sfas 141r december 2007 fasb issued sfas 141 revised 2007 business combinations sfas 141r sfas 141r requires acquirer recognize assets acquired liabilities assumed noncontrolling interest acquiree acquisitiondate fair values sfas 141r also requires disclosure information necessary investors users evaluate understand nature financial effect business combination additionally sfas 141r requires acquisitionrelated costs expensed incurred sfas 141r amends sfas 109 require acquirer recognize changes amount deferred tax benefits recognizable due business combination either income continuing operations period combination directly contributed capital depending circumstances provisions sfas 141r become effective acquisitions january 1 2009 except tax provisions apply business combinations regardless acquisition date fsp fin 391 april 2007 fasb issued fsp fin 391 amendment fasb interpretation 39 offsetting amounts related certain contracts fsp fin 391 fsp fin 391 amends fin 39 permit offsetting amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement offset fsp fin 391 became effective us beginning january 1 2008 must applied retroactively financial statements presented unless impracticable currently evaluating impact fsp fin 391 may financial condition expect fsp fin 391 impact results operations cash flows note 5 operating revenue operating revenue consists following note 6 income taxes details income tax expense continuing operations follows continuing operations statutory united states us federal income tax rate reconciles effective income tax rates follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes net deferred income taxes consist following judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material prior 2007 established liabilities income taxrelated contingencies believed probable liability incurred amount could reasonably estimated subsequently reviewed light changing facts circumstances december 31 2006 consolidated balance sheet included material income taxrelated contingent liabilities adoption fin 48 effective january 1 2007 recognize financial statements positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information take expect take tax return position portion related tax benefit recognized financial statements disclose amount unrecognized tax benefit unrecognized tax benefits impact financial statements increasing taxes payable reducing tax refund receivables increasing deferred tax liabilities decreasing deferred tax assets also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refund receivable accompanied decrease deferred tax liabilities notes consolidated financial statements continued reconciliation changes unrecognized tax benefits 2007 follows unrecognized tax benefits recognized would affect effective tax rate increased 5 million january 1 2007 8 million december 31 2007 resulting 3 million increase total income tax expense 2007 majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility uncertainty deductibility amounts limited timing deductibility tax liabilities recognized prior periods would subject offset availability refundable amounts later periods deductions could otherwise taken pending resolution timing uncertainties interest accrued period amounts would become deductible dominion subsidiaries us federal statute limitations expired tax years prior 1999 except reserved right pursue refunds related certain deductions years 1995 1998 2007 us congressional joint committee taxation completed review settlement appellate division internal revenue service irs appeals tax years 1993 1997 october 2007 received tax refund approximately 33 million years due carryback adjustments receive refund 1998 issues later tax years pending irs appeals settled currently engaged settlement negotiations irs appeals regarding certain adjustments proposed examination tax years 1999 2001 reached tentative settlement substantially issues except reserving right pursue refunds related certain deductions negotiations expected conclude 2008 without impact results operations 2007 irs completed examination dominion’s 2002 2003 consolidated returns filed protests certain proposed adjustments irs appeals july 2007 addition irs began audit tax years 2004 2005 november 2007 appeals assessments received tax authorities including amounts related settlement negotiations irs appeals 1999 2001 believe reasonably possible based settlement negotiations risk litigation unrecognized tax benefits could decrease 18 million next twelve months addition unrecognized tax benefits could reduced 13 million recognize prior period amounts becoming otherwise deductible current period regard tax years 2002 2005 cannot estimate range reasonably possible changes unrecognized tax benefits may occur next twelve months dominion’s combined income tax returns filed virginia 2004 subsequent years remain subject examination also obligated report adjustments resulting irs settlements earlier years state tax authorities addition state net operating losses tax credits generated dominion subsidiaries years statute limitations expired utilized amounts subject examination state tax authorities february 2008 president us signed law economic stimulus act 2008 act includes provisions stimulate economic growth including incentives increased capital investment businesses currently evaluating act yet determined impact 2008 future results operations cash flows financial condition note 7 hedge accounting activities exposed impact market fluctuations price electricity natural gas energyrelated products well currency exchange interest rate risks business operations use derivative instruments manage exposure risks designate derivative instruments cash flow fair value hedges accounting purposes allowed sfas 133 discussed note 2 jurisdictions subject costbased regulation changes fair value derivatives designated hedges deferred regulatory assets regulatory liabilities related transactions impact earnings years ended december 31 2007 2006 gains losses hedging instruments determined ineffective excluded measurement effectiveness material year ended december 31 2005 recognized net income 11 million gains hedge ineffectiveness 4 million gains attributable differences spot prices forward prices excluded measurement effectiveness connection fair value hedges natural gas inventory 2005 activity related discontinued operations vpem following table presents selected information jurisdictions subject costbased regulation related cash flow hedges included aoci consolidated balance sheet december 31 2007 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign exchange rates note 8 discontinued operationsvpem transfer december 31 2005 completed transfer vpem dominion series dividend distributions resulted transfer negative investment vpem dominion exchange capital contribution 633 million gain loss recognized transfer vpem provides fuel risk management services us acting agent one indirect whollyowned subsidiaries vpem also engages energy trading activities provides price risk management services dominion affiliates use derivative contracts owned vpem certain derivative contracts reported fair value consolidated balance sheets changes fair value reflected earnings price risk management activities performed behalf dominion affiliates generated derivative gains losses affected consolidated financial statements result transfer vpem’s results operations longer included consolidated financial statements consolidated statement income 2005 reflects vpem discontinued operation net basis 2005 discontinued operations included operating revenue 807 million loss income taxes 746 million vpem’s 2005 results included following affiliated transactions note 9 nuclear decommissioning trust funds hold marketable debt equity securities nuclear decommissioning trust funds fund future decommissioning costs nuclear plants decommissioning trust funds december 31 2007 2006 summarized unrealized losses included aoci december 31 2007 2006 1 included aoci regulatory liabilities discussed note 2 included aoci consolidated balance sheet fair values debt securities within nuclear decommissioning trust funds december 31 2007 contractual maturity follows gross realized gains availableforsale securities totaled 52 million 49 million 19 million 2007 2006 2005 respectively gross realized losses totaled 52 million 33 million 8 million 2007 2006 2005 respectively gross realized gains losses 2007 include amounts recorded regulatory liability discussed note 2 determining realized gains losses cost securities determined specific identification basis note 10 property plant equipment major classes property plant equipment respective balances jointlyowned plants proportionate share jointlyowned plants december 31 2007 follows coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest report share operating costs appropriate operating expense electric fuel energy purchases operations maintenance depreciation amortization taxes etc consolidated statements income notes consolidated financial statements continued note 11 intangible assets intangible assets subject amortization estimated useful lives amortization expense intangible assets 46 million 37 million 38 million 2007 2006 2005 respectively 2007 acquired 22 million intangible assets primarily representing software emissions allowances estimated weightedaverage amortization period 54 years components intangible assets follows annual amortization expense intangible assets estimated 26 million 2008 27 million 2009 28 million 2010 14 million 2011 10 million 2012 note 12 regulatory assets liabilities regulatory assets liabilities include following 1 discussed virginia fuel expenses note 21 june 2007 virginia commission approved fuel factor increase approximately 219 million effective july 1 2007 balance approximately 443 million deferred subsequently recovered without interest period commencing july 1 2008 ending june 30 2011 2 federal energy regulatory commission ferc conditionally authorized deferral startup costs incurred connection joining rto ongoing administration fees paid pjm deferred 81 million startup costs administration fees 14 million associated carrying costs expect recovery virginia jurisdictional retail customers commence end virginia retail rate cap period subject regulatory approval 3 income taxes recoverable future rates resulting recognition additional deferred income taxes recognized ratemaking practices 4 north carolina utilities commission north carolina commission authorized deferral previously incurred costs associated termination certain longterm power purchase agreements nonutility generators related costs amortized original term agreement 5 rates charged customers regulated business include provision cost future activities remove assets expected incurred time retirement 6 primarily reflects regulatory liability established 2007 representing amounts previously collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning utility nuclear generation stations excess amounts recorded pursuant sfas 143 december 31 2007 approximately 532 million regulatory assets represented past expenditures earn return expenditures consist primarily deferred fuel costs rto startup costs administration fees cost terminating certain power purchase agreements note 13 asset retirement obligations aros primarily associated decommissioning nuclear generation facilities also aros related certain electric transmission distribution assets located property hydroelectric generation facilities currently sufficient information estimate reasonable range expected retirement dates assets thus aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed generally occur expected retirement abandonment dates determined operational planning changes aros 2007 follows 1 includes 1 million reported current liabilities established trusts dedicated funding future decommissioning nuclear plants december 31 2007 2006 aggregate fair value trusts consisting primarily debt equity securities totaled 13 billion note 14 variable interest entities fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r addresses consolidation vies entity considered vie fin 46r sufficient equity finance activities without assistance variable interest holders equity investors lack following characteristics controlling financial interest  control voting rights  obligation absorb expected losses  right receive expected residual returns fin 46r requires primary beneficiary vie consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity receives majority vie’s expected losses expected residual returns longterm power capacity contracts 4 potential vies contain certain variable pricing mechanisms counterparty form partial fuel reimbursement concluded primary beneficiary potential vies contracts expire various dates ranging 2015 2021 subject risk loss potential vies remaining purchase commitments totaled 21 billion december 31 2007 paid 211 million 214 million 222 million electric capacity 160 million 130 million 159 million electric energy entities years ended december 31 2007 2006 2005 respectively consolidated balance sheet december 31 2006 reflected 337 million net property plant equipment 370 million debt related consolidation accordance fin 46r variable interest lessor entity financed leased power generation plant utility operations debt nonrecourse us secured entity’s property plant equipment lease operated power generation facility terminated august 2007 took legal title facility repayment lessor’s related debt 2007 purchased approximately 344 million shared services dominion resources services inc drs vie primary beneficiary note 15 shortterm debt credit agreements use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing levels borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations shortterm financing supported 30 billion fiveyear joint revolving credit facility dominion dated february 2006 scheduled terminate february 2011 credit facility used working capital support combined commercial paper programs dominion us general corporate purposes credit facility also used support 15 billion letters credit december 31 2007 total outstanding commercial paper supported joint credit facility 757 million borrowings 257 million weightedaverage interest rate 568 december 31 2006 total outstanding commercial paper supported joint credit facility 176 billion borrowings 618 million weightedaverage interest rate 541 december 31 2007 total outstanding letters credit supported joint credit facility 229 million less 8 million issued behalf december 31 2006 total outstanding letters credit supported joint credit facility 236 million less 1 million issued behalf december 31 2007 capacity available joint credit facility 20 billion note 16 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2007 2 substantially property subject lien mortgage securing first refunding mortgage bonds although publicly issued bonds outstanding december 31 2007 may issue additional bonds future 3 represented debt associated special purpose lessor entity consolidated accordance fin 46r debt nonrecourse us secured entity’s property plant equipment totaled 337 million december 31 2006 debt repaid august 2007 lease terminated 4 december 15 2008 securities subject redemption par plus accrued interest unless holders related options exercise rights purchase remarket notes 5 financings relate certain pollution control equipment generating facilities variable rate taxexempt financings supported standalone 200 million fiveyear credit facility terminates february 2011 february 2007 exercised call option redeemed 62 million taxexempt financings weightedaverage rate 752 proceeds raised issuance commercial paper 6 december 2007 recorded contributed capital 220 million reflecting conversion note payable equity 7 represents valuation certain fair value hedges associated fixed rate debt following reapplication sfas 71 jurisdictions subject costbased regulation changes fair value derivative instruments classified regulatory assets liabilities notes consolidated financial statements continued based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2007 follows shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2007 events default covenants junior subordinated notes payable affiliated trust 2002 established subsidiary capital trust virginia power capital trust ii trust finance subsidiary hold 100 voting interests trust sold 16 million 7375 trust preferred securities 400 million representing preferred beneficial interests 97 beneficial ownership assets held trust exchange 400 million realized sale trust preferred securities 12 million common securities represent remaining 3 beneficial ownership interest assets held capital trust issued 412 million 2002 7375 junior subordinated notes junior subordinated notes due july 30 2042 junior subordinated notes constitute 100 trust’s assets trust must redeem trust preferred securities junior subordinated notes repaid redeemed prior maturity distribution payments trust preferred securities considered fully unconditionally guaranteed company related agreements taken consideration guarantee agreement provides guarantee distribution payments trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon payment amounts due junior subordinated notes may defer interest payments junior subordinated notes one occasions five consecutive years related trust must also defer distributions payment junior subordinated notes deferred may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes note 17 preferred stock authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares outstanding december 31 2007 2006 upon involuntary liquidation dissolution windingup company share would entitled receive 100 plus accrued dividends cumulative holders outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series preferred stock subject mandatory redemption outstanding december 31 2007 1 7312008 10177 commencing 812008 amounts decline steps thereafter 10000 812013 2 8312008 10175 commencing 912008 amounts decline steps thereafter 10000 912013 3 dividend rate 550 12202007 dividend rate 625 3202011 rate determined according periodic auctions periods established us time auction process note 18 shareholder’s equity paidin capital december 2007 recorded contributed capital 220 million reflecting conversion 220 million note payable dominion equity 2005 recorded contributed capital 633 million related transfer investment vpem dominion 200 million connection conversion shortterm borrowings accumulated comprehensive income presented table summary aoci component note 19 dividend restrictions virginia commission may prohibit public service company declaring paying dividend affiliate found detrimental public interest december 31 2007 virginia commission restricted payment dividends certain agreements associated joint credit facility dominion contain restrictions ratio debt total capitalization limitations restrict ability pay dividends dominion december 31 2007 see note 16 description potential restrictions dividend payments connection deferral distribution payments trust preferred securities note 20 employee benefit plans participate defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer subject dominion’s funding policy generally contribute annually amount accordance provisions employment retirement income security act 1974 net periodic pension cost 37 million 63 million 56 million 2007 2006 2005 respectively contribute pension plan 2007 2006 2005 participate plans provide certain retiree health care life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service net periodic benefit cost related plans 24 million 37 million 42 million 2007 2006 2005 respectively certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly fund postretirement benefit costs voluntary employees’ beneficiary associations contributions retiree health care life insurance plans 7 million 24 million 32 million 2007 2006 2005 respectively expect contribute 16 million retiree health care life insurance plans 2008 also participate dominionsponsored employee savings plans cover substantially employees employer matching contributions 12 million incurred 2007 11 million incurred 2006 2005 note 21 commitments contingencies result issues generated ordinary course business involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money ultimate outcome proceedings cannot predicted time however current proceedings specifically reported herein management anticipate liabilities arising proceedings would material effect financial position liquidity results operations longterm purchase agreements december 31 2007 following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2007 present value total commitment capacity payments 24 billion capacity payments totaled 410 million 437 million 472 million energy payments totaled 360 million 291 million 378 million 2007 2006 2005 respectively lease commitments lease various facilities vehicles equipment primarily operating leases lease agreements expire various dates certain leases renewable contain options purchase leased property payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2007 follows rental expense totaled 37 million 34 million 32 million 2007 2006 2005 respectively majority reflected operations maintenance expense environmental matters subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2008 excess level currently included virginia jurisdictional rates results operations could decrease date may seek recovery rates superfund sites time may identified potentially responsible party prp superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action b conduct remedial investigation action seek reimbursement parties party held jointly severally strictly liable costs parties also bring contribution actions seek reimbursement notes consolidated financial statements continued insurance companies result may responsible costs remedial investigation actions superfund act laws regulations regarding remediation waste believe currently identified sites result significant liabilities nuclear operations nuclear decommissioningminimum financial assurance nuclear regulatory commission nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities 2007 calculation nrc minimum financial assurance amount aggregated nuclear units 13 billion satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc nuclear insurance priceanderson act provides public 108 billion liability protection per nuclear incident via obligations required owners nuclear power plants priceanderson act amendment 1988 allows inflationary provision adjustment every five years purchased 300 million coverage commercial insurance pools remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor us could assessed 1006 million four licensed reactors exceed 15 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed 2005 current level property insurance coverage 255 billion north anna power station north anna surry power station exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 51 million based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination purchase insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 19 million old dominion electric cooperative odec part owner north anna responsible us share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 entered contract department energy doe disposal spent nuclear fuel doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act contract doe january 2004 dominion filed lawsuit us court federal claims doe requesting damages connection failure commence accepting spent nuclear fuel trial scheduled may 2008 continue manage spent fuel accepted doe litigation coowners odec clover power station 1989 entered coal transportation agreement norfolk southern railway company norfolk southern delivery coal facility agreement provided baserate price adjustment based upon published index norfolk southern claimed october 2003 incorrect reference index used adjust base transportation rate november 2003 odec filed suit norfolk southern seeking clarify price escalation provisions transportation agreement trial court ruled norfolk southern’s favor concluding agreement specifies higher rate adjustment factor norfolk southern claims applied past adjust base rate applied future september 1 2006 court entered order directing us odec correct invoices december 1 2003 present calculating rates higher rate adjustment factor applied inception agreement tender difference norfolk southern interest rate provided agreement calculate future invoices using higher rate adjustment factor applied inception agreement odec filed notice appeal virginia supreme court posted security suspend execution judgment appeal virginia supreme court ruled order final could appealed surety bond posted security released circuit court halifax county virginia matter set trial court april 8 2008 result final appealable order estimate cumulative amount adjustment december 31 2007 approximately 80 million without interest share would one half believe court’s interpretation transportation agreement ruling issues case legally incorrect liability recorded consolidated financial statements related matter guarantees surety bonds december 31 2007 issued 17 million guarantees primarily support tax exempt debt issued conduits also purchased 26 million surety bonds various purposes including providing workers’ compensation coverage terms surety bonds obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law unable develop estimate maximum potential amount future payments contracts events would obligate us yet occurred event occurred notified occurrence however december 31 2007 believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position status electric regulation virginia 2007 virginia restructuring act fuel factor amendments july 1 2007 legislation amending virginia electric utility restructuring act restructuring act fuel factor became effective significantly changes electricity regulation virginia prior restructuring act base rates virginia capped 1999 levels december 2010 restructuring act ends capped rates two years early december 31 2008 capped rates end retail choice eliminated individual retail customers demand 5 mw nonresidential retail customers obtain virginia commission approval aggregate load reach 5 mw threshold individual retail customers permitted purchase renewable energy competitive suppliers incumbent electric utility offer renewable energy tariff also end capped rates virginia commission set base rates modified costofservice model among features new model provides virginia commission  initiate base rate case first six months 2009 reviewing 2008 test year result virginia commission  shall establish return equity roe lower reported least majority group utilities within southeastern us certain limitations described legislation  may increase decrease roe 100 basis points based generating plant performance customer service operating efficiency appropriate  shall increase base rates needed allow company opportunity recover costs earn fair rate return found earnings 50 basis points established roe  may reduce rates prospectively upon completion 2009 review alternatively order credit customers found test year earnings 50 basis points established roe  initial rate case review base rates biennially result virginia commission  shall establish roe lower reported least majority group utilities within southeastern us certain limitations described legislation  may increase decrease roe 100 basis points based generating plant performance customer service operating efficiency appropriate  2010 authorize increased roe overall rate base upon achieving goals established renewable energy portfolio standard programs increased roe would lieu increased decreased roe preceding paragraph unless increase roe awarded preceding paragraph higher renewable energy portfolio standard increase  shall increase base rates needed allow company opportunity recover costs earn fair rate return found earned test period 50 basis points currently established roe  may order credit customers found earned test period 50 basis points currently established roe reduce rates found excess earnings two consecutive biennial review periods  authorize standalone rate adjustments recovery certain costs including new generation projects major generating unit modifications environmental compliance projects fercapproved costs transmission service energy efficiency conservation renewable energy programs  authorize enhanced roe new capital expenditures financial incentive construction certain major generation projects legislation also continues statutory provisions directing us file annual fuel cost recovery cases virginia commission beginning 2007 continuing thereafter discussed virginia fuel expenses discussed previously legislation provides virginia commission initiate base rate case first six months 2009 result virginia commission may reduce rates alternatively order credit customers found earnings 50 basis points established roe unable predict outcome future rate actions time however unfavorable outcome could adversely affect results operations virginia fuel expenses amendments virginia fuel cost recovery statute passed 2004 fuel factor provisions frozen july 1 2007 fuel prices increased considerably since 2004 resulted fuel expenses significantly excess fuel cost recovery pursuant 2007 amendments fuel cost recovery statute annual fuel rate adjustments deferred fuel accounting underrecoveries fuel costs reinstituted july 1 2007 amendments allow us collect unrecovered fuel expenses incurred prior july 1 2007 fuel factor adjusted notes consolidated financial statements continued mechanism ensures dollar recovery prudently incurred fuel costs april 2007 filed virginia fuel factor application virginia commission application showed need annual increase fuel expense recovery period july 1 2007 june 30 2008 approximately 662 million however requested increase limited 219 million 2007 amendments fuel cost recovery statute amendments fuel factor increase july 1 2007 limited amount results residential customer class receiving increase 4 total rates effect june 30 2007 virginia commission approved fuel factor increase virginia jurisdictional customers approximately 219 million effective july 1 2007 balance approximately 443 million deferred subsequent recovery subject virginia commission approval without interest period commencing july 1 2008 ending june 30 2011 stranded costs stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market past exposure potential stranded costs included longterm power purchase contracts could ultimately determined market prices generating plants could possibly become uneconomical deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits capped electric retail rates provided opportunity recover potential stranded costs depending market prices electricity factors recovery potential stranded costs subject numerous risks even cappedrate environment risks included among others exposure longterm power purchase commitment losses future environmental compliance requirements changes certain tax laws nuclear decommissioning costs increased fuel costs inflation increased capital costs recovery certain items however return modified costofservice rate model 2007 virginia restructuring act amendments exposure potential stranded costs risk nonrecovery eliminated north carolina regulation 2004 north carolina utilities commission north carolina commission commenced investigation north carolina base rates subsequently ordered us file general rate case show cause north carolina jurisdictional base rates reduced rate case filed september 2004 march 2005 north carolina commission approved settlement included prospective 12 million annual reduction current base rates fiveyear baserate moratorium effective april 2005 fuel rates still subject change annual fuel cost adjustment proceedings note 22 fair value financial instruments substantially financial instruments recorded fair value exception instruments described reported historical cost fair values determined using available market information valuation methodologies considered appropriate management financial instruments’ carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 includes securities due within one year amounts represent valuation certain fair value hedges associated fixedrate debt note 23 credit risk maintain provision credit losses based factors surrounding credit risk customers historical trends information believe based credit policies december 31 2007 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance sell electricity provide distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers exposure potential concentrations credit risk results primarily sales wholesale customers gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2007 gross credit exposure totaled 32 million amount investment grade counterparties including internally rated represented 92 41 related single counterparty held collateral transactions december 31 2007 note 24 relatedparty transactions engage relatedparty transactions primarily dominion subsidiaries affiliates receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions included dominion’s consolidated federal income tax return participate certain dominion benefit plans discussion significant related party transactions follows transactions affiliates transact affiliates certain quantities natural gas commodities ordinary course business also enter certain commodity derivative contracts affiliates use contracts principally comprised commodity swaps options manage commodity price risks associated purchases natural gas designate majority contracts cash flow hedges accounting purposes drs provides accounting legal certain administrative technical services us addition provide certain services affiliates including charges facilities equipment usage december 31 2005 transferred vpem dominion exchange 633 million contribution capital longer involved facilitating dominion’s enterprise risk management entering certain financial derivative commodity contracts affiliates 2006 vpem continued provide fuel management services us acting agent one indirect whollyowned subsidiaries december 2006 entered agreement vpem enables us directly transact vpem purchase sale fuel transportation fuel facilities agreement approved virginia commission north carolina commission became effective january 2007 presented significant transactions drs affiliates 2007 purchased two gasfired turbines unregulated affiliate 53 million part 300 mw expansion ladysmith power station units 3 4 supply electricity periods peak demand expect purchase additional gasfired turbines affiliate future subject approval virginia commission part continued capacity expansion plan lease office building dominion agreement expire 2008 august 2007 exercised option extend lease term five years original lease agreement accounted capital lease capitalized cost property lease net accumulated amor tization approximately 1 million 3 million december 31 2007 2006 respectively rental payments lease 3 million 2007 2006 2005 borrowed funds dominion shortterm longterm borrowing arrangements december 31 2007 2006 nonregulated subsidiaries outstanding borrowings net repayments dominion money pool 114 million 140 million respectively december 31 2006 borrowings dominion long term note totaled 220 million december 2007 recorded contributed capital 220 million reflecting conversion longterm note payable equity incurred interest charges related borrowings dominion 27 million 10 million 9 million 2007 2006 2005 respectively note 25 operating segments result fourth quarter 2007 segment realignment nature composition primary operating segments changed reflect creation new dvp segment combined operations previously included delivery energy segments segment information prior years recast conform new segment structure organized primarily basis products services sold us majority revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among dvp generation segments manage daily operations following segments dvp includes regulated electric transmission distribution customer service operations generation includes regulated generation energy supply operations corporate includes corporate functions contribution net income primary operating segments determined based measure profit management believes represents segments’ core earnings result certain specific items attributable segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments including discontinued operations vpem prior transfer dominion 2007 corporate segment included 166 million net aftertax expenses attributable operating segments net expenses 2007 primarily resulted 259 million 158 million tax extraordinary charge attributable generation segment connection reapplication sfas 71 virginia jurisdiction generation operations 2006 corporate segment included 12 million net aftertax expenses attributable generation segment net expenses 2006 primarily related 13 million 8 million tax impairment charge fourth quarter resulting change method assessing otherthantemporary declines fair value securities held investments nuclear decommissioning trusts notes consolidated financial statements continued 2005 corporate segment included 58 million net aftertax expenses attributable operating segments net expenses 2005 primarily related impact following items attributable generation  77 million 47 million tax charge resulting termination longterm power purchase agreement  13 million 8 million tax charge related sale interest longterm power tolling contract following table presents segment information pertaining operations note 26 quarterly financial data unaudited summary quarterly results operations years ended december 31 2007 2006 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors 2007 results include impact following significant item  third fourth quarter results reflect reapplication deferral accounting virginia jurisdiction fuel costs beginning july 1 2007 item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2014 2013 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2014 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2014 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 27 2015 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 27 2015 dominion resources inc consolidated statements income 1 includes income tax benefit 43 million 692 million 2013 2012 respectively 2012 includes impairment charges 16 billion related brayton point kincaid see note 6 additional information accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 billion shares authorized 585 million shares 581 million shares outstanding december 31 2014 2013 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements equity 1 contains shares issued excess principal amounts related converted securities see note 17 information convertible securities 2 includes subsidiary preferred dividends related noncontrolling interests 13 million 17 million 16 million 2014 2013 2012 respectively 3 primarily includes 28 million shares issued excess principal amounts related converted securities net reclassification paidin capital see note 17 information convertible securities 4 see note 17 information 5 see note 15 information accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows accompanying notes integral part dominion’s consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2014 2013 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2014 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 27 2015 virginia electric power company consolidated statements income 1 see note 24 amounts attributable affiliates 2 includes 2 million associated writeoff issuance expenses related redemption virginia power’s preferred stock 2014 see note 18 additional information accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 see note 24 amounts attributable affiliates 1 see note 24 amounts attributable affiliates 2 500000 shares authorized december 31 2014 2013 274723 shares outstanding december 31 2014 2013 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements report independent registered public accounting firm board directors dominion gas holdings llc richmond virginia audited accompanying consolidated balance sheets dominion gas holdings llc whollyowned subsidiary dominion resources inc subsidiaries “dominion gas” december 31 2014 2013 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2014 financial statements responsibility dominion gas’ management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement dominion gas required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness dominion gas’ internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion gas holdings llc subsidiaries december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 27 2015 dominion gas holdings llc consolidated statements income 1 see note 24 amounts attributable related parties 2 includes gains sales assets related parties 59 million 122 million 176 million 2014 2013 2012 respectively see note 9 information accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements comprehensive income accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated balance sheets 1 see note 24 amounts attributable related parties 1 see note 24 amounts attributable related parties accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements equity accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements cash flows accompanying notes integral part dominion gas’ consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power dominion gas virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s stock owned dominion gas holding company conducts business activities regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states regulated gas transportation distribution operations ohio gas gathering processing activities primarily west virginia ohio pennsylvania dominion gas’ membership interests held dominion’s operations also include lng import transport storage facility maryland preferred equity interest contributed dominion midstream 2014 equity investment atlantic coast pipeline regulated gas transportation distribution operations west virginia dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations equity investment blue racer october 2014 dominion midstream launched initial public offering 20125000 common units representing limited partner interests price 21 per unit included overallotment option purchase additional 2625000 common units initial offering price exercised full underwriters dominion received 392 million net proceeds sale units deducting underwriting discounts structuring fees estimated offering expenses dominion owns general partner 685 limited partner interests dominion midstream owns preferred equity interest general partner interest cove point public’s ownership interest dominion midstream reflected noncontrolling interest dominion’s consolidated financial statements dominion manages daily operations three primary operating segments dvp dominion generation dominion energy dominion also reports corporate segment includes corporate service company functions including unallocated debt net impact operations discontinued discussed note 3 note 25 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments dominion gas manages daily operations one primary operating segment dominion energy also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance effect certain items recorded dominion gas result recognition dominion’s basis net assets contributed see note 25 discussion companies’ operating segments note 2 significant accounting policies general companies make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates companies’ consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries companies report certain contracts instruments investments fair value see note 6 information fair value measurements dominion maintains pension postretirement benefit plans virginia power dominion gas participate certain plans see note 21 information plans certain amounts 2013 2012 consolidated financial statements footnotes reclassified conform 2014 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion inclusive virginia power andor dominion gas applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers dominion virginia power collect sales consumption consumer utility taxes dominion gas collects sales taxes however amounts excluded revenue dominion’s customer receivables december 31 2014 2013 included 564 million 555 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2014 2013 included 407 million 395 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers dominion gas’ customer receivables december 31 2014 2013 included 127 million 106 million respectively accrued unbilled revenue based estimated amounts natural gas delivered yet billed customers primary types sales service activities reported operating revenue dominion follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity  regulated gas sales consist primarily state fercregulated natural gas sales related distribution services  nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity  gas transportation storage consists primarily regulated sales gathering transmission distribution storage services also included regulated gas distribution charges retail distribution service customers opting alternate suppliers  revenue consists primarily sales ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities primary types sales service activities reported operating revenue dominion gas follows  regulated gas sales consist primarily state fercregulated natural gas sales related distribution services  nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties  gas transportation storage consists primarily regulated sales gathering transmission distribution storage services also included regulated gas distribution charges retail distribution service customers opting alternate suppliers  ngl revenue consists primarily sales ngl production condensate extracted products associated derivative activity  revenue consists primarily miscellaneous service revenue gas processing handling revenue gathering revenue electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences dominion’s virginia power’s actual electric fuel purchased energy expenses dominion’s dominion gas’ purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms virtually dominion gas’ cove point’s hope’s natural gas purchases either subject deferral accounting recovered customer accounting period sale income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power dominion gas’ subsidiaries addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed although dominion gas disregarded income tax purposes provision income taxes recognized reflect inclusion business activities tax returns parent dominion virginia power dominion gas participate intercompany tax sharing agreements dominion subsidiaries current income taxes based taxable income loss determined separate company basis agreements subsidiary incurs net operating loss recognition current income tax benefits limited refunds prior year taxes obtained carryback net operating loss extent net operating loss absorbed taxable income dominion consolidated group members otherwise net operating loss carried forward recognized deferred tax asset realized accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes accordingly deferred taxes recognized future consequences different treatments used reporting transactions financial accounting income tax returns companies establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities companies recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited combined notes consolidated financial statements continued timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets companies recognize interest underpayments overpayments income taxes interest expense income respectively penalties also recognized income dominion’s virginia power’s dominion gas’ interest penalties immaterial 2014 2013 2012 december 31 2014 virginia power’s consolidated balance sheet included 225 million federal state income taxes receivable 13 million noncurrent state income taxes receivable 38 million noncurrent federal state income taxes payable december 31 2013 virginia power’s consolidated balance sheet included 3 million state income taxes receivable 22 million federal state income taxes payable 12 million noncurrent state income taxes receivable 28 million noncurrent federal state income taxes payable december 31 2014 dominion gas’ consolidated balance sheet included 96 million federal state income taxes receivable 14 million state income taxes payable 7 million noncurrent state income taxes payable 20 million noncurrent state income taxes receivable december 31 2013 dominion gas’ consolidated balance sheet included 17 million federal income taxes payable 23 million state income taxes payable 1 million state income taxes receivable 7 million noncurrent state income taxes payable 20 million noncurrent state income taxes receivable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment following table illustrates checks outstanding yet presented payment recorded accounts payable companies purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion virginia power use derivative instruments futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations dominion gas uses derivative instruments physical financial forwards futures swaps manage commodity price interest rate risks derivatives except exception applies required reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance companies offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 287 million 620 million associated cash collateral december 31 2014 2013 respectively dominion margin liabilities 34 million 2 million associated cash collateral december 31 2014 2013 respectively virginia power margin assets 6 million 11 million associated cash collateral december 31 2014 2013 respectively virginia power margin liabilities associated cash collateral december 31 2014 2013 dominion gas margin assets liabilities related cash collateral december 31 2014 2013 see note 7 information derivatives manage price risk dominion virginia power hold certain derivative instruments designated hedges accounting purposes however extent dominion virginia power hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates part dominion’s strategy market energy manage related risks formerly managed portfolio commoditybased financial derivative instruments held trading purposes dominion used established policies procedures manage risks associated price fluctuations energy commodities used various derivative instruments reduce risk creating offsetting market positions second quarter 2013 dominion commenced repositioning producer services business repositioning completed first quarter 2014 resulted termination natural gas trading certain energy marketing activities statement income presentation  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges based nature underlying risk virginia power’s generation operations changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments companies designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges companies formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges derivative instruments accounted fair value hedges cash flow hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority companies’ hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas ngls energyrelated products companies also use foreign currency contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions companies hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable dominion entered interest rate derivative instruments hedge forecasted interest payments related planned debt issuances 2013 2014 interest rate derivatives designated dominion cash flow hedges 2012 2013 prior formation dominion gas purposes dominion gas financial statements derivative balances aoci balance income statement impact related interest rate derivative instruments entered dominion continue included dominion gas’ consolidated financial statements forecasted interest payments related debt issuances occur dominion gas fair value hedgesdominion also uses fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition dominion virginia power designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value derivative gains losses hedged item reclassified earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2014 2013 2012 dominion capitalized interest costs afudc property plant equipment 80 million 66 million 91 million respectively 2014 2013 2012 virginia power capitalized afudc property plant equipment 39 million 33 million 31 million respectively 2014 2013 2012 dominion gas capitalized afudc property plant equipment 1 million 5 million 23 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2014 2013 2012 virginia power recorded 8 million 32 million 37 million afudc related projects respectively property subject costofservice rate regulation including virginia power electric distribution electric transmission generation property dominion gas natural gas distribution transmission property certain dominion natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable abandoned property subject costofservice rate regulation including nonutility property cost removal asso combined notes consolidated financial statements continued ciated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives companies’ average composite depreciation rates utility property plant equipment follows 2013 virginia power revised depreciation rates reflect results new depreciation study change resulted increase 19 million 12 million aftertax depreciation amortization expense virginia power’s consolidated statements income 2014 virginia power also made onetime adjustment depreciation expense ordered virginia commission adjustment resulted increase 38 million 23 million aftertax depreciation amortization expense virginia power’s consolidated statements income 2013 dominion gas revised depreciation rates east ohio reflect results new depreciation study change resulted decrease 8 million 5 million aftertax depreciation amortization expense dominion gas’ consolidated statements income dominion’s nonutility property plant equipment depreciated using straightline method following estimated useful lives depreciation amortization related virginia power’s dominion gas’ nonutility property plant equipment ep properties immaterial years ended december 31 2014 2013 2012 nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets companies perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairments related certain longlived assets intangible assets finite lives regulatory assets liabilities accounting dominion’s dominion gas’ regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made asset retirement obligations companies recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses least annually companies evaluate key assumptions underlying aros including estimates amounts timing future cash flows associated retirement activities aros adjusted significant changes assumptions identified dominion gas report accretion aros depreciation asset retirement costs associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros virginia power reports accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense consolidated statements income debt issuance costs companies defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others deferred debt issuance costs recorded asset classified current assets deferred charges assets consolidated balance sheets unamortized costs associated redemptions debt securities prior stated maturity dates generally recognized recorded interest expense immediately permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities  trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income  availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments companies account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include  equity method investments companies ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets companies record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method  cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investmentsspecial considerations  recognition provisions fasb’s otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities  debt securitiesusing information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss dominion virginia power record credit loss earnings remaining portion unrealized loss aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors  equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual combined notes consolidated financial statements continued securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since dominion virginia power limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory dominion gas used east ohio gas distribution operations valued using lifo method lifo method stored gas inventory valued 12 million 7 million december 31 2014 december 31 2013 respectively based average price gas purchased 2014 2013 cost replacing current portion stored gas inventory exceeded amount stated lifo basis approximately 98 million 77 million respectively stored gas inventory dominion held hope certain nonregulated gas operations valued using weightedaverage cost method gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion gas value imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion gas parties reported current assets imbalances dominion gas owe parties reported current liabilities consolidated balance sheets goodwill dominion gas evaluate goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount note 3 acquisitions dispositions dominion acquisition solar development projects march 2014 dominion acquired 100 equity interests six solar development projects california recurrent energy development holdings llc approximately 50 million cash projects cost approximately 446 million construct including initial acquisition cost facilities began commercial operations fourth quarter 2014 generate approximately 139 mw november 2014 dominion acquired 100 equity interests solar project california csi project holdco llc approximately 79 million cash project costs approximately 80 million construct including initial acquisition cost facility began commercial operations fourth quarter 2014 generates approximately 20 mw december 2014 dominion acquired 100 equity interests solar project california edf renewable development inc approximately 71 million cash project expected cost approximately 73 million construct including initial acquisition cost facility began commercial operations january 2015 generates approximately 20 mw purchase price acquisitions allocated property plant equipment september 2014 dominion entered agreements acquire 100 equity interests two additional solar projects california edf renewable development inc approximately 175 million cash acquisitions expected close first half 2015 prior projects commencing operations projects expected cost approximately 185 million constructed including initial acquisition cost upon completion facilities expected generate approximately 42 mw acquisitions provide dominion large utilityscale solar presence significantly increase solar generation portfolio longterm power purchase interconnection operation maintenance agreements executed projects dominion claimed expects claim federal investment tax credits projects acquisition cgt january 2015 dominion completed acquisition 100 equity interests cgt scana corporation approximately 495 million cash subject final acquired working capital adjustments cgt owns operates nearly 1500 miles fercregulated interstate natural gas pipeline south carolina southeastern georgia acquisition supports dominion’s natural gas expansion southeast acquired assets cgt included dominion energy operating segment subject board approvals dominion midstream dominion expects contribute cgt dominion midstream combination debt dominion midstream common units first half 2015 allocation purchase price individual assets evaluation management finalized sale electric retail energy marketing business march 2014 dominion completed sale electric retail energy marketing business proceeds approximately 187 million net transaction costs sale resulted gain subject postclosing adjustments approximately 100 million 57 million aftertax net 31 million writeoff goodwill included operations maintenance expense dominion’s consolidated statements income sale electric retail energy marketing business qualify discontinued operations classification sale illinois gas contracts june 2013 dominion completed sale illinois gas contracts sales price approximately 32 million subject postclosing adjustments sale resulted gain approx imately 29 million 18 million aftertax net 3 million writeoff goodwill included operations maintenance expense dominion’s consolidated statement income sale illinois gas contracts qualify discontinued operations classification considered component applicable accounting guidance sale brayton point kincaid equity method investment elwood march 2013 dominion entered agreement energy capital partners sell brayton point kincaid equity method investment elwood first second quarters 2013 brayton point’s kincaid’s assets liabilities disposed classified held sale adjusted estimated fair value less cost sell resulting impairment charges totaling 48 million 28 million aftertax included discontinued operations dominion’s consolidated statements income periods dominion used market approach estimate fair value brayton point’s kincaid’s longlived assets considered level 2 fair value measurements given based agreedupon sales price dominion’s 50 interest elwood equity method investment therefore accordance applicable accounting guidance carrying amount investment classified held sale equity earnings investment reported discontinued operations august 2013 dominion completed sale received proceeds approximately 465 million net transaction costs sale resulted 35 million 25 million aftertax gain attributable equity method investment elwood included income dominion’s consolidated statement income partially offset 17 million 18 million aftertax loss attributable brayton point kincaid includes 16 million writeoff goodwill reflected loss discontinued operations dominion’s consolidated statement income see note 6 impairments related power stations following table presents selected information regarding results operations brayton point kincaid reported discontinued operations dominion’s consolidated statements income 1 includes 64 million charges related defeasance brayton point debt early redemption kincaid debt 2013 2 includes longlived asset impairment charge 16 billion sale salem harbor state line august 2012 dominion completed sale salem harbor second quarter 2012 assets liabilities disposed classified held sale adjusted estimated fair value less cost sell also second quarter 2012 dominion completed sale state line ceased operations march 2012 see note 6 impairments related power stations following table presents selected information regarding results operations salem harbor state line reported discontinued operations dominion’s consolidated statements income dominion gas blue racer see note 9 discussion transactions related blue racer marcellus acreage see note 10 discussion assignments marcellus acreage note 4 operating revenue companies’ operating revenue consists following combined notes consolidated financial statements continued note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently companies routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material december 2014 us federal legislation enacted provides extension 50 bonus depreciation allowance qualifying capital expenditures incurred 2014 continuing operations details income tax expense continuing operations including noncontrolling interests follows continuing operations including noncontrolling interests statutory us federal income tax rate reconciles companies’ effective income tax rate follows dominion’s effective tax rate 2014 reflects recognition state tax credits previously unrecognized tax benefits due expiration statutes limitations companies’ deferred income taxes consist following december 31 2014 dominion following deductible loss credit carryforwards • federal loss carryforwards 22 billion expire unutilized period 2021 2034 • federal investment tax credits 245 million expire unutilized period 2033 2034 • federal production tax credits 65 million expire unutilized period 2031 2034 • state loss carryforwards 17 billion expire unutilized period 2018 2034 valuation allowance 962 million carryforwards established • state minimum tax credits 194 million expire • state investment tax credits 29 million expire unutilized period 2016 2019 december 31 2014 virginia power following deductible loss credit carryforwards • federal loss carryforwards 279 million expire unutilized period 2031 2033 • federal production tax credits 14 million expire unutilized period 2031 2034 december 31 2014 dominion gas following deductible loss carryforwards • federal loss carryforwards 25 million expire unutilized period 2031 2033 • state loss carryforwards 4 million expire unutilized period 2031 2032 dominion gas credit carryforwards december 31 2014 reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion subsidiaries unrecognized tax benefits 77 million 126 million 167 million december 31 2014 2013 2012 respectively dominion change unrecognized tax benefits decreased income tax expense 47 million 29 million 2014 2013 respectively increased income tax expense 1 million 2012 virginia power unrecognized tax benefits 8 million december 31 2014 2013 13 million december 31 2012 virginia power change unrecognized tax benefits decreased income tax expense less 1 million 2014 increased income tax expense 4 million 1 million 2013 2012 respectively dominion gas unrecognized tax benefits 19 million december 31 2014 2013 20 million december 31 2012 dominion gas change unrecognized tax benefits affected income tax expense less 1 million 2014 2013 2012 january 2012 appellate division irs informed dominion joint committee completed review settlement tax years 2004 2005 dominion consolidated subsidiaries since measurement unrecognized tax benefits 2011 considered results completed settlement negotiations dominion’s results operations 2012 affected april 2012 irs issued revenue agent report dominion’s consolidated tax returns tax years 2006 2007 reflecting resolution issues except one subsequently settled 2012 combined notes consolidated financial statements continued irs examination tax years 2008 2009 2010 2011 concluded late 2013 resulting payment 46 million adjustment refund previously received dominion carryback 2008 losses 2007 loss carryback adjusted submitted joint committee review early 2014 dominion received notification matter resolved adjustments accordingly earliest tax year remaining open examination dominion’s federal tax returns 2012 effective 2014 tax year dominion accepted cap method identifying resolving tax issues open cooperative transparent interaction irs taxpayers prior filing return cap dominion opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions accepted irs precap plan irs audit tax years 2012 2013 began early 2014 reasonably possible settlement negotiations expiration statutes limitations could result decrease unrecognized tax benefits 2015 30 million dominion 25 million virginia power changes occur revisions accrual interest tax underpayments overpayments earnings could increase 10 million dominion 7 million virginia power otherwise regard 2014 prior years dominion virginia power cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2015 considering possibility potential changes status remaining unrecognized tax benefits dominion gas concluded significant changes reasonably possible occur 2015 major states dominion operates earliest tax year remaining open examination follows 1 considered major state dominion gas’ operations 2 considered major state virginia power’s operations companies also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes operating losses tax credits generated years statute limitations expired amounts subject examination discontinued operations details income tax expense dominion’s discontinued operations follows dominion’s effective tax rate 2013 reflects impact goodwill written sale kincaid brayton point deductible tax purposes note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact companies’ nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion virginia power apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments including held dominion’s rabbi pension postretirement benefit plan trusts accordance requirements described dominion gas applies fair value measurements certain assets liabilities including commodity interest rate derivative instruments investments held pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values inputs assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions companies’ commodity derivative valuations prepared dominion’s erm department erm department reports directly dominion’s cfo erm department creates daily marktomarket valuations companies’ derivative transactions using computerbased statistical models inputs go market valuations transactional information stored systems record market pricing information resides data warehouse databases majority forward prices automatically uploaded data warehouse databases various thirdparty sources inputs obtained thirdparty sources evaluated reliability considering reputation independence market presence methodology used thirdparty forward prices available thirdparty sources erm department models forward prices based available market data team consisting risk management risk quantitative analysts meets business day assess validity market prices marktomarket valuations meeting changes marktomarket valuations period examined qualified historical expectations discrepancies identified process marktomarket valuations market pricing information evaluated adjusted necessary options contracts optionlike characteristics observable pricing information available external sources dominion virginia power generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value dominion virginia power use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics dominion virginia power may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity foreign currency derivative contracts  forward commodity prices  forward foreign currency prices  transaction prices  price volatility  price correlation  volumes  commodity location  interest rates  credit quality counterparties companies  credit enhancements  time value interest rate derivative contracts  interest rate curves  credit quality counterparties companies  volumes  credit enhancements  time value investments  quoted securities prices indices  securities trading information including volume restrictions  maturity  interest rates  credit quality  nav alternative investments commoncollective trust funds companies regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels  level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments certain exchangetraded derivatives exchangelisted equities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion virginia power benefit plan trust funds dominion gas rabbi trust funds dominion  level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 combined notes consolidated financial statements continued primarily include commodity forwards swaps interest rate swaps restricted cash equivalents certain treasury securities money market funds commoncollective trust funds corporate state municipal debt securities held nuclear decommissioning trust funds dominion virginia power benefit plan trust funds dominion gas rabbi trust funds dominion  level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 companies consist longdated commodity derivatives ftrs ngls natural gas peaking options modeled commodity derivatives additional instruments categorized level 3 dominion gas include alternative investments consisting investments partnerships joint ventures alternative investments held benefit plan trust funds fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability derivative contracts companies recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ngl derivatives market illiquidity requires valuation based proxy markets always correlate actual instrument therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions generally considered liquid markets modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets alternative investments categorized level 3 due absence quoted market prices illiquidity longterm nature assets investments generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date companies enter certain physical financial forwards futures options swaps considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures contracts option model used value level 3 physical financial options discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices original sales prices volumes level 3 fair value measurements forward market prices credit spreads implied price volatilities considered unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty pricing sources following table presents dominion’s dominion gas’ quantitative information level 3 fair value measurements december 31 2014 range weighted average presented dollars market price inputs percentages price volatility credit spreads 1 averages weighted volume 2 includes basis 3 information represents dominion gas’ quantitative information level 3 fair value measurements 4 represents market prices beyond defined terms levels 1 2 5 represents volatilities unrepresented published markets 6 represents credit spreads unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows nonrecurring fair value measurements dominion gas natural gas assets fourth quarter 2014 dominion gas recorded impairment charge 9 million 6 million aftertax operations maintenance expense consolidated statements income write previously capitalized costs following cancellation development project june 2013 dominion gas purchased certain natural gas infrastructure facilities previously leased third parties purchase price based terms lease exceeded current market pricing result purchase price expected losses dominion gas recorded impairment charge 49 million 29 million aftertax operations maintenance expense consolidated statements income write longlived assets estimated fair values less 1 million management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion gas used income approach discounted cash flows estimate fair value assets impairment test considered level 3 fair value measurement due use significant unobservable inputs including estimates future production commodity prices also june 2013 dominion gas recorded impairment charge 6 million 4 million aftertax operations maintenance expense consolidated statements income write previously capitalized costs following cancellation two development projects dominion merchant power stations third quarter 2012 dominion decided pursue sale brayton point kincaid well 50 interest elwood equity method investment since dominion unlikely operate brayton point kincaid facilities estimated useful lives dominion evaluated power stations recoverability probability weighted approach concluded carrying values facilities impaired september 30 2012 december 31 2012 dominion updated recoverability analysis brayton point kincaid reflect bids received updated probability weighting result updated evaluation dominion recorded impairment charge approximately 16 billion 10 billion aftertax included loss discontinued operations consolidated statement income write brayton point’s kincaid’s longlived assets estimated fair value approximately 216 million dominion used market approach estimate fair value brayton point’s kincaid’s longlived assets considered level 2 fair value measurement given based bids received combined notes consolidated financial statements continued see note 3 information regarding sale brayton point kincaid dominion’s equity method investment elwood including additional impairment april 2011 dominion announced would pursue sale kewaunee since able move forward original plan grow nuclear fleet midwest take advantage economies scale dominion unable find buyer facility addition power purchase agreements two utilities contracted buy kewaunee’s generation expired december 2013 time low wholesale electricity prices region september 30 2012 dominion expected would permanently cease generation operations kewaunee 2013 commence decommissioning facility result dominion evaluated kewaunee impairment since likely kewaunee would retired end previously estimated useful life management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion used income approach discounted cash flows estimate fair value kewaunee’s longlived assets considered level 3 fair value measurement due use significant unobservable inputs including estimates future power commodity prices result evaluation september 2012 dominion recorded impairment charges 435 million 281 million aftertax largely reflected operations maintenance expense consolidated statement income primarily reflects 378 million 244 million aftertax charge full impairment kewaunee’s longlived assets write materials supplies inventories 33 million 21 million aftertax 24 million 16 million aftertax charge related severance costs decision decommission kewaunee approved dominion’s board directors october 2012 consideration factors discussed made uneconomic kewaunee continue operations kewaunee ceased operations decommissioning activities commenced may 2013 second quarter 2012 agreement reached sell salem harbor assets liabilities disposed classified held sale adjusted estimated fair value less cost sell resulted pretax charge 27 million 16 million aftertax included loss discontinued operations dominion’s consolidated statement income considered level 2 fair value measurement based negotiated sales price salem harbor sold third quarter 2012 recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s dominion gas’ pension postretirement benefit plans presented note 21 dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category following table presents dominion’s gains losses included earnings level 3 fair value category combined notes consolidated financial statements continued virginia power following table presents virginia power’s quantitative information level 3 fair value measurements december 31 2014 range weighted average presented dollars market price inputs percentages credit spreads 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents credit spreads unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2014 2013 2012 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2014 2013 2012 dominion gas following table presents dominion gas’ assets liabilities commodity interest rate derivatives measured fair value recurring basis hierarchy level including current noncurrent portions combined notes consolidated financial statements continued following table presents net change dominion gas’ derivative assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category classified operating revenue dominion gas’ consolidated statements income years ended december 31 2014 2013 2012 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2014 2013 2012 fair value financial instruments substantially companies’ financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents restricted cash recorded current assets customer receivables shortterm debt affiliated current borrowings payables affiliates accounts payable representative fair value shortterm nature instruments companies’ financial instruments recorded fair value carrying amounts estimated fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes amounts represent unamortized discount andor premium december 31 2014 2013 includes valuation certain fair value hedges associated dominion’s fixed rate debt approximately 19 million 55 million respectively 3 carrying amount includes amounts represent unamortized discount andor premium 4 includes deferred issuance expenses 2 million december 31 2013 see note 18 information redemption preferred stock 2014 note 7 derivatives hedge accounting activities companies exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well currency exchange interest rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross companies’ consolidated balance sheets dominion’s virginia power’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared dominion gas’ derivative contracts include overthe counter transactions overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit cases forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized companies’ consolidated balance sheets well letters credit forms security included tables subject offset master netting similar arrangements would reduce net exposure combined notes consolidated financial statements continued dominion balance sheet presentation tables present dominion’s derivative asset liability balances type financial instrument effects offsetting volumes following table presents volume dominion’s derivative activity december 31 2014 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil ineffectiveness aoci years ended december 31 2014 2013 2012 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2014 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates combined notes consolidated financial statements continued fair value gains losses derivative instruments following tables present fair values dominion’s derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheets following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 2 amounts recorded dominion’s consolidated statements income classified interest related charges virginia power balance sheet presentation tables present virginia power’s derivative asset liability balances type financial instrument effects offsetting combined notes consolidated financial statements continued volumes following table presents volume virginia power’s derivative activity december 31 2014 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions ineffectiveness years ended december 31 2014 2013 2012 gains losses hedging instruments determined ineffective material fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets virginia power’s consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases dominion gas balance sheet presentation tables present dominion gas’ derivative asset liability balances type financial instrument effects offsetting combined notes consolidated financial statements continued volumes following table presents volume dominion gas’ derivative activity december 31 2014 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions ineffectiveness aoci years ended december 31 2014 2013 2012 gains losses hedging instruments determined ineffective material following table presents selected information related gains losses cash flow hedges included aoci dominion gas’ consolidated balance sheet december 31 2014 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates fair value gains losses derivative instruments following tables present fair values dominion gas’ derivatives presented consolidated balance sheets 1 current derivative assets presented current assets dominion gas’ consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities dominion gas’ consolidated balance sheets 3 current derivative liabilities presented current liabilities dominion gas’ consolidated balance sheets following tables present gains losses dominion gas’ derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion gas’ consolidated statements income 2 amounts recorded dominion gas’ consolidated statements income classified interest related charges note 8 earnings per share following table presents calculation dominion’s basic diluted eps 1 dilutive securities consist primarily contingently convertible senior notes 2013 equity units 2014 contingently convertible senior notes 2013 2012 dominion redeemed contingently convertible senior notes 2014 see note 17 information 2014 equity units potentially dilutive securities excluded calculation diluted eps year ended december 31 2014 dilutive stock price threshold met 2013 equity units potentially dilutive securities excluded calculation diluted eps year ended december 31 2013 see note 17 information potentially dilutive securities excluded calculation diluted eps year ended december 31 2012 combined notes consolidated financial statements continued note 9 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 110 million 107 million december 31 2014 2013 respectively costmethod investments held dominion’s rabbi trusts totaled 6 million 10 million december 31 2014 2013 respectively decommissioning trust securities dominion holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 3 million 11 million december 31 2014 2013 respectively 3 fair value securities unrealized loss position 379 million 604 million december 31 2014 2013 respectively fair value dominion’s marketable debt securities held nuclear decommissioning trust funds december 31 2014 contractual maturity follows presented selected information regarding dominion’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 dominion recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 3 million 18 million 4 million december 31 2014 2013 2012 respectively virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 6 million december 31 2014 2013 3 fair value securities unrealized loss position 170 million 299 million december 31 2014 2013 respectively fair value virginia power’s marketable debt securities december 31 2014 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments follows 1 amounts include otherthantemporary impairment losses debt securities 2 million 9 million 2 million december 31 2014 2013 2012 respectively equity method investments dominion gas investments dominion gas account equity method accounting follows 1 dominion 50 million commitment invest clean power technology businesses 2018 includes dominion’s investment atlantic coast pipeline see note 15 information combined notes consolidated financial statements continued dominion’s equity earnings investments totaled 46 million 14 million 25 million 2014 2013 2012 respectively dominion received distributions investments 60 million 33 million 58 million 2014 2013 2012 respectively december 31 2014 2013 carrying amount dominion’s investments exceeded share underlying equity net assets approximately 126 million 36 million respectively 87 million differences relate basis differences dominion’s investments blue racer wind projects amortized useful lives underlying assets remaining 39 million differences reflect equity method goodwill amortized dominion gas’ equity earnings investment totaled 21 million 22 million 23 million 2014 2013 2012 respectively dominion gas received distributions investment 20 million 19 million 25 million 2014 2013 2012 respectively december 31 2014 2013 carrying amount dominion gas’ investment exceeded share underlying equity net assets approximately 8 million differences reflect equity method goodwill amortized equity earnings recorded income dominion’s dominion gas’ consolidated statements income blue racer december 2012 dominion formed joint venture caiman provide midstream services natural gas producers operating utica shale region ohio portions pennsylvania blue racer equal partnership dominion caiman dominion contributing midstream assets caiman contributing private equity capital december 2012 east ohio sold two pipeline systems affiliate contributed systems blue racer east ohio received consideration 248 million consisting 61 million cash proceeds extinguishment affiliated long term debt 187 million transaction resulted gain approximately 176 million 110 million aftertax recognized operations maintenance expense dominion gas’ consolidated statements income dominion recorded 50 interest blue racer cash proceeds 115 million contribution assets joint venture dominion recognized gain 72 million 43 million aftertax net transaction fees 9 million recorded operations maintenance expense dominion’s consolidated statements income march 2013 dti sold line tl404 affiliate subsequently sold line tl404 blue racer cash proceeds approximately 47 million sale resulted gain approximately 25 million 14 million aftertax net 2 million writeoff goodwill included operations maintenance expense dominion gas’ dominion’s consolidated statements income phase 1 natrium completed second quarter 2013 contributed dominion blue racer third quarter 2013 resulting increased equity method investment blue racer 473 million also third quarter 2013 dti sold line tpl2a affiliate subsequently sold line tpl2a blue racer sold line tl388 blue racer received approximately 78 million cash proceeds sales resulted approximately 74 million 41 million aftertax gain included operations maintenance expense dominion gas’ dominion’s consolidated statements income fourth quarter 2013 dti sold western system affiliate subsequently sold western system blue racer cash proceeds approximately 30 million sale resulted gain approximately 3 million 2 million aftertax dti 4 million 2 million aftertax dominion included operations maintenance expense dominion gas’ dominion’s consolidated statement income dominion ngl pipelines llc contributed january 2014 dominion blue racer prior commencement service resulting increased equity method investment 155 million including 6 million goodwill allocated dominion’s goodwill balance equity method investment blue racer march 2014 dominion gas sold northern system affiliate subsequently sold northern system blue racer consideration approximately 84 million dominion gas’ consideration consisted 17 million cash proceeds extinguishment affiliated current borrowings 67 million dominion’s consideration consisted cash proceeds approximately 84 million sale resulted gain approximately 59 million 35 million aftertax dominion gas 34 million aftertax dominion net 3 million writeoff goodwill included operations maintenance expense dominion gas’ dominion’s consolidated statement income dominion atlantic coast pipeline september 2014 dominion along duke energy corporation piedmont natural gas company inc agl resources inc announced formation atlantic coast pipeline members subsidiaries abovereferenced parent companies hold following membership interests dominion 45 duke energy corporation 40 piedmont natural gas company inc 10 agl resources inc 5 atlantic coast pipeline focused constructing approximately 550mile natural gas pipeline running west virginia north carolina subsidiaries affiliates four members plan customers pipeline 20year contracts pending regulatory approvals psnc energy also plans customer pipeline 20year contract pending regulatory approvals atlantic coast pipeline considered equity method investment dominion ability exercise significant influence control investee see note 15 information note 10 property plant equipment major classes property plant equipment respective balances companies follows significant ep properties development defined sec excluded dominion gas’ amortization december 31 2014 gas oil reserves proved drilling properties deemed impaired excluded costs related reserves transferred ongoing wellbywell basis amortization calculation jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2014 follows 1 units jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income assignments marcellus acreage december 2013 dti closed agreements two natural gas producers convey time approximately 100000 acres marcellus shale development rights underneath several natural gas storage fields agreements provide payments dti subject customary adjustments approximately 200 million period nine years overriding royalty interest gas produced acreage 2013 dti received approximately 100 million cash proceeds resulting approximately 20 million 12 million aftertax gain recorded operations maintenance expense dominion gas’ consolidated statements income twelve months ended december 31 2014 dti received 16 million additional cash proceeds resulting postclosing adjustments december 31 2014 deferred revenue totaled approximately 85 million expected recognized remaining term agreement november 2014 dti closed agreement natural gas producer convey time approximately 24000 acres marcellus shale development rights underneath one natural gas storage fields agreement provides payments dti subject customary adjustments approximately 120 million period four years overriding royalty interest gas produced acreage november 2014 dti closed agreement received proceeds approximately 60 million associated initial conveyance approximately 12000 acres resulting approximately 60 million 36 million aftertax gain recorded operations maintenance expense dominion gas’ consolidated statements income november 2014 dti signed agreement natural gas producer convey approximately 11000 acres marcellus combined notes consolidated financial statements continued shale development rights underneath one natural gas storage fields agreement provides payment dti subject customary adjustments approximately 27 million overriding royalty interest gas produced acreage dti expects close agreement march 2015 note 11 goodwill intangible assets goodwill changes dominion’s dominion gas’ carrying amount segment allocation goodwill presented 1 goodwill recorded corporate segment allocated primary operating segments goodwill impairment testing purposes 2 goodwill amounts contain accumulated impairment losses 3 see note 3 discussion dominion’s dispositions related goodwill writeoffs 4 related assets sold contributed affiliate blue racer intangible assets companies’ intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 71 million 72 million 82 million 2014 2013 2012 respectively 2014 dominion acquired 115 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 15 years amortization expense virginia power’s intangible assets 24 million 2014 22 million year 2013 2012 2014 virginia power acquired 45 million intangible assets primarily representing software estimated weightedaverage amortization period 14 years dominion gas’ amortization expense intangible assets 17 million 16 million 15 million 2014 2013 2012 respectively 2014 dominion gas acquired 8 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 7 years components intangible assets follows annual amortization expense intangible assets estimated follows note 12 regulatory assets liabilities regulatory assets liabilities include following 1 reflects deferrals electric transmission ferc formula rate deferral costs associated certain current prospective rider projects virginia power reflects deferrals costs associated certain current prospective rider projects dominion gas see note 13 information 2 primarily reflects deferred fuel expenses virginia jurisdiction dominion’s virginia power’s generation operations see note 13 information 2014 2013 amount includes approximately 5 million related doe claims 3 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 4 reflects unrecovered gas costs regulated gas operations recovered filings applicable regulatory authority 5 represents unrecognized pension postretirement employee benefit costs expected recovered future rates generally expected remaining service period plan participants certain dominion’s rateregulated subsidiaries 6 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 7 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 8 pipp eligible customers make reduced payments based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rider according east ohio tariff provisions see note 13 information 9 current regulatory liabilities presented current liabilities dominion’s consolidated balance sheets 10 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 11 reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aros 12 represents east ohio’s deferrals uex rider recovered rates filed annually east ohio’s bad debt expense recovered either uex rider pipp rider see note 13 information december 31 2014 approximately 218 million dominion’s 165 million virginia power’s 45 million dominion gas’ regulatory assets represented past expenditures currently earn return majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business companies involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders andor involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate range possible loss statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties may represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect companies’ financial position liquidity results operations fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities dominion’s merchant generators sell electricity pjm miso isone wholesale markets dominion’s marketbased sales tariffs authorized ferc virginia power purchases ferc marketbased rate authority sells electricity wholesale market addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure march 2010 odec ncemc filed complaint ferc virginia power claiming approximately 223 million transmission costs related specific projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate october 2010 ferc issued order dismissing complaint part established hearings settlement procedures remaining part complaint february 2012 virginia power submitted ferc settlement agreement resolve issues set hearing settlement accepted ferc may 2012 provides payment virginia power transmission customer parties collectively 250000 per year ten years resolves matters allocation incremental cost certain underground transmission facilities march 2014 ferc issued order excluding virginia power’s transmission rates wholesale transmission customers located outside virginia incremental costs undergrounding certain transmission line projects ferc found reasonable nonvirginia wholesale transmission customers allocated incremental costs undergrounding facilities projects direct result virginia legislation virginia commission pilot programs intended benefit citizens virginia order retroactively effective march 2010 cause reallocation costs charged wholesale transmission customers loads outside virginia wholesale transmission customers loads virginia ferc determined sufficient evidence record determine magnitude underground increment ordered hearing determine appropriate amount undergrounding cost allocated wholesale transmission customer virginia power cannot predict outcome hearing expected material effect results operations regulatory matters electric regulation virginia regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs environmental compliance conservation energy efficiency programs renewable energy programs also contains statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission amended provides enhanced returns capital expenditures specific newlyproposed generation projects virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows 2013 biennial review pursuant regulation act march 2013 virginia power submitted base rate filings accompanying schedules support virginia commission’s 2013 biennial review virginia power’s rates terms conditions well virginia power’s earnings 2011 2012 test periods virginia power earnings test analysis reviewed virginia commission reflected roe 1030 generation distribution services earnings combined test periods november 2013 virginia commission issued 2013 biennial review order deciding eleven contested earnings test adjustments virginia commission ruled virginia power earned average roe approximately 1025 generation distribution services combined 2011 2012 test periods roe 50 basis points virginia power’s authorized roe 109 virginia commission authorized deferred recovery earnings test purposes 23 million costs related asset impairments early retirement decisions severe weather events natural disasters amortized 2013 calendar year virginia commission order base rate increase virginia power previously waived right increase determined virginia power revenue sufficiency approximately 280 million projecting annual revenues generated base rates revenues required cover costs service earn fair return part revenue sufficiency determination virginia commission also made findings eleven rate case adjustments addition changes cost capital structure resulted changes virginia power’s rate year revenues expenses virginia power’s rate base generation distribution rate year beginning january 1 2014 virginia power incurred 55 million 37 million aftertax charge connection 2013 biennial review order 2013 biennial review order virginia commission also set roe used virginia power’s 2015 biennial review earnings test analysis earnings generation distribution services combined 2013 2014 test periods applied riders r w b bw c1a c2a pursuant regulation act virginia power’s authorized roe lower average returns reported three previous years less majority comparable utilities southeastern us subject certain limitations described regulation act following statutory peer group analysis virginia commission determined peer group floor roe virginia power 989 held declining increase decrease virginia power’s combined rate return based performance virginia power’s roe earnings test purposes 2015 biennial review rate adjustment clause purposes 100 consistent determination virginia power’s market cost equity 100 virginia fuel expenses may 2014 virginia power submitted annual fuel factor filing virginia commission recover estimated 19 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2014 virginia power also offered defer recovery 50 total estimated 268 million jurisdictional deferred fuel balance 20152016 fuel year thereby recovering 134 million jurisdictional deferred fuel balance rate year beginning july 1 2014 september 2014 virginia commission approved virginia power’s increased fuel rate already effect interim basis since july 1 2014 new rate includes approval virginia power’s offer defer recovery 50 jurisdictional deferred fuel balance represents annual fuel revenue increase approximately 300 million rate adjustment clauses discussion significant riders associated various virginia power projects  virginia commission previously approved rider t1 july 2014 virginia commission approved approximately 538 million revenue requirement rate year beginning september 1 2014 represents approximately 134 million increase previous year  virginia commission previously approved rider conjunction virginia city hybrid energy center june 2014 virginia power proposed approximately 244 million revenue requirement rate year beginning april 1 2015 case pending  virginia commission previously approved rider w conjunction warren county february 2015 virginia commission approved approximately 135 million revenue requirement rate year beginning april 1 2015  virginia commission previously approved rider bw connection brunswick county october 2014 virginia power proposed total revenue requirement approximately 111 million rate year beginning september 1 2015 case pending  virginia commission previously approved riders c1a c2a connection cost recovery dsm programs august 2014 virginia power proposed total revenue requirement approximately 47 million rate year beginning may 1 2015 virginia power proposed three new energy efficiency programs virginia commission approval requested fiveyear cost cap approximately 106 million programs case pending  virginia commission previously approved rider r conjunction bear garden june 2014 virginia power proposed approximately 84 million revenue requirement rate year beginning april 1 2015 case pending  virginia legislation provides recovery costs move certain electric distribution lines underground became effective july 2014 october 2014 virginia power filed approval rider u proposes revenue requirement approximately 28 million initial rate year beginning september 1 2015 case pending  virginia commission previously approved rider b conjunction conversion three power stations biomass june 2014 virginia power proposed approximately 13 million revenue requirement rate year beginning april 1 2015 case pending  january 2015 virginia power applied cpcn construct operate new 20 mw utilityscale solar facility near existing remington power station fauquier county virginia power also applied approval combined notes consolidated financial statements continued rider us1 recover costs facility total cost remington solar facility approximately 47 million excluding financing costs case pending brunswick county august 2013 three motions reconsideration filed virginia commission asking reconsider august 2013 final order approving cpcn construction brunswick county november 2013 virginia commission denied reconsideration three appeals filed supreme court virginia two withdrawn september 2014 supreme court virginia issued opinion affirming virginia commission’s decision remaining appeal electric transmission project november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton february 2014 virginia commission granted reconsideration requested virginia power issued order amending certificate several appeals filed supreme court virginia oral arguments heard january 2015 appeals pending north anna virginia power considering construction third nuclear unit site located north anna virginia power decides build new unit must first receive col nrc approval virginia commission certain environmental permits approvals april 2013 virginia power decided replace reactor design previously selected potential unit esbwr technology virginia power filed first twopart amendment col application nrc july 2013 reflect esbwr technology filed second part amendment december 2013 col expected 2016 virginia power yet committed building new nuclear unit north anna june 2012 us court appeals dc circuit vacated remanded 2010 nrc decision related rulemaking generically assessed environmental impacts spent fuel storage expiration reactor’s license repository became available august 2012 nrc partially granted petition filed bredl petitioners number ongoing licensing proceedings including north anna col proceedings withhold issuance licenses completion action remand held proposed contentions accompanying petition abeyance august 2014 nrc approved new final rule codifying nrc’s generic assessment environmental impacts continued storage spent fuel lifted suspension final licensing decisions pending cases dismissed pending contentions subject including proposed contention filed bredl september 2014 bredl filed new petition nrc seeking suspension final decision making col proceeding along motions reopen file new contention new filings assert nrc must make safety finding feasibility capacity geologic disposal spent fuel prerequisite issuance license filings alleged safety findings longer made part nrc’s new continued storage rule findings must made individual licensing proceedings january 2015 bredl filed another petition col proceeding asking nrc order supplementation final environmental impact statement north anna 3 incorporate nrc’s generic assessment impacts continued spent fuel storage bredl could challenge assessment bredl’s september 2014 filings january 2015 petition substantially filings made various intervenor groups licensing proceedings pending nrc resolution filings expected affect schedule issuance col north anna offshore wind legislation april 2014 legislation enacted virginia permits virginia power recover 70 costs previously deferred capitalized related development third nuclear unit located north anna offshore wind facilities december 31 2013 part 2013 2014 base rates virginia power deferred capitalized costs totaling approximately 577 million projects december 31 2013 substantially relate north anna 70 portion previously deferred capitalized costs allocable customers virginia power recognized amounts recoverable 2013 2014 base rates charges net income beginning second quarter 2014 remainder year 2014 virginia power recognized 374 million 248 million aftertax charges income representing cumulative recovery costs january 2013 december 2014 primarily included operations maintenance expense consolidated statements income remaining deferred capitalized costs well costs incurred december 31 2013 continue eligible inclusion future rate adjustment clause regulation act legislation february 2015 virginia governor signed legislation law keep virginia power’s base rates unchanged least december 1 2022 addition biennial reviews conducted virginia commission five successive 12month test periods beginning january 1 2015 ending december 31 2019 virginia power scheduled file next biennial review covering 2013 2014 march 2015 legislation allows review proceed sole purpose determining whether refunds due customers based earnings performance 2013 2014 test periods addition legislation requires virginia commission conduct proceedings 2017 2019 determine utility’s roe use connection rate adjustment clauses requires utilities file integrated resource plans annually rather biennially legislation requires virginia power writeoff 85 million priorperiod deferred fuel costs first quarter 2015 addition legislation requires virginia commission implement fuel rate reduction virginia power soon practicable based nonrecovery well overrecovery 20142015 fuel year projected fuel expense 20152016 fuel year legislation also deems construction purchase one utilityscale solar facilities located virginia 500 mw total public interest north carolina regulation december 2012 north carolina commission approved 36 million increase virginia power’s annual nonfuel base revenues based authorized roe 102 14 million decrease annual base fuel revenues combined total base revenue increase 22 million rate changes became effective january 1 2013 appealed north carolina supreme court multiple parties june 2014 supreme court north carolina issued opinion reversing portion north carolina commission’s december 2012 order virginia power’s 2012 base rate case approving 102 roe virginia power remanding case north carolina commission additional findings fact light 2013 opinion issued north carolina commission’s order case pending december 2014 north carolina commission issued order approving approximately 17 million increase fuel component virginia power’s electric rates rate year beginning january 1 2015 increase includes approval virginia power’s mitigation proposal defer recovering 50 estimated 17 million jurisdictional deferred fuel balance 2016 fuel year without interest ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 25 pipeline system february 2014 east ohio filed application requesting approval adjust pir cost recovery rates 2013 costs filing reflects gross plant investment 2013 164 million cumulative gross plant investment 674 million estimated revenue requirement 89 million application approved ohio commission april 2014 february 2015 east ohio filed application adjust pir cost recovery 2014 costs filing reflects gross plant investment 2014 155 million cumulative gross plant investment 829 million revenue requirement 108 million case pending amr program 2007 east ohio began installing automated meter reading technology 12 million customers ohio may 2014 amr cost recovery rates became effective approved ohio commission april 2014 approval includes revenue requirement 8 million represents approximately 3 million increase previous year january 2013 east ohio filed ohio supreme court appeal rate reduction ordered ohio commission october 2012 motion seeking stay amr cost recovery rate imposed ohio supreme court granted stay march 2013 east ohio put higher amr cost recovery rate filed east ohio effect july 2014 ohio supreme court ruled east ohio’s favor agreeing rate reduction imposed ohio commission unreasonable february 2015 east ohio filed application ohio commission adjust amr cost recovery charge recover costs calendar year 2014 associated amr deployment completed 2012 filing reflects projected revenue requirement approximately 8 million case pending amr program approved ohio commission complete although capital investment added east ohio approved recover depreciation property taxes carrying charges return east ohio another rate case pipp plus program ohio pipp plus program eligible customers make reduced payments based ability pay bill difference customer’s total bill pipp payment plan amount deferred collected pipp rider accordance rules ohio commission july 2014 east ohio’s annual update pipp rider automatically approved ohio commission 45day waiting period date filing increased rider rate reflects refund next year overrecovery accumulated arrearages approximately 82 million march 31 2014 net projected deferred program costs approximately 96 million period april 2014 june 2015 uex rider east ohio approval uex rider recovers bad debt expense customers participating pipp plus program uex rider adjusted annually achieve dollar recovery east ohio’s actual writeoffs uncollectible amounts july 2014 ohio commission approved decrease east ohio’s uex rider reflects elimination overrecovered balance accumulated bad debt expense approximately 8 million march 31 2014 recovery prospective bad debt expense projected total approximately 25 million twelvemonth period april 2014 march 2015 house bill 95 ohio enacted utility reform legislation house bill 95 became effective september 2011 law updates natural gas legislation enabling gas companies include uptodate cost levels filing rate cases also allows gas companies seek approval capital expenditure plans gas companies recognize carrying costs associated capital investments placed service defer carrying costs plus depreciation property tax expenses recovery ratepayers future july 2014 ohio commission approved east ohio’s application requesting authority combined notes consolidated financial statements continued implement capital expenditure program 2014 capital expenditures totaling 110 million ferc regulation dti fuel settlement mid2013 dti received concerns fuel retainage percentages apparent overrecovery fuel costs certain time periods reflected annual fuel reports december 2013 dti submitted ferc approval stipulation agreement addressing among things reductions fuel retainage percentages rate moratorium 2016 february 2014 ferc approved stipulation agreement revised fuel retainage percentages became effective january 1 2014 dti began assessing reduced fuel retainage percentages march 1 2014 result provided refunds totaling nearly 10 million refunds reflect interest value difference actual quantities fuel retained months january february quantities would retained using reduced percentages note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain companies’ longlived assets dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities also include future abatement asbestos expected disturbed generation facilities dominion gas’ aros primarily include plugging abandonment gas oil wells interim retirement natural gas gathering transmission distribution storage pipeline components companies also identified recognized aros related retirement dominion’s lng facility dominion gas’ gas storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed dominion’s virginia power’s generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2013 2014 follows 1 includes 64 million 94 million 81 million reported current liabilities december 31 2012 2013 2014 respectively 2 primarily reflects lower anticipated nuclear decommissioning costs 3 relates primarily shift delayed planned date doe expected begin accepting spent nuclear fuel 4 includes 7 million reported current liabilities december 31 2014 5 includes 2 million 7 million reported current liabilities december 31 2013 2014 respectively 6 includes 135 million 140 million reported deferred credits liabilities remainder recorded current liabilities december 31 2013 2014 respectively dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2014 2013 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 42 billion 39 billion respectively december 31 2014 2013 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 19 billion 18 billion respectively note 15 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie dominion august 2013 dominion leased fairless generating facility pennsylvania juniper lessor began commercial operations june 2004 august 2013 lease expired dominion purchased fairless 923 million juniper per terms lease agreement however dominion previously consolidated juniper purchase accounted equity transaction acquire noncontrolling interests juniper 923 million dominion retained control fairless acquisition resulted removal securities due within one yearvie noncontrolling interests dominion’s consolidated balance sheet 2013 dominion initial 45 membership interest atlantic coast pipeline see note 9 details regarding nature entity dominion concluded atlantic coast pipeline vie insufficient equity finance activities without additional subordinated financial support dominion concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance power direct shared among multiple unrelated parties dominion obligated provide capital contributions based ownership percentage dominion’s maximum exposure loss limited current future investment dominion gas dti engaged oversee construction subsequently operate maintain projects undertaken atlantic coast pipeline based overall direction oversight atlantic coast pipeline’s members affiliate dti holds membership interest atlantic coast pipeline therefore dti considered variable interest atlantic coast pipeline members atlantic coast pipeline hold power direct construction operations maintenance activities entity dti concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance dti obligation absorb losses vie see note 24 information associated related party receivable balances virginia power virginia power longterm power capacity contracts five nonutility generators aggregate summer generation capacity approximately 870 mw contracts contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance entities remaining terms virginia power’s contracts years entities expected operate contractual relationships expire contracts expire various dates ranging 2015 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 639 million december 31 2014 virginia power paid 223 million 217 million 214 million electric capacity 138 million 98 million 83 million electric energy entities years ended december 31 2014 2013 2012 respectively virginia power dominion gas virginia power dominion gas purchased shared services drs affiliated vie approximately 335 million 106 million 331 million 115 million 328 million 107 million years ended december 31 2014 2013 2012 respectively virginia power dominion gas determined closely associated entity drs therefore neither primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power dominion gas virginia power dominion gas obligation absorb allocated shares drs costs note 16 shortterm debt credit agreements companies use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties combined notes consolidated financial statements continued dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 may 2014 credit facility amended restated facility limit increased 3 billion 4 billion maturity date extended september 2018 april 2019 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 may 2014 credit facility amended restated maturity date extended september 2018 april 2019 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 038 033 december 31 2014 2013 respectively virginia power virginia power’s shortterm financing supported two joint revolving credit facilities dominion gas credit facilities used working capital support combined commercial paper programs companies general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion gas follows 1 may 2014 credit facility amended restated maturity date extended september 2018 april 2019 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year july 2014 virginia power increased sublimit 10 billion 125 billion january 2015 virginia power increased sublimit facility 125 billion 15 billion 2 may 2014 credit facility amended restated maturity date extended september 2018 april 2019 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rates outstanding commercial paper supported credit facilities 036 033 december 31 2014 2013 respectively addition credit facility commitments mentioned virginia power also 120 million credit facility may 2014 credit facility amended restated maturity date extended september 2018 april 2019 december 31 2014 facility supports approximately 119 million certain variable rate taxexempt financings virginia power dominion gas dominion gas’s shortterm financing supported two joint revolving credit facilities discussed dominion virginia power dominion gas added borrower may 2014 dominion gas’ current sublimit 4 billion credit facility 500 million available december 31 2014 increased decreased multiple times per year maximum 1 billion dominion gas’ current sublimit 500 million credit facility 0 also increased decreased multiple times per year maturity date facilities april 2019 december 2014 dominion gas entered commercial paper program pursuant began accessing commercial paper markets january 2015 dominion gas’ current sublimit 4 billion credit facility 500 million used support commercial paper issuances note 17 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2014 2 financings relate certain pollution control equipment virginia power’s generating facilities certain variable rate taxexempt financings supported 120 million credit facility terminates april 2019 3 option holders 510 million dominion’s 525 senior notes due 2033 subject redemption 100 principal amount plus accrued interest august 2015 result december 31 2014 notes included securities due within one year consolidated balance sheets 4 represents debt assumed dominion merger former cng subsidiary 5 represents valuation certain fair value hedges associated dominion’s fixed rate debt 6 includes 4 million fair value hedge valuation 2014 14 million fair value hedge valuation 2013 combined notes consolidated financial statements continued based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2014 follows 1 option holders 510 million dominion’s 525 senior notes due 2033 subject redemption 100 principal amount plus accrued interest august 2015 result december 31 2014 notes included securities due within one year consolidated balance sheets companies shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2014 events default covenants senior note redemptions part dominion’s liability management exercise december 2014 dominion redeemed following outstanding series senior notes 2005 series c 515 senior notes due 2015 2004 series 520 senior notes due 2016 2006 series 560 senior notes due 2016 2007 series 60 senior notes due 2017 2008 series 8875 senior notes due 2019 aggregate outstanding principal approximately 19 billion aggregate redemption price paid december 2014 approximately 22 billion represents principal amount outstanding accrued unpaid interest applicable makewhole premium 263 million total charges liability management exercise 284 million including makewhole premium recognized recorded interest expense dominion’s consolidated statements income proceeds dominion’s issuance senior notes november 2014 used offset payment redemption price also see convertible securities called redemption convertible securities part dominion’s liability management exercise november 2014 dominion provided notice redeem 22 million outstanding contingent convertible senior notes senior notes eligible conversion calendar quarter closing price dominion’s common stock equal higher 120 conversion price least 20 last 30 consecutive trading days preceding quarter notes called redemption dominion upon occurrence certain conditions 2014 senior notes eligible conversion first second third quarters 2014 approximately 21 million notes converted holders 23 million common stock lieu redemption holders elected convert remaining 22 million notes december 2014 26 million common stock proceeds dominion’s issuance senior notes november 2014 used offset portion conversions paid cash december 31 2014 senior notes converted none remain outstanding junior subordinated notes payable affiliated trusts previous years dominion established several subsidiary capital trusts finance subsidiary dominion holds 100 voting interests trusts sold capital securities representing preferred beneficial interests 97 beneficial ownership assets held trusts exchange funds realized sale capital securities common securities represent remaining 3 beneficial ownership interest assets held capital trusts dominion issued various junior subordinated notes junior subordinated notes constitute 100 capital trust’s assets trust must redeem capital securities respective junior subordinated notes repaid maturity redeemed prior maturity january 2013 dominion repaid 258 million 783 unsecured junior subordinated debentures redeemed 250 thousand units 250 million 783 dominion resources capital trust capital securities due december 1 2027 securities redeemed price 101958 per capital security plus accrued unpaid distributions interest charges related dominion’s junior subordinated notes payable affiliated trusts 1 million years ended december 31 2014 2013 21 million year ended december 31 2012 enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids bear interest 75 per year june 30 2016 thereafter bear interest threemonth libor plus 2825 reset quarterly september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly june 2009 dominion issued 685 million 8375 june 2009 hybrids june 2009 hybrids listed nyse symbol dru october 2014 dominion issued 685 million october 2014 hybrids bear interest 575 per year october 1 2024 thereafter bear interest threemonth libor plus 3057 reset quarterly dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion executed rccs connection issuance june 2006 hybrids september 2006 hybrids june 2009 hybrids terms rccs dominion covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days july 2014 dominion amended rcc june 2009 hybrids expand measurement period consideration proceeds sale common stock equitylike issuances 180 days 365 days proceeds dominion receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price 2012 dominion launched tender offer purchase 150 million september 2006 hybrids dominion purchased canceled approximately 88 million september 2006 hybrids primarily result tender offer expired 2012 part dominion’s liability management exercise october 2014 dominion redeemed 685 million june 2009 hybrids plus accrued interest net proceeds issuance october 2014 hybrids redemption purchases conducted compliance rccs remarketable subordinated notes june 2013 dominion issued 550 million 2013 series 6125 equity units 550 million 2013 series b 6 equity units initially form corporate units july 2014 dominion issued 1 billion 2014 series 6375 equity units initially form corporate units corporate units listed nyse symbols dcua dcub dcuc respectively corporate unit consists stock purchase contract 120 interest rsn issued dominion stock purchase contracts obligate holders purchase shares dominion common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts dominion makes quarterly interest payments rsns quarterly contract adjustment payments stock purchase contracts rates described dominion may defer payments stock purchase contracts rsns one consecutive periods generally beyond purchase contract settlement date payments deferred dominion may make cash distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated rsns dominion recorded present value stock purchase contract payments liability offset charge equity interest payments rsns recorded interest expense stock purchase contract payments charged liability accretion stock purchase contract liability recorded imputed interest expense calculating diluted eps dominion applies treasury stock method equity units terms stock purchase contracts assuming antidilution adjustments dominion issue 84 million 99 million shares common stock april 2016 july 2016 115 million 143 million shares july 2017 total 403 million shares dominion’s common stock reserved issuance connection stock purchase contracts selected information dominion’s equity units presented 1 payments 66 million 17 million made 2014 2013 respectively stock purchase contract liability 216 million 139 million december 31 2014 2013 respectively combined notes consolidated financial statements continued dominion gas financing june 2014 dominion gas commenced offer exchange 12 billion principal amount unsecured senior notes issued private placement october 2013 exchange offer satisfied dominion gas’ obligations registration rights agreement entered connection issuance dominion gas 2013 senior notes exchange offer represent new financing transaction proceeds dominion gas offer settled august 2014 note 18 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2014 2013 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares issued outstanding december 31 2013 2014 virginia power redeemed outstanding series preferred stock upon redemption series longer outstanding purpose dividends ceased accumulate presented summary preferred stock redemptions 1 part dominion’s liability management exercise september 2014 virginia power provided irrevocable notice redeem shares outstanding series preferred stock october 2014 stock redeemed applicable price per share plus accumulated unpaid dividends 2 february 2014 virginia power provided irrevocable notice redeem stock march 2014 stock redeemed applicable price per share plus accumulated unpaid dividends rate reset march 2011 612 dividends ceased accumulating stock upon payment redemption price thus rate reset march 2014 note 19 equity issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion began purchasing common stock open market plans april 2014 dominion began issuing new common shares direct stock purchase plans 2014 dominion issued approximately 38 million shares common stock various programs dominion received cash proceeds 205 million issuance 29 million shares dominion direct employee savings plans december 2014 dominion filed sec shelf registration sale debt equity securities including ability sell common stock atthemarket program also december 2014 dominion entered four separate sales agency agreements effect sales program pursuant may offer time 500 million aggregate amount common stock sales common stock made means privately negotiated transactions nyse market prices transactions agreed upon dominion sales agents conformance applicable securities laws december 31 2014 total 7 million shares dominion’s common stock reserved issuance connection program 2015 dominion provided sales instructions one sales agents issued 27 million shares atthemarket issuances received cash proceeds 207 million net fees commissions paid 2 million following issuances dominion ability issue 291 million stock 2014 sales agency agreements virginia power 2014 2013 2012 virginia power issue shares common stock dominion gas september 30 2013 dominion contributed whollyowned subsidiaries dti east ohio dominion iroquois dominion gas exchange 100 limited liability company membership interests shares reserved issuance december 31 2014 dominion approximately 56 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans atthemarket program issuance connection stock purchase contracts see note 17 information repurchase common stock dominion repurchase shares 2014 2013 plan repurchase shares 2015 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization combined notes consolidated financial statements continued accumulated comprehensive income loss presented table summary aoci component dominion following table presents dominion’s changes aoci component net tax 1 see table details reclassifications following table presents dominion’s reclassifications aoci component combined notes consolidated financial statements continued virginia power following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications following table presents virginia power’s reclassifications aoci component dominion gas following table presents dominion gas’ changes aoci component net tax 1 see table details reclassifications following table presents dominion gas’ reclassifications aoci component combined notes consolidated financial statements continued stockbased awards 2005 2014 incentive compensation plans permit stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2014 approximately 31 million shares available future grants plans dominion measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion’s results years ended december 31 2014 2013 2012 include 39 million 31 million 25 million respectively compensation costs 14 million 11 million 8 million respectively income tax benefits related dominion’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income excess tax benefits classified financing cash flow years ended december 31 2014 2013 2012 dominion realized less 1 million less 1 million 10 million respectively excess tax benefits vesting restricted stock awards exercise stock options restricted stock restricted stock grants made officers dominion’s ltip may also granted certain key nonofficer employees time fair value dominion’s restricted stock awards equal closing price dominion’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2014 2013 2012 december 31 2014 unrecognized compensation cost related nonvested restricted stock awards totaled 27 million expected recognized weightedaverage period 18 years fair value restricted stock awards vested 19 million 20 million 30 million 2014 2013 2012 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates goalbased stock goalbased stock awards granted dominion’s ltip officers achieved certain targeted level share ownership lieu cashbased performance grants goalbased stock awards may also made certain key nonofficer employees time current outstanding goalbased shares include awards granted officers february 2013 february 2014 issuance awards based achievement two performance metrics twoyear period tsr relative companies listed members philadelphia utility index end performance period roic actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock equal closing price dominion’s stock date grant goalbased stock awards granted key nonofficer employees convert restricted stock end twoyear performance period generally vest three years original grant date awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares following table provides summary goalbased stock activity years ended december 31 2014 2013 2012 december 31 2014 targeted number shares expected issued february 2013 february 2014 awards approximately 17 thousand january 2015 cgn committee determined actual performance metrics established february 2013 awards performance period ended december 31 2014 based determination total number shares issued february 2013 goalbased stock awards approximately 7 thousand december 31 2014 unrecognized compensation cost related nonvested goalbased stock awards material cashbased performance grants cashbased performance grants made dominion’s officers dominion’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved february 2011 cashbased performance grant made officers portion grant representing 6 million paid december 2012 based achievement two performance metrics 2011 2012 roic tsr relative peer group companies total amount award grant 8 million remaining 2 million grant paid february 2013 february 2012 cashbased performance grant made officers portion grant representing initial payout 8 million paid december 2013 based achievement two performance metrics 2012 2013 tsr relative companies listed members philadelphia utility index end performance period roic total amount award grant 12 million remaining portion grant paid january 2014 february 2013 cashbased performance grant made officers portion grant representing initial payout 14 million paid december 2014 based achievement two performance metrics 2013 2014 tsr relative companies listed members philadelphia utility index end performance period roic total expected award grant 21 million remaining portion grant expected paid march 15 2015 december 31 2014 liability 7 million accrued remaining portion award february 2014 cashbased performance grant made officers payout performance grant expected occur march 15 2016 based achievement two performance metrics 2014 2015 tsr relative companies listed members philadelphia utility index end performance period roic december 31 2014 targeted amount grant 13 million liability 3 million accrued award note 20 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2014 virginia commission restricted payment dividends virginia power ohio commission may prohibit public service company including east ohio declaring paying dividend affiliate found detrimental public interest december 31 2014 ohio commission restricted payment dividends east ohio certain agreements associated companies’ credit facilities contain restrictions ratio debt total capitalization limitations restrict companies’ ability pay dividends receive dividends subsidiaries december 31 2014 see note 17 description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes equity units initially form corporate units note 21 employee benefit plans dominion gas defined benefit plans dominion provides certain retirement benefits eligible active employees retirees qualifying dependents dominion gas participates number dominionsponsored retirement plans terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension program also provides benefits certain retired executives companysponsored nonqualified employee benefit plan nonqualified plan funded contributions grantor trust dominion also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension benefits dominion gas employees represented collective bargaining units covered dominion pension plan defined benefit pension plan sponsored dominion provides benefits multiple dominion subsidiaries pension benefits dominion gas employees represented collective bargaining units covered separate pension plans east ohio dti plan provides benefits employees dti hope employee compensation basis allocating pension costs obligations dti hope determining east ohio’s share total pension costs retiree healthcare life insurance benefits dominion gas employees represented collective bargaining units covered dominion retiree health welfare plan sponsored dominion provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries retiree healthcare life insurance benefits dominion gas employees represented collective bargaining units covered separate postretirement benefit plans east ohio dti plan provides benefits dti hope employee headcount basis allocating postretirement benefit costs obligations dti hope determining east ohio’s share total postretirement benefit costs pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates rate compensation increases combined notes consolidated financial statements continued dominion uses december 31 measurement date employee benefit plans including dominion gas participates dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost pension plans including dominion gas participates marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments aggregate actual returns dominion’s pension postretirement plan assets 706 million 2014 959 million 2013 versus expected returns 610 million 554 million respectively aggregate actual returns pension postretirement benefit plan assets dominion gas employees represented collective bargaining units 157 million 2014 214 million 2013 versus expected returns 138 million 125 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans medicare act introduced federal subsidy sponsors retiree healthcare benefit plans provide prescription drug benefit least actuarially equivalent medicare part dominion determined prescription drug benefit offered postretirement benefit plans least actuarially equivalent medicare part dominion received federal subsidy 4 million 5 million 2014 2013 respectively dominion gas received federal subsidy 1 million 2014 2013 effective january 1 2013 dominion changed method receiving subsidy medicare part retiree prescription drug coverage retiree drug subsidy egwp change reduced postretirement benefit costs approximately 20 million annually beginning 2012 result adoption egwp dominion begin receive increased level medicare part subsidies form reduced costs rather direct reimbursement next years october 2014 society actuaries published new mortality tables mortality improvement scales tables scales used develop mortality assumptions use determining pension postretirement benefit liabilities expense following evaluation new tables dominion changed assumption mortality rates reflect generational improvement scale result change assumption december 31 2014 dominion gas employ ees represented collective bargaining units increased pension benefit obligations 131 million 10 million respectively increased accumulated postretirement benefit obligations 32 million 7 million respectively change expected increase net periodic benefit cost dominion gas employees represented collective bargaining units approximately 25 million 3 million respectively 2015 dominion remeasured pension postretirement benefit plans second quarter 2013 remeasurement resulted reduction pension benefit obligation approximately 354 million reduction accumulated postretirement benefit obligation approximately 78 million dominion gas employees represented collective bargaining units remeasurement resulted reduction pension benefit obligation approximately 28 million reduction accumulated postretirement benefit obligation approximately 9 million impact remeasurement net periodic benefit credit cost recognized prospectively remeasurement date reduced net periodic benefit cost 2013 approximately 36 million excluding impacts curtailments dominion gas employees represented collective bargaining units approximately 2 million discount rate used remeasurement 480 pension plans 470 postretirement benefit plans assumptions used remeasurement consistent measurement december 31 2012 fourth quarter 2013 dominion remeasured postretirement benefit plans result plan amendment changed medical coverage certain medicareeligible retirees effective april 2014 remeasurement resulted reduction accumulated postretirement benefit obligation approximately 220 million impact remeasurement net periodic benefit credit cost recognized prospectively remeasurement date reduced net periodic benefit cost 2013 approximately 8 million amendment expected reduce net periodic benefit cost 40 million 60 million next five years discount rate used remeasurement 480 assumptions used remeasurement consistent measurement december 31 2012 third quarter 2014 east ohio remeasured postretirement benefit plan result amendment changed medical coverage upon attainment age 65 certain future retirees effective january 1 2016 employees represented collective bargaining units remeasurement resulted increase accumulated postretirement benefit obligation approximately 22 million impact remeasurement net periodic benefit credit recognized prospectively remeasurement date reduced net periodic benefit credit 2014 employees represented collective bargaining units less 1 million discount rate used remeasurement 420 expected longterm rate return used 850 assumptions used remeasurement consistent measurement december 31 2013 funded status following table summarizes changes pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status dominion gas employees represented collective bargaining units combined notes consolidated financial statements continued 1 2013 postretirement benefits amount relates plan amendment changed medical coverage certain medicareeligible retirees 2 2014 amounts relate primarily settlement charge certain executives 2013 amounts relate primarily decommissioning kewaunee 3 2013 pension postretirement benefits discount rates 520 500 gas union plans 530 510 nonunion union plans respectively 4 reflected deferred credits liabilities dominion gas’ consolidated balance sheets abo dominion’s defined benefit pension plans 60 billion 51 billion december 31 2014 2013 respectively abo defined benefit pension plans covering dominion gas employees represented collective bargaining units 604 million 534 million december 31 2014 2013 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time 2014 dominion gas made contributions qualified defined benefit pension plans contributions currently expected 2015 july 2012 map 21 act signed law act includes increase interest rates used determine plan sponsors’ pension contributions required funding purposes 2014 hatfa 2014 signed law similar map 21 act hatfa 2014 adjusts rules calculating interest rates used determining funding obligations estimated new interest rates reduce required pension contributions 2019 dominion believes required pension contributions rise subsequent 2019 resulting estimated 200 million reduction net cumulative required contributions 10year period certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries including dominion gas fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion’s contributions vebas pertained dominion gas employees totaled 12 million 2014 2013 dominion expects contribute approximately 12 million dominion vebas 2015 pertains dominion gas employees dominion gas expect pension postretirement plan assets returned 2015 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets dominion gas employees represented collective bargaining units following table provides information abo fair value plan assets dominion’s pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid dominion’s dominion gas’ employees represented collective bargaining units plans plan assets dominion’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk participating employer various pension plans sponsored dominion gas subject dominion’s investment policies plans minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations dominion’s pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments us equity includes investments largecap midcap smallcap companies located united states nonus equity includes investments largecap smallcap companies located outside united states including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity reits investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies dominion also utilizes commoncollective trust funds investment vehicle defined benefit plans commoncollective trust fund pooled fund operated bank trust company investment assets various organizations individuals welldiversified portfolio commoncollective trust funds grouped assets follow various investment strategies strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 combined notes consolidated financial statements continued fair values dominion’s dominion gas’ employees represented collective bargaining units pension plan assets asset category follows 1 commoncollective trust funds include 360 million 560 million john hancock insurance contracts held december 31 2014 2013 respectively see description individual investments included within line item nature risk respective fund 2 includes net assets related pending sales securities 31 million net accrued income 18 million excludes net assets related pending purchases securities 38 million december 31 2014 3 see description individual investments included within line item nature risk respective fund 4 includes net assets related pending sales securities 7 million net accrued income 4 million excludes net assets related pending purchases securities 9 million december 31 2014 fair values dominion’s dominion gas’ employees represented collective bargaining units postretirement plan assets asset category follows 1 commoncollective trust funds include 19 million 29 million john hancock insurance contracts held december 31 2014 2013 respectively see description individual investments included within line item nature risk respective fund 2 see description individual investments included within line item nature risk respective fund combined notes consolidated financial statements continued following table presents changes pension postretirement plan assets measured fair value included level 3 fair value category dominion gas employees represented collective bargaining units investments commoncollective trust funds dominion’s pension postretirement plans including dominion gas participates stated fair value determined issuer commoncollective trust funds based fair value underlying investments commoncollective trusts unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment strategies commoncollective trust funds follows dominion gas • wells fargo closed end bond trustthe fund invests stocks bonds combination shares fund traded stock exchange subject market risk like stocks bonds mutual funds fund may invest less liquid portfolio stocks bonds fund need sell securities meet shareholder redemptions mutual funds order keep percentage portfolio cash pay back investors withdraw shares • jpmorgan core bond trustthe fund seeks maximize total return investing primarily diversified portfolio intermediate longterm debt securities fund invests primarily investmentgrade bonds generally maintains average weighted maturity four 12 years may shorten average weighted maturity deemed appropriate temporary defensive purposes • ssga russell 2000 value index common trustthe fund measures performance smallcap value segment us equity universe russell 2000 value index constructed provide comprehensive unbiased barometer smallcap value segment index completely reconstituted annually ensure larger stocks distort performance characteristics true smallcap opportunity set represented companies continue reflect value characteristics • nt common shortterm investment fundthe fund seeks maximize current income cash reserves extent consistent principal preservation maintenance liquidity portfolio approved money market instruments short maturities liquidity emphasized provide redemption units par business day principal preservation primary objective within quality maturity sector diversification guidelines investments made securities attractive yields dominion • ssga daily msci emerging markets index nonlending fundthe fund seeks investment return approximates closely practicable expenses performance msci emerging markets index long term fund may invest directly indirectly securities instruments including pooled investment vehicles sponsored managed otherwise affiliated trustee state street bank trust company • ssga daily msci acwi exusa index nonlending fundthe fund seeks investment return approximates closely practicable expenses performance msci acwi exusa index long term fund may invest directly indirectly securities instruments including pooled investment vehicles sponsored managed otherwise affiliated trustee state street bank trust company • ssga sp 400 midcap indexthe fund seeks investment return approximates closely practicable expenses performance benchmark index long term sp midcap 400 comprised approximately 400 us midcap securities accounts approximately 7 coverage us stock market capitalization ssga typically attempt invest equity securities comprising index approximately proportions represented index • jpmorgan chase bank us active core plus equity fundthe fund seeks outperform sp 500 index benchmark gross fees market cycle fund invests primarily portfolio long short positions equity securities large mid capitalization us companies characteristics similar benchmark • mondrian international small cap equity fundthe fund’s investment objective longterm total return fund primarily invests equity securities nonus small capitalization companies investment manager’s opinion undervalued time purchase based fundamental value analysis employed investment manager • nt collective russell 2000 growth indexthe fund seeks investment return approximates overall performance common stocks included russell 2000 growth index fund primarily invests common stocks one companies deemed representative industry diversification entire russell 2000 growth index • nt collective shortterm investment fundthe fund composed highgrade money market instruments shortterm maturities fund’s objective provide investment vehicle cash reserves offering competitive rate return liquidity emphasized provide redemption units business day principal preservation also prime objective admissions withdrawals made daily interest accrued daily distributed monthly investments group insurance annuity contracts john hancock entered 1992 stated fair value based fair value underlying securities provided managers include investments us government securities corporate debt instruments state municipal debt securities combined notes consolidated financial statements continued net periodic benefit credit cost net periodic benefit credit cost reflected operations maintenance expense consolidated statements income components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans follows 1 2013 amounts relate primarily decommissioning kewaunee 2 assumptions used determine net periodic cost following year 3 society actuaries model used determine healthcare cost trend rates updated 2014 new model converges ultimate trend rate much quickly previous models components aoci regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans recognized components net periodic benefit credit cost follows 1 december 31 2014 24 billion 94 million related pension benefits postretirement benefits 14 billion 81 million respectively included aoci remainder included regulatory assets liabilities december 31 2013 17 billion 311 million related pension benefits postretirement benefits 10 billion 156 million respectively included aoci remainder included regulatory assets liabilities 2 december 31 2014 304 million related pension benefits 112 million included aoci remainder included regulatory assets liabilities 50 million related postretirement benefits included entirely regulatory assets liabilities december 31 2013 281 million related pension benefits 104 million included aoci remainder included regulatory assets liabilities 1 million related postretirement benefits included entirely regulatory assets liabilities following table provides components aoci regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans december 31 2014 expected amortized components net periodic benefit credit cost 2015 expected longterm rates return plan assets discount rates healthcare cost trend rates mortality critical assumptions determining net periodic benefit credit cost dominion develops assumptions compared forecasts independent investment advisor except expected longterm rates return ensure reasonableness internal committee selects final assumptions used dominion’s pension postretirement plans including dominion gas participates including discount rates expected longterm rates return healthcare cost trend rates mortality rates dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans including dominion gas participates using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forecasts independent investment advisor • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans including dominion gas participates dominion develops mortality assumption using planspecific studies projects mortality improvement using scales developed society actuaries plans including dominion gas participates assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans including dominion gas participates one percentage point change assumed healthcare cost trend rates would following effects dominion’s dominion gas’ employees represented collective bargaining units postretirement benefit plans dominion gas employees represented collective bargaining units virginia powerparticipation defined benefit plans virginia power employees dominion gas employees represented collective bargaining units covered dominion pension plan described participating employers virginia power dominion gas subject dominion’s funding policy contribute annually amount accordance erisa 2014 virginia power dominion gas made contributions dominion pension plan contributions plan currently expected 2015 virginia power’s net periodic pension cost related plan 75 million 96 million 72 million 2014 2013 2012 respectively dominion gas’ net periodic pension credit related plan 37 million 27 million 25 million 2014 2013 2012 respectively net periodic pension credit cost reflected operations combined notes consolidated financial statements continued maintenance expense respective consolidated statements income funded status various dominion subsidiary groups employee compensation basis determining share total pension costs participating dominion subsidiaries see note 24 virginia power dominion gas amounts due tofrom dominion related plan retiree healthcare life insurance benefits virginia power employees dominion gas employees represented collective bargaining units covered dominion retiree health welfare plan described virginia power’s net periodic benefit credit cost related plan 18 million 5 million 13 million 2014 2013 2012 respectively dominion gas’ net periodic benefit credit cost related plan 5 million less 1 million 3 million 2014 2013 2012 respectively net periodic benefit credit cost reflected operations maintenance expenses respective consolidated statements income employee headcount basis determining share total postretirement benefit costs participating dominion subsidiaries see note 24 virginia power dominion gas amounts due tofrom dominion related plan dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power dominion gas’ employees participate investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash virginia power dominion gas provide dominion shares employee benefit plan contributions certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power dominion gas fund postretirement benefit costs vebas 2014 2013 virginia power made contributions veba expect contribute veba 2015 dominion gas’ contributions vebas employees represented collective bargaining units 1 million 2 million 2014 2013 respectively defined contribution plans dominion also sponsors defined contribution employee savings plans cover substantially employees 2014 2013 2012 dominion recognized 41 million 40 million 40 million respectively employer matching contributions plans dominion gas participates employee savings plans specific dominion gas cover multiple dominion subsidiaries 2014 2013 2012 dominion gas recognized 7 million 7 million 6 million respectively employer matching contributions plans virginia power also participates employee savings plans 2014 2013 2012 virginia power recognized 17 million 16 million 15 million respectively employer matching contributions plans note 22 commitments contingencies result issues generated ordinary course business companies involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect financial position liquidity results operations companies environmental matters companies subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements december 2011 epa issued mats coal oilfired electric utility steam generating units rule establishes strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases rule includes limited use provision oilfired units annual capacity factors 8 provides exemption emission limits allows compliance operational work practice standards compliance required april 16 2015 certain limited exceptions june 2014 vdeq granted oneyear mats compliance extension two coalfired units yorktown defer planned retirements allow continued operation units address reliability concerns necessary electric transmission upgrades completed fourth quarter 2013 virginia power recorded charges totaling 26 million 16 million aftertax certain exit activities associated coal units including cost employee severance vendor contract termination inventory expected used usable stations epa established cair intent require significant reductions so2 nox emissions electric generating facilities july 2008 us court appeals dc circuit issued ruling vacating cair december 2008 court denied rehearing also issued decision remand cair epa july 2011 epa issued replacement rule cair called csapr required 28 states reduce power plant emissions cross state lines csapr established new so2 nox emissions cap trade programs completely independent current arp specifically csapr required reductions so2 nox emissions fossil fuelfired electric generating units 25 mw annual nox emissions caps nox emissions caps ozone season may 1 september 30 annual so2 emission caps differing requirements two groups affected states following numerous petitions industry participants review successful motion stay october 2014 us court appeals dc circuit ordered epa’s motion lift stay csapr granted court granted epa’s request shift csapr compliance deadlines three years phase 1 emissions budgets would gone effect 2012 2013 apply 2015 2016 phase 2 emissions budgets apply 2017 beyond csapr replace cair beginning january 2015 cost comply expected material consolidated financial statements future outcomes additional litigation andor action issue revised rule could affect assessment regarding cost compliance may 2012 epa issued final designations 75ppb ozone air quality standard number companies’ facilities located areas impacted standard part standard states required develop implement plans address sources emitting pollutants contribute formation ozone november 2014 epa issued new proposal revise ozone standard expects finalize rule october 2015 epa expected complete attainment designations new standard 2017 states 2020 develop plans address new standard states developed implementation plans companies unable predict whether extent new rules ultimately require additional controls however significant expenditures required implement additional controls could adversely affect companies’ results operations cash flows august 2010 epa issued revised national emission standards hazardous air pollutants reciprocating internal combustion engines rule amended march 2011 january 2013 rule establishes emission standards control hazardous air pollutants engines smaller facilities known area sources result regulations dominion gas installed emissions controls several compressor engines dominion gas spent approximately 2 million date evaluating expenditures dominion gas unable estimate additional potential impacts results operations financial condition andor cash flows related matter august 2012 epa issued first nsps impacting natural gas production gathering sectors made revisions nsps natural gas processing transmission facilities rules establish equipment performance specifications emissions standards control volatile organic compound emissions natural gas production wells tanks pneumatic controllers compressors upstream sector compliance rules required installations wells constructed reconstructed august 23 2011 cost comply nsps depend number new wells new equipment installations subject rule therefore dominion gas unable estimate potential impacts results operations financial condition andor cash flows related matter water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms companies must comply applicable aspects cwa programs operating facilities october 2014 final regulations section 316b cwa govern existing facilities new units existing facilities employ cooling water intake structure flow levels exceeding minimum threshold became effective rule establishes national standard impingement based seven compliance options forgoes creation single technology standard entrainment instead epa delegated entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination five mandatory facilityspecific factors including social costbenefit test six optional facilityspecific factors rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd dominion virginia power 14 11 facilities respectively may subject final regulations dominion anticipates install impingement control technologies many stations oncethrough cooling systems dominion virginia power currently evaluating need potential entrainment controls final rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies impacts rule could material dominion’s virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts virginia power september 2010 millstone’s npdes permit reissued cwa conditions permit require evaluation control technologies could result additional expenditures future report summarizing results combined notes consolidated financial statements continued evaluation submitted august 2012 review connecticut department energy environmental protection dominion cannot currently predict outcome review october 2010 permit issuance appealed state court private plaintiff permit expected remain effect appeal dominion currently unable make estimate potential financial statement impacts related matter solid hazardous waste cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites jointly severally strictly liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion virginia power dominion gas may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power dominion gas may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste except noted companies believe material effect results operations financial condition andor cash flows september 2011 epa issued uao virginia power 22 parties ordering specific remedial action certain areas ward transformer superfund site located raleigh north carolina virginia power believe liable party cercla based alleged connection site november 2011 virginia power number parties notified epa declining undertake work set forth uao epa may seek enforce uao court pursuant enforcement authority cercla may seek recovery costs undertaking removal remedial action court determines respondent failed comply uao without sufficient cause epa may also seek civil penalties 37500 per day violation punitive damages three times costs incurred epa result party’s failure comply uao virginia power currently unable make estimate potential financial statement impacts related ward transformer matter dominion determined associated 17 former manufactured gas plant sites three pertain virginia power 12 pertain dominion gas studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none former sites companies associated investigation state federal environmental agency one former sites dominion conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program virginia power currently evaluating nature extent contamination site well potential remedial options preliminary costs options evaluation site range 1 million 22 million due uncertainty surrounding sites companies unable make estimate potential financial statement impacts december 2014 epa administrator signed final rule regulating management ccrs stored impoundments ash ponds landfills designating ccrs nonhazardous wastes subtitle rcra final rule regulates ccr landfills ash ponds still receive manage ccrs existing ash ponds ash ponds receive still store ccrs inactive ash ponds virginia power currently operates inactive ash ponds existing ash ponds ccr landfills subject final rule eight different facilities virginia power also evaluating features facilities potential applicability final ccr rule likely final rule cause virginia power retrofit close inactive existing ash ponds certain period time closure structures virginia power continue perform required monitoring corrective action postclosure care activities necessary comply final rule virginia power still evaluating cost compliance could material impact financial position results operations cash flows climate change legislation regulation october 2013 us supreme court granted petitions filed several industry groups states us chamber commerce seeking review dc circuit court’s june 2012 decision upholding epa’s regulation ghg emissions stationary sources caa’s permitting programs june 2014 us supreme court ruled epa lacked authority caa require psd title v permits stationary sources based solely ghg emissions however court upheld epa’s ability require bact ghg sources otherwise subject psd title v permitting conventional pollutants july 24 2014 epa issued memorandum specifying longer apply enforce federal regulations epaapproved psd state implementation plan provisions require new modified stationary sources obtain psd permit ghgs pollutant would emitted levels exceed permitting thresholds addition epa stated continue use existing thresholds apply sources otherwise subject psd conventional pollutants completes new rulemaking either justifying upholding thresholds setting new ones states issued interim guidance follows epa guidance due uncertainty regarding additional actions states may take amend existing regulations action epa ultimately takes address court ruling new rulemaking companies cannot predict impact financial statements time july 2011 epa signed final rule deferring need psd title v permitting co2 emissions biomass projects rule temporarily deferred period three years consideration co2 emissions biomass projects determining whether stationary source meets psd title v applicability thresholds including application bact deferral policy expired july 2014 july 2013 us court appeals dc circuit vacated rule however mandate making decision effective issued virginia power converted three coalfired generating stations altavista hopewell southampton biomass co2 deferral period unclear court’s decision epa’s final policy regarding treatment specific feedstock affect biomass sources permitted deferral period however expenditures comply new requirements could material dominion’s virginia power’s financial statements legal matters companies defendants number lawsuits claims involving unrelated incidents property damage personal injury due uncertainty surrounding matters companies unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows appalachian gateway following completion appalachian gateway project 2012 dti received multiple change order requests claims additional payments pipeline contractor project july 2013 dti filed complaint us district court eastern district virginia breach contract accounting declaratory relief contractor filed motion dismiss alternative motion transfer venue pennsylvania andor west virginia pipelines constructed dti filed opposition contractor’s motion august 2013 november 2013 court granted contractor’s motion basis dti must first comply dispute resolution process pursuant ruling dti intends mediate matter case pending dti accrued liability approximately 6 million matter dominion gas cannot currently estimate additional financial statement impacts could material impact financial condition andor cash flows ash pond closure costs september 2014 virginia power received notice selc behalf potomac riverkeeper sierra club alleging cwa violations possum point power station notice alleges unpermitted discharges surface water groundwater possum point’s historical active ash storage facilities similar notice selc behalf sierra club subsequently received related chesapeake december 2014 virginia power offered close coal ash ponds landfills possum point chesapeake bremo selc settlement potential litigation january 2015 selc declined offer presented however issue open potential negotiations result settlement offer virginia power recognized charge 121 million operations maintenance expense consolidated statements income cove point dominion constructing liquefaction project cove point facility would enable facility liquefy domesticallyproduced natural gas export lng april 2013 cove point filed ferc permission build liquefaction facilities related export natural gas september 2014 ferc issued order granting authorization cove point construct modify operate liquefaction project october 2014 several parties filed motion ferc stay order requested rehearing order remains effect pending consideration motion ferc april 2013 cove point filed application maryland commission requesting authorization construct generating station connection liquefaction project may 2014 maryland commission granted cpcn authorizing construction generating station cpcn obligates cove point make payments totaling approximately 48 million payments consist 40 million strategic energy investments fund fiveyear period beginning 2015 8 million maryland low income energy assistance programs twentyyear period expected begin 2018 december 2014 upon receipt applicable approvals commence construction generating station dominion recorded present value obligation increase property plant equipment corresponding liability june 2014 party filed notice petition judicial review cpcn circuit court baltimore city maryland september 2014 party filed maryland commission motion stay cpcn pending judicial review cpcn december 2014 circuit court issued order affirming maryland commission’s grant cpcn dismissing appeal motion stay denied maryland commission january 2015 party filed notice appeal baltimore circuit court’s order affirming maryland commission’s grant cpcn court special appeals circuit court baltimore city appeal pending nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups inpo like us nuclear operators dominion gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident combined notes consolidated financial statements continued october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisting actions staff determined started without unnecessary delay december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactors construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion require implementation safety enhancements related mitigation strategies respond extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation orders require prompt implementation safety enhancements completion implementation within two refueling outages december 31 2016 whichever comes first implementation enhancements currently progress information requests issued nrc request reactor reevaluate seismic flooding hazards site using presentday methods information conduct walkdowns facilities ensure protection hazards current design basis reevaluate emergency communications systems staffing levels dominion virginia power currently expect compliance nrc’s march 2012 orders information requests materially impact financial position results operations cash flows approximately fouryear implementation period nrc staff evaluating implementation longer term tier 2 tier 3 recommendations dominion virginia power currently unable estimate potential financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2014 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 29 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2014 nrc minimum financial assurance amounts calculated using preliminary december 31 2014 us bureau labor statistics indices dominion believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion virginia power continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial instruments recognized nrc see note 6 consolidated financial statements additional information kewaunee note 9 additional information nuclear decommissioning trust investments nuclear insurance priceanderson amendments act 1988 provides public 136 billion liability protection per nuclear incident via obligations required owners nuclear power plants allows inflationary provision adjustment every five years dominion virginia power purchased 375 million coverage commercial insurance pools reactor site remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us companies could assessed 127 million licensed reactors exceed 19 million per year per reactor limit number incidents retrospective premium assessed current levels nuclear property insurance coverage dominion’s virginia power’s nuclear units follows 1 surry north anna share blanket property limit 200 million dominion’s virginia power’s nuclear property insurance coverage millstone surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site kewaunee meets nrc minimum requirement 106 billion includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum retrospective premium assessment current policy period 72 million 42 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination millstone virginia power also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program companies subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum retrospective premium assessment current policy period 20 million 9 million respectively odec part owner north anna massachusetts municipal green mountain part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel dominion virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act dominion’s virginia power’s contracts doe dominion virginia power previously received damages award payments settlement payments related contracts 2012 dominion virginia power resolved additional claims damages incurred millstone kewaunee surry north anna authorized representative attorney general dominion virginia power entered settlement agreements resolved claims damages incurred december 31 2010 also provided periodic payments date damages incurred december 31 2013 mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 settlement agreements surry north anna millstone plants extended provide periodic payments damages incurred december 31 2016 possible extension kewaunee settlement agreement evaluated 2014 virginia power dominion received payments 27 million resolution claims incurred north anna surry period january 1 2011 december 31 2012 17 million resolution claims incurred millstone period july 1 2012 june 30 2013 2014 dominion also received payments totaling 7 million resolution claims incurred kewaunee periods january 1 2011 december 31 2013 dominion received payment 5 million resolution claims incurred millstone period january 1 2011 june 30 2012 dominion virginia power continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion’s receivables spent nuclear fuelrelated costs totaled 69 million 79 million december 31 2014 2013 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 41 million 50 million december 31 2014 2013 respectively pursuant november 2013 decision us court appeals dc circuit january 2014 secretary doe sent recommendation us congress adjust zero current fee 1 per mwh electricity paid civilian nuclear power generators disposal spent nuclear fuel processes specified nuclear waste policy act adjustment fee completed may 2014 dominion virginia power longer required pay waste fee 2014 dominion virginia power recognized fees 16 million 10 million respectively dominion virginia power continue manage spent fuel accepted doe longterm purchase agreements december 31 2014 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2014 present value virginia power’s total commitment capacity payments 833 million capacity payments totaled 330 million 345 million 337 million energy payments totaled 304 million 236 million 214 million years ended 2014 2013 2012 respectively lease commitments companies’ lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2014 follows rental expense dominion totaled 92 million 101 million 112 million 2014 2013 2012 respectively rental expense virginia power totaled 43 million 42 million 48 million 2014 2013 2012 respectively rental expense dominion gas totaled 35 million 2014 15 million 2013 2012 majority rental expense reflected operations maintenance expense consolidated statements income combined notes consolidated financial statements continued guarantees surety bonds letters credit dominion december 31 2014 dominion issued 74 million guarantees primarily support equity method investees significant amounts related guarantees recorded december 31 2014 dominion’s exposure guarantees 49 million primarily related certain reserve requirements associated nonrecourse financing dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2014 dominion issued following subsidiary guarantees 1 represents estimated portion guarantee’s stated limit utilized december 31 2014 based upon prevailing economic conditions fact patterns specific guarantee arrangement guarantees related obligations recorded liabilities dominion’s subsidiaries value includes recorded amount 2 guarantee debt dei subsidiary event default subsidiary dominion would obligated repay amounts 3 guarantees related commodity commitments certain subsidiaries including subsidiaries virginia power dominion gas dei guarantees provided counterparties order facilitate physical financial transactions gas oil electricity pipeline capacity transportation related commodities services subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation dominion subsidiaries receive similar guarantees collateral credit extended others value provided includes certain guarantees stated limits 4 guarantees related certain dei subsidiaries’ potential retrospective premiums could assessed nuclear incident dominion’s nuclear insurance programs guarantees dei subsidiary’s virginia power’s commitment buy nuclear fuel excludes dominion’s agreement provide 150 million 60 million two dei subsidiaries pay operating expenses millstone event prolonged outage kewaunee respectively part satisfying certain nrc requirements concerned ensuring adequate funding operations nuclear power stations agreement kewaunee also provides funds completion decommissioning 5 guarantees related cove point support terminal services transportation construction two guarantees stated limit one guarantee 150 million limit one guarantee 175 billion aggregate limit annual draw limit 175 million 6 includes guarantees facilitate development solar projects including guarantees support issuance full notice proceed epc agreements includes certain guarantees stated limits also includes guarantees entered dei behalf certain subsidiaries facilitate acquisition development solar projects 7 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects also includes guarantees related certain dei subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower dominion’s maximum remaining cumulative exposure equity funding agreements 72 million 2019 maximum annual future contributions could range approximately 4 million 19 million value provided includes certain guarantees stated limits additionally december 31 2014 dominion purchased 133 million surety bonds including 64 million virginia power 30 million dominion gas authorized issuance letters credit financial institutions 48 million facilitate commercial transactions subsidiaries third parties terms surety bonds companies obligated indemnify respective surety bond company amounts paid december 31 2014 virginia power issued 14 million guarantees primarily support taxexempt debt issued conduits related debt matures 2031 event default conduit virginia power would obligated repay amounts limited principal interest outstanding indemnifications part commercial contract negotiations normal course business companies may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law companies unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2014 companies believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position note 23 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction companies maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2014 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest regions us dominion believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2014 dominion’s credit exposure totaled 228 million amount investment grade counterparties including internally rated represented 86 single counterparty whether investment grade noninvestment grade exceeded 23 million exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2014 virginia power’s exposure potential concentrations credit risk considered material dominion gas dominion gas transacts mainly major companies energy industry residential commercial energy consumers transactions principally occur northeast midatlantic midwest regions us dominion gas believe geographic concentration contributes overall exposure credit risk addition result large diverse customer base dominion gas exposed significant concentration credit risk receivables arising gas utility operations 2014 dti provided service 260 customers approximately 94 storage transportation revenue provided firm services ten largest customers provided approximately 41 total storage transportation revenue thirty largest provided approximately 74 total storage transportation revenue approximately 718 million approximately 99 transmission capacity contract dti’s pipeline subscribed longterm contracts three years greater remaining 1 contracted yeartoyear basis less 1 firm transportation capacity currently unsubscribed storage services subscribed longterm contracts east ohio distributes natural gas residential commercial industrial customers ohio using rates established ohio commission approximately 98 east ohio revenues derived regulated gas distribution services individual customers east ohio increased amounts bad debt recent years management believes concentration bad debt risk mitigated regulatory framework established ohio commission see note 13 information ohio’s pipp uex riders mitigate east ohio’s overall credit risk creditrelated contingent provisions majority dominion’s derivative instruments contain creditrelated contingent provisions require dominion provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2014 2013 dominion would required post additional 20 million 146 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion posted 1 million collateral december 31 2014 76 million collateral december 31 2013 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash combined notes consolidated financial statements continued december 31 2014 2013 49 million 169 million respectively include impact offsetting asset positions creditrelated contingent provisions virginia power dominion gas material december 31 2014 2013 see note 7 information derivative instruments note 24 relatedparty transactions virginia power dominion gas engage related party transactions primarily dominion subsidiaries affiliates virginia power’s dominion gas’ receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power dominion gas included dominion’s consolidated federal income tax return discussion significant related party transactions follows virginia power transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps manage commodity price risks associated purchases natural gas see notes 7 19 information december 31 2014 2013 virginia power’s derivative assets liabilities affiliates material virginia power participates certain dominion benefit plans described note 21 december 31 2014 2013 virginia power’s amounts due dominion associated dominion pension plan reflected noncurrent pension postretirement benefit liabilities consolidated balance sheets 219 million 144 million respectively december 31 2014 virginia power’s amounts due dominion associated dominion retiree health welfare plan reflected deferred charges assets consolidated balance sheets 37 million december 31 2013 amounts due dominion reflected noncurrent pension postretirement benefit liabilities 3 million drs affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage presented significant transactions drs affiliates 1 includes capitalized expenditures virginia power borrowed funds dominion shortterm borrowing arrangements 427 million 97 million shortterm demand note borrowings dominion december 31 2014 2013 respectively virginia power outstanding borrowings net repayments dominion money pool nonregulated subsidiaries december 31 2014 2013 interest charges related virginia power’s borrowings dominion immaterial years ended december 31 2014 2013 2012 issuances virginia power’s common stock dominion 2014 2013 2012 dominion gas transactions affiliates dominion gas transacts affiliates certain quantities natural gas commodities market prices ordinary course business additionally dominion gas provides transportation storage services affiliates dominion gas also enters certain contracts affiliates presented separately contracts involving commodities services december 31 2014 2013 dominion gas’ commodity derivatives affiliates see notes 7 19 information see note 9 information regarding sales assets affiliate dominion gas participates certain dominion benefit plans described note 21 december 31 2014 2013 dominion gas’ amounts due dominion associated dominion pension plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 614 million 577 million respectively december 31 2014 2013 dominion gas’ liabilities dominion associated dominion retiree health welfare plan reflected deferred credits liabilities consolidated balance sheets 7 million 14 million respectively drs affiliates provide accounting legal finance certain administrative technical services dominion gas dominion gas provides certain services affiliates including technical services costs services follow 1 includes capitalized expenditures following table presents affiliated related party activity reflected dominion gas’ consolidated balance sheets 1 includes 17 million due atlantic coast pipeline affiliated vie 2 amounts presented current assets dominion gas’ consolidated balance sheets 3 amounts presented current liabilities dominion gas’ consolidated balance sheets 4 amounts presented deferred charges assets dominion gas’ consolidated balance sheets dominion gas’ borrowings irca dominion totaled 384 million 13 billion december 31 2014 2013 respectively interest charges related dominion gas’ total borrowings dominion 4 million 35 million 61 million years ended december 31 2014 2013 2012 respectively note 25 operating segments companies organized primarily basis products services sold us description operations included companies’ primary operating segments follows 1 includes remaining producer services activities addition operating segments companies also report corporate segment dominion corporate segment dominion includes corporate service company functions including unallocated debt net impact operations discontinued sold addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments january 2014 dominion announced would exit electric retail energy marketing business dominion completed sale march 2014 result earnings impact electric retail energy marketing business included corporate segment dominion 2014 first quarter results operations second quarter 2013 dominion commenced restructuring producer services business aggregates natural gas supply engages natural gas trading marketing activities natural gas supply management provides price risk management services dominion affiliates restructuring completed first quarter 2014 resulted termination natural gas trading certain energy marketing activities result earnings impact natural gas trading certain energy marketing activities included corporate segment dominion 2014 dominion reported aftertax net expense 970 million corporate segment 544 million net expenses attributable specific items related operating segments net expenses specific items 2014 primarily related impact following items  374 million 248 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities attributable dominion generation  319 million 193 million aftertax net loss related producer services business discussed attributable dominion energy  121 million 74 million aftertax charge related settlement offer incur future ash pond closure costs certain utility generation facilities attributable dominion generation 2013 dominion reported aftertax net expense 452 million corporate segment 184 million net expenses attributable specific items related operating segments net expenses specific items 2013 primarily related impact following items  135 million 92 million aftertax net loss discontinued operations brayton point kincaid including debt extinguishment 64 million 38 million aftertax related sale impairment charges 48 million 28 million aftertax 17 million 18 million aftertax loss sale includes 16 million writeoff goodwill 6 million 8 million aftertax loss operations attributable dominion generation  182 million 109 million aftertax net loss including 55 million 33 million aftertax impairment charge related certain natural gas infrastructure assets 127 million 76 million aftertax loss related producer services business discussed attributable dominion energy partially offset  81 million 49 million aftertax net gain investments held nuclear decommissioning trust funds attributable dominion generation combined notes consolidated financial statements continued 2012 dominion reported aftertax net expense 17 billion corporate segment 15 billion net expenses attributable specific items related operating segments net expenses specific items 2012 primarily related impact following items  17 billion 11 billion aftertax net loss discontinued operations including impairment charges brayton point kincaid sold 2013 attributable dominion generation  467 million 303 million aftertax net loss including impairment charges primarily resulting management’s decision cease operations begin decommissioning kewaunee 2013 attributable dominion generation  87 million 53 million aftertax charge reflecting restoration costs associated damage caused severe storms attributable dvp  49 million 22 million aftertax loss discontinued operations state line salem harbor sold 2012 attributable dominion generation following table presents segment information pertaining dominion’s operations intersegment sales transfers dominion based contractual arrangements may result intersegment profit loss eliminated consolidation virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments 2014 virginia power reported aftertax net expenses 342 million specific items attributable operating segments corporate segment net expenses specific items 2014 primarily related impact following  374 million 248 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities attributable dominion generation  121 million 74 million aftertax charge related settlement offer incur future ash pond closure costs certain utility generation facilities attributable dominion generation 2013 virginia power reported aftertax net expenses 47 million specific items attributable operating segments corporate segment net expenses specific items 2013 primarily related impact following  40 million 28 million aftertax charge connection 2013 biennial review order attributable dominion generation 2012 virginia power reported aftertax net expenses 51 million specific items attributable operating segments corporate segment net expenses specific items 2012 primarily related impact following  87 million 53 million aftertax charge reflecting restoration costs associated damage caused severe storms attributable dvp following table presents segment information pertaining virginia power’s operations dominion gas corporate segment dominion gas primarily includes specific items attributable dominion gas’ operating segment included profit measures evaluated executive management assessing segment’s performance effect certain items recorded dominion gas result dominion’s basis net assets contributed 2014 dominion gas reported aftertax net expenses 9 million corporate segment none net expenses attributable specific items related operating segment 2013 dominion gas reported aftertax net expenses 49 million corporate segment 41 million net expenses attributable specific items related operating segment combined notes consolidated financial statements continued net expenses specific items 2013 primarily related impact following  55 million 33 million aftertax impairment charges related certain natural gas infrastructure assets  14 million 8 million aftertax charge primarily reflecting severance pay benefits related workforce reductions 2012 dominion gas reported aftertax net expenses 10 million corporate segment none net expenses attributable specific items related operating segment following table presents segment information pertaining dominion gas’ operations note 26 quarterly financial common stock data unaudited summary companies’ quarterly results operations years ended december 31 2014 2013 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion 1 amounts attributable dominion’s common shareholders dominion’s 2014 results include impact following significant items  fourth quarter results include 172 million aftertax charges associated liability management exercise 2014 74 million aftertax costs related virginia power’s settlement offer incur future ash pond closure costs certain utility generation facilities  second quarter results include 191 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities  first quarter results include 193 million aftertax reduction revenues associated repositioning dominion’s producer services business completed first quarter 2014 combined notes consolidated financial statements continued dominion’s 2013 results include impact following significant items  second quarter results include 70 million aftertax net loss discontinued operations brayton point kincaid 57 million aftertax net loss including 33 million aftertax impairment charge related certain natural gas infrastructure assets 24 million aftertax loss related producer services business virginia power virginia power’s quarterly results operations follows virginia power’s 2014 results include impact following significant items  fourth quarter results include 74 million aftertax costs related virginia power’s settlement offer incur future ash pond closure costs certain utility generation facilities  second quarter results include 191 million aftertax charge associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities virginia power’s 2013 results include impact following significant item  fourth quarter results include 28 million aftertax charge resulting impacts 2013 biennial review order dominion gas dominion gas’ quarterly results operations follows dominion gas’ 2014 results include impact following significant item  fourth quarter results include 36 million aftertax gain agreements convey marcellus shale development rights underneath several natural gas storage fields dominion gas’ 2013 results include impact following significant item  second quarter results include 33 million aftertax charge resulting impairment certain natural gas infrastructure assets item 9 item 8 financial statements supplementary data page intentionally left blank report independent registered public accounting firm shareholders board directors dominion energy inc opinion consolidated financial statements audited accompanying consolidated balance sheets dominion energy inc subsidiaries “dominion energy” december 31 2019 2018 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2019 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position dominion energy december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob dominion energy’s internal control financial reporting december 31 2019 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 28 2020 expressed unqualified opinion dominion energy’s internal control financial reporting basis opinion consolidated financial statements responsibility dominion energy’s management responsibility express opinion dominion energy’s consolidated financial statements based audits public accounting firm registered pcaob required independent respect dominion energy accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matters communicated matters arising currentperiod audit financial statements communicated required communicated audit committee 1 relate accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate investmentsequity method investment impairment evaluationrefer note 9 consolidated financial statements critical audit matter description investment balance dominion energy’s equity method investment atlantic coast pipeline llc “atlantic coast pipeline” 11 billion december 31 2019 atlantic coast pipeline project subject challenges federal courts including among others challenges atlantic coast pipeline project’s biological opinion incidental take statement permits providing right way crossings certain federal lands us army corps engineers 404 permit air permit compressor station buckingham virginia federal energy regulatory commission “ferc” order approving certificate public convenience necessity delays obtaining maintaining permits necessary construction along construction delays due judicial actions impacted cost schedule atlantic coast pipeline project construction expected completed end 2021 full inservice early 2022 project costs estimated approximately 8 billion excluding financing costs atlantic coast pipeline reached agreements principle major customers amend contracted rate share certain delay cost increases pending certain regulatory approvals dominion energy evaluated carrying amount equity method investment atlantic coast pipeline otherthantemporary impairment determined impaired estimation fair value dominion energy’s investment atlantic coast pipeline contained otherthantemporary impairment evaluation involved significant judgments related resolution outstanding permitting issues within project timeframe likelihood obtaining amended contacts customers auditing management’s judgments regarding resolution outstanding permitting issues within project timeframe likelihood obtaining amended contacts customers involved especially subjective complex judgment critical audit matter addressed audit procedures related critical audit matter included following among others • tested effectiveness controls management’s impairment analysis including determination judgments regarding resolution outstanding permitting issues within project timeframe likelihood obtaining amended contacts customers • evaluated reasonableness management’s permitting project timeframe customer contract assumptions • assessing reasonableness management’s plans resolve outstanding permitting issues corresponding impact project timeframes inquiring legal counsel executive management considering potential outcomes • assessing reasonableness various projected inservice dates inquiring atlantic cost pipeline’s project managers engineers comparing inservice dates project’s timeframe • obtaining reading correspondence atlantic coast pipeline thirdparty pipeline construction contractor regarding feasibility various projected inservice dates assumed management • obtaining reading correspondence including draft terms atlantic coast pipeline major customers • searching disconfirming evidence listening earnings calls reading press releases news articles publicly available information • read analyzed minutes board managers atlantic coast pipeline discussions changes legal regulatory business factors could impact management’s assumptions resolution outstanding permitting issues within project timeframe likelihood obtaining amended contacts customers preferred stock2019 corporate unitsrefer notes 8 19 consolidated financial statements critical audit matter description june 2019 dominion energy issued 16 billion 2019 equity units initially form 2019 series corporate units “2019 equity units” 2019 series corporate unit consists stock purchase contract 110 10 undivided beneficial ownership interest one share series preferred stock beginning june 2022 series preferred stock convertible option holder dominion energy common stock formula based upon average closing price dominion energy common stock prior conversion date series preferred stock redeemable cash dominion energy beginning september 2022 liquidation preference settlement conversion payable cash common stock combination thereof dominion energy’s election stock purchase contracts obligate holders purchase shares dominion energy common stock june 2022 purchase price paid stock purchase contracts 100 per corporate unit number shares purchased determined formula based average closing price dominion energy common stock near settlement date series preferred stock pledged upon issuance collateral secure purchase common stock related stock purchase contracts dominion energy identified items recorded derivative instruments recorded present value stock purchase contract payments liability offset common stock recorded series preferred stock within equity given complexity 2019 equity units structure judgments involved applying relevant accounting standards auditing management’s conclusions balance sheet classification 2019 equity units involved need specialized skill knowledge critical audit matter addressed audit procedures related critical audit matter included following among others • tested effectiveness controls management’s technical accounting assessment balance sheet classification components 2019 equity units • read applicable agreements compared key terms agreements management’s analysis transaction • assistance professionals firm expertise accounting debt equity instruments evaluated management’s conclusions regarding balance sheet classification components 2019 equity units evaluation terms within applicable agreements considering applicable generally accepted accounting standards • evaluated dominion energy’s disclosures related financial statement impacts transaction regulatory assets liabilitiesimpact rate regulation consolidated financial statementsrefer notes 2 12 13 consolidated financial statements critical audit matter description dominion energy regulated electric gas subsidiaries subject rate regulation certain state public utility commissions ferc collectively “relevant commissions” jurisdiction respect rates electric utility natural gas distribution transmission companies management determined rateregulated subsidiaries meet requirements accounting principles generally accepted united states america apply specialized rules account effects costbased rate regulation accounting economics rate regulation impacts multiple financial statement line items disclosures property plant equipment net regulatory assets regulatory liabilities operating revenues operations maintenance expense depreciation depletion amortization expense collectively “financial statement impacts rate regulation” revenue provided dominion energy’s electric transmission distribution generation operations gas transmission distribution operations based primarily rates approved relevant commissions virginia electric power company’s “virginia power” retail base rates terms conditions generation distribution services customers virginia reviewed virginia commission proceeding involves determination virginia power’s actual earned return equity “roe” historic test period determination virginia power’s authorized roe prospectively certain circumstances virginia power may required refund portion earnings customers probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred dominion energy evaluates whether recovery regulatory assets future rates probable well whether regulatory liability due customers probable makes various assumptions analyses generally based orders issued regulatory commissions legislation judicial actions past experience discussions applicable regulatory authorities legal counsel forecasted earnings considerations around likelihood impacts events unusual weather conditions extreme weather events natural disasters unplanned outages facilities identified impact rate regulation critical audit matter due significant judgments made management support assertions financial statement impacts rate regulation management judgments include assessing likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers given management’s accounting judgments based assumptions outcome future decisions relevant commissions auditing judgments required specialized knowledge accounting rate regulation rate setting process due inherent complexities critical audit matter addressed audit procedures related assessment whether recovery regulatory assets future rates regulatory liability due customers probable included following among others • tested effectiveness management’s controls evaluation likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers also tested effectiveness management’s controls initial recognition amounts regulatory assets liabilities monitoring evaluation regulatory developments may impact assessment whether recovery regulatory assets future rates regulatory liability due customers probable • evaluated dominion energy’s disclosures related consolidated financial statement impacts rate regulation • read evaluated orders issued relevant commissions well relevant regulatory statutes interpretations procedural memorandums filings made interveners existing laws publicly available information assess whether external information properly considered management concluding upon financial statement impacts rate regulation • considered likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers based precedence established relevant commissions’ previous orders dominion energy’s past experience relevant commissions • regulatory matters process inspected associated documents testimony filed relevant commissions evidence might contradict management’s assertions • read analyzed minutes boards directors dominion energy dominion energy’s rateregulated subsidiaries discussions changes legal regulatory business factors could impact management’s conclusions respect financial statement impacts rate regulation deloitte touche llp richmond virginia february 28 2020 served dominion energy’s auditor since 1988 dominion energy inc consolidated statements income 1 see note 9 amounts attributable related parties accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements comprehensive income accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated balance sheets 1 see note 9 amounts attributable related parties 1 see note 9 amounts attributable related parties 2 18 billion shares authorized 838 million shares 681 million shares outstanding december 31 2019 2018 respectively accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements equity accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements cash flows 1 see note 2 noncash investing financing activities related adoption new accounting standard leasing arrangements 2 see note 3 noncash investing financing activities related scana combination 3 see note 5 noncash activities related sale noncontrolling interest cove point 4 see note 9 noncash investing activities related acquisition noncontrolling interest wrangler 5 see notes 1819 20 noncash financing activities related acquisition public interest dominion energy midstream remarketing rsns issuance stock purchase contracts associated 2019 equity units contribution stock dominion energy’s qualified defined benefit pension plan 6 includes 113 million finance leases 44 million operating leases accompanying notes integral part dominion energy’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors shareholder virginia electric power company opinion consolidated financial statements audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion energy inc subsidiaries “virginia power” december 31 2019 2018 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2019 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position virginia power december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility virginia power’s management responsibility express opinion virginia power’s consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect virginia power accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud virginia power required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 28 2020 served virginia power’s auditor since 1988 virginia electric power company consolidated statements income 1 see note 25 amounts attributable affiliates accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 see note 25 amounts attributable affiliates 1 see note 25 amounts attributable affiliates 2 500000 shares authorized 274723 shares outstanding december 31 2019 2018 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows 1 see note 2 noncash investing financing activities related adoption new accounting standard leasing arrangements 2 includes 20 million finance leases 35 million operating leases accompanying notes integral part virginia power’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors dominion energy gas holdings llc opinion consolidated financial statements audited accompanying consolidated balance sheets dominion energy gas holdings llc whollyowned subsidiary dominion energy inc subsidiaries “dominion energy gas” december 31 2019 2018 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2019 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position dominion energy gas december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility dominion energy gas’ management responsibility express opinion dominion energy gas’ consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect dominion energy gas accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud dominion energy gas required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness dominion energy gas’ internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 28 2020 served dominion energy gas’ auditor since 2012 dominion energy gas holdings llc consolidated statements income 1 see note 25 amounts attributable related parties 2 includes income tax expense 33 million less 1 million 91 million 2019 2018 2017 respectively accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements comprehensive income accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated balance sheets 1 see note 25 amounts attributable related parties 1 see note 25 amounts attributable related parties accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements equity accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements cash flows 1 see note 2 noncash investing financing activities related adoption new accounting standard lease arrangements 2 see notes 3 25 noncash investing financing activities related dominion energy gas restructuring relatedparty transactions accompanying notes integral part dominion energy gas’ consolidated financial statements page intentionally left blank combined notes consolidated financial statements note 1 nature operations dominion energy headquartered richmond virginia one nation’s largest producers transporters energy dominion energy’s operations conducted various subsidiaries including virginia power dominion energy gas dominion energy’s operations also include desc equity investment atlantic coast pipeline regulated gas distribution operations primarily eastern rocky mountain regions us dominion energy’s nonregulated operations include merchant generation retail energy marketing operations see note 3 description operations acquired scana combination beginning december 2019 dominion energy manages daily operations five primary operating segments dominion energy virginia gas transmission storage gas distribution dominion energy south carolina contracted generation dominion energy also reports corporate segment includes corporate service company functions including unallocated debt addition corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s stock owned dominion energy beginning december 2019 virginia power manages daily operations one primary operating segment dominion energy virginia also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources dominion energy gas holding company conducts business activities fercregulated interstate natural gas transmission pipeline underground storage systems eastern rocky mountain regions us well cove point lng facility addition dominion energy gas owns 50 noncontrolling interest iroquois white river hub see note 3 information dominion energy gas restructuring dominion energy gas’ membership interests held dominion energy beginning december 2019 dominion energy gas manages daily operations one primary operating segment gas transmission storage also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion energy gas result dominion energy’s basis net assets contributed addition corporate includes net impact discontinued operations discussed note 3 see note 26 discussion companies’ operating segments note 2 significant accounting policies general companies make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates companies’ consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries nonwhollyowned entities controlling financial interest certain partnership structures income allocated based liquidation value underlying contractual arrangements december 31 2019 dominion energy owns 50 voting interests four brothers three cedars controlling financial interest entities right control operations august 2018 nrg’s ownership interest four brothers three cedars transferred gip’s ownership interest four brothers three cedars terra nova renewable partners’ 33 interest certain dominion energy’s merchant solar projects brookfield’s 25 interest cove point nondominion energy held interest dominion energy midstream january 2019 reflected noncontrolling interest dominion energy’s consolidated financial statements terra nova renewable partners future option buy portion dominion energy’s remaining 67 ownership certain merchant projects upon occurrence certain events none expected occur 2020 brookfield’s 25 interest cove point public’s ownership interest dominion energy midstream january 2019 reflected noncontrolling interest dominion energy gas’ consolidated financial statements companies report certain contracts instruments investments fair value see note 6 information fair value measurements companies consider acquisitions dispositions substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets acquisition disposition asset rather business see notes 3 10 information transactions dominion energy maintains pension postretirement benefit plans virginia power dominion energy gas participate certain plans see note 22 information plans certain amounts companies’ 2018 2017 consolidated financial statements notes reclassified conform 2019 presentation comparative purposes however reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion energy inclusive virginia power andor dominion energy gas applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts combined notes consolidated financial statements continued yet billed customers dominion energy virginia power collect sales consumption consumer utility taxes dominion energy gas collects sales taxes however amounts excluded revenue dominion energy’s customer receivables december 31 2019 2018 included 896 million 626 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2019 2018 included 512 million 392 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers dominion energy gas’ customer receivables december 31 2019 2018 included 104 million 101 million respectively accrued unbilled revenue based estimated amounts natural gas delivered yet billed customers see note 25 amounts attributable related parties primary types sales service activities reported operating revenue dominion energy subsequent adoption revised guidance revenue recognition contracts customers follows revenue contracts customers • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated hedging activity • regulated gas sales consist primarily stateregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties associated hedging activity • regulated gas transportation storage sales consist fercregulated sales transmission storage services stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • nonregulated gas transportation storage sales consist primarily lng terminalling services • regulated revenue consists primarily miscellaneous service revenue electric gas distribution operations sales excess electric capacity commodities • nonregulated revenue consists primarily ngl gathering processing sales ngl production condensate extracted products associated hedging activity nonregulated revenue also includes services performed atlantic coast pipeline sales energyrelated products services dominion energy’s retail energy marketing operations service concession arrangements gas processing handling revenue • revenue consists primarily alternative revenue programs gains losses derivative instruments subject hedge accounting lease revenues primary types sales service activities reported operating revenue dominion energy prior adoption revised guidance revenue recognition contracts customers follows • regulated electric sales consisted primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consisted primarily sales electricity marketbased rates contracted fixed rates associated derivative activity • regulated gas sales consisted primarily state fercregulated natural gas sales related distribution services associated derivative activity • nonregulated gas sales consisted primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity • gas transportation storage sales consisted primarily fercregulated sales transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • revenue consisted primarily sales ngl production condensate extracted products associated derivative activity revenue also included miscellaneous service revenue electric gas distribution operations sales energyrelated products services dominion energy’s retail energy marketing operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power subsequent adoption revised guidance revenue recognition contracts customers follows revenue contracts customers • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • regulated revenue consists primarily sales excess capacity commodities miscellaneous service revenue electric distribution operations • nonregulated revenue consists primarily sales nonjurisdictional customers certain solar facilities revenue renting space certain electric transmission poles distribution towers service concession arrangements revenue • revenue consists primarily alternative revenue programs gains losses derivative instruments subject hedge accounting lease revenues primary types sales service activities reported operating revenue virginia power prior adoption revised guidance revenue recognition contracts customers follows • regulated electric sales consisted primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • revenue consisted primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities primary types sales service activities reported operating revenue dominion energy gas subsequent adoption revised guidance revenue recognition contracts customers follows revenue contracts customers • regulated gas saleswholesale consist primarily sales natural gas wholesale customers permitted ferc deti’s operating tariff • nonregulated gas sales consist primarily sales gas purchased third parties royalty revenues • regulated gas transportation storage sales consist fercregulated sales transmission storage services • nonregulated gas transportation storage sales consist primarily lng terminalling services • management service revenue consists primarily services performed atlantic coast pipeline • regulated revenue consists primarily miscellaneous regulated revenues • nonregulated revenue consists primarily miscellaneous service revenue • revenue consists primarily gains losses derivative instruments subject hedge accounting primary types sales service activities reported operating revenue dominion energy gas prior adoption revised guidance revenue recognition contracts customers follows • regulated gas sales consisted primarily sales natural gas wholesale customers permitted ferc deti’s operating tariff • nonregulated gas sales consisted primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties • gas transportation storage sales consisted primarily fercregulated sales transmission storage services • revenue consisted primarily miscellaneous service revenue gas processing handling revenue perating revenue east ohio dgp consists primarily stateregulated natural gas sales related distribution services stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales ngl gathering processing activities included net income discontinued operations dominion energy gas’ consolidated statements income november 6 2019 dominion energy virginia power record refunds customers required state commissions reduction regulated electric sales regulated gas sales applicable dominion energy virginia power’s revenue accounted alternative revenue program guidance primarily consists equity return underrecovery certain riders alternative revenue programs compensate dominion energy virginia power certain projects initiatives revenues arising programs presented separately revenue arising contracts customers categories revenues electric gas sales recognized time customers companies consume gas electricity delivered transportation storage contracts primarily standready service contracts include fixed reservation variable usage fees lng terminalling services also standready service contracts primarily consisting fixed fees offset service credits associated startup phase liquefaction facility fixed fees recognized ratably life contract standready performance obligation satisfied variable usage fees recognized dominion energy dominion energy gas right consideration customer amount corresponds directly value customer performance obligation completed date sales products services including ngls typically transfer control recognized revenue upon delivery product service customer able direct use obtain substantially benefits product time product delivered contract customer states final terms sale including description quantity price product service purchased payment sales services varies contract type typically due within month billing dominion energy dominion energy gas typically receive retain ngls natural gas customers providing natural gas processing transportation storage services dominion energy dominion energy gas record fair value ngls received natural gas processing service revenue recognized time continue recognize revenue subsequent sale ngls customers upon delivery dominion energy dominion energy gas typically retain natural gas certain transportation service arrangements intended facilitate performance service allow natural losses occur intent allowance enable fulfillment contract rather provide compensation services fuel allowance included revenue credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction companies maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2019 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur combined notes consolidated financial statements continued result counterparty nonperformance effective january 2020 expected credit losses estimated recorded based historical experience current conditions reasonable supportable forecasts affect collectability financial assets held amortized cost well expected credit losses commitments respect financial guarantees electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences dominion energy virginia power’s actual electric fuel purchased energy expenses dominion energy dominion energy gas’ purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve virginia utility customers december 31 2019 approximately 84 subject virginia power’s deferred fuel accounting substantially remaining amount subject recovery similar mechanisms virtually east ohio questar gas hope desc psnc’s natural gas purchases either subject deferral accounting recovered customer accounting period sale income taxes consolidated federal income tax return filed dominion energy subsidiaries including virginia power dominion energy gas’ subsidiaries addition applicable combined income tax returns dominion energy subsidiaries filed various states otherwise separate state income tax returns filed although dominion energy gas certain subsidiaries disregarded income tax purposes provision income taxes recognized reflect inclusion business activities tax returns parent dominion energy virginia power dominion energy gas participate intercompany tax sharing agreements dominion energy subsidiaries current income taxes based taxable income loss credits determined separate company basis agreements subsidiary incurs tax loss earns credit recognition current income tax benefits limited refunds prior year taxes obtained carryback net operating loss credit extent tax loss credit absorbed taxable income dominion energy consolidated group members otherwise net operating loss credit carried forward recognized deferred tax asset realized 2017 tax reform act included broad range tax reform provisions affecting companies including changes corporate tax rates business deductions 2017 tax reform act reduces corporate income tax rate 35 21 tax years beginning december 31 2017 deferred tax assets liabilities classified noncurrent consolidated balance sheets measured enacted tax rate expected apply temporary differences realized settled thus date enactment federal deferred taxes remeasured based upon new 21 tax rate total effect tax rate changes deferred tax balances recorded component income tax provision related continuing operations period law enacted even assets liabilities relate components financial statements items accumulated comprehensive income dominion energy subsidiaries rateregulated utilities existing deferred income tax assets liabilities adjusted reduction corporate income tax rate allocated continuing operations dominion energy’s rateregulated utility subsidiaries likewise required adjust deferred income tax assets liabilities change income tax rates however probable effect change income tax rates recovered refunded future rates regulated utility recorded regulatory asset liability instead increase decrease deferred income tax expense accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes accordingly deferred taxes recognized future consequences different treatments used reporting transactions financial accounting income tax returns companies establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities companies recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets companies recognize interest underpayments overpayments income taxes interest expense income respectively penalties also recognized income interest expense companies immaterial 2019 2018 dominion energy virginia power recognized interest income 11 million 2017 dominion energy gas’ interest immaterial 2017 companies’ penalties immaterial 2019 2018 2017 december 31 2019 virginia power income taxrelated affiliated payable 35 million comprised 15 million federal income taxes 20 million state income taxes due dominion energy dominion energy gas also net affiliated receivable 209 million due dominion energy representing 212 million federal income taxes receivable 3 million state income taxes payable dominion energy net affiliated receivables expected received dominion energy addition dominion energy gas’ consolidated balance sheet december 31 2019 included 10 million state income taxes receivable state income taxes receivable virginia power immaterial december 31 2019 december 31 2018 virginia power income taxrelated affiliated receivable 36 million comprised 34 million federal income taxes 2 million state income taxes due dominion energy dominion energy gas also net affiliated receivable 271 million due dominion energy representing 277 million federal income taxes receivable 6 million state income taxes payable dominion energy virginia power’s net affiliated receivables received dominion energy dominion energy gas’ affiliated receivables expected received dominion energy addition dominion energy gas’ consolidated balance sheet december 31 2018 included 15 million state income taxes receivable state income taxes receivable virginia power immaterial december 31 2018 investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash restricted cash equivalents cash restricted cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less current banking arrangements generally require checks funded presented payment following table illustrates checks outstanding yet presented payment recorded accounts payable companies restricted cash equivalents companies hold restricted cash equivalent balances primarily consist amounts held litigation settlements customer deposits future debt payments sbl holdco dominion solar projects iii inc’s term loan agreements eagle solar’s senior note agreement following table provides reconciliation total cash restricted cash equivalents reported within companies’ consolidated balance sheets corresponding amounts reported within companies’ consolidated statements cash flows years ended december 31 2019 2018 2017 1 restricted cash equivalent balances presented within current assets companies’ consolidated balance sheets 2 december 31 2018 2017 2016 dominion energy gas 9 million 3 million 14 million cash equivalents included current assets discontinued operations respectively distributions equity method investees dominion energy dominion energy gas hold investments accounted equity method accounting dominion energy dominion energy gas classify distributions equity method investees either cash flows operating activities cash flows investing activities consolidated statements cash flows according nature distribution distributions received classified basis nature activity investee generated distribution combined notes consolidated financial statements continued either return investment classified cash flows operating activities return investment classified cash flows investing activities information available dominion energy dominion energy gas derivative instruments companies exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well interest rate foreign currency exchange rate risks business operations dominion energy uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations virginia power uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate risks dominion energy gas uses derivative instruments physical financial forwards futures swaps manage commodity interest rate foreign currency exchange rate risks derivatives except exception applies required reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance companies offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion energy margin assets 42 million 95 million associated cash collateral december 31 2019 2018 respectively dominion energy’s margin liabilities 2 million less 1 million associated cash collateral december 31 2019 2018 respectively virginia power margin assets less 1 million associated cash collateral december 31 2019 virginia power margin assets associated cash collateral december 31 2018 margin liabilities associated cash collateral december 31 2019 2018 dominion energy gas margin assets liabilities associated cash collateral december 31 2019 2018 see note 7 information derivatives manage price risk companies hold derivative instruments designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges income based nature underlying risk changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments accordance accounting guidance pertaining derivatives hedge accounting companies designate portion derivative instruments either cash flow fair value hedges accounting purposes derivative instruments accounted cash flow hedges fair value hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedges majority companies’ hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas ngls companies also use interest rate swaps hedge exposure variable interest rates longterm debt well foreign currency swaps hedge exposure interest payments denominated euros transactions companies hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable dominion energy entered interest rate derivative instruments hedge forecasted interest payments related planned debt issuances 2014 interest rate derivatives designated dominion energy cash flow hedges prior formation dominion energy gas purposes dominion energy gas financial statements derivative balances aoci balance income statement impact related interest rate derivative instruments entered dominion energy continue included dominion energy gas’ consolidated financial statements forecasted interest payments related debt issuances occur dominion energy gas fair value hedges dominion energy also designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2019 2018 2017 dominion energy capitalized interest costs afudc property plant equipment 89 million 134 million 236 million respectively 2019 2018 2017 virginia power capitalized afudc property plant equipment 34 million 56 million 37 million respectively 2019 2018 2017 dominion energy gas capitalized afudc property plant equipment 31 million 25 million 34 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2019 2018 2017 virginia power recorded 11 million 4 million 22 million afudc related projects respectively property subject costofservice rate regulation including dominion energy virginia power electric distribution electric transmission generation property dominion energy natural gas distribution dominion energy gas natural gas transmission property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable abandoned recorded regulatory asset amounts expected collected future rates 2019 virginia power following charges primarily recorded impairment assets charges consolidated statements income reflected corporate segment related early retirements • january 2019 virginia power committed plan retire certain automated metering reading infrastructure associated electric operations end estimated useful life replace equipment current ami technology result virginia power recorded charge 160 million 119 million aftertax charge considered component virginia power’s base rates deemed recovered gtsa subject review discussed note 13 • march 2019 virginia power committed retire certain electric generating units end useful lives completed retirement certain units six facilities representing 1292 mw electric generating capacity previously placed cold reserve additional unit possum point power station retired meets capacity obligation pjm 2021 result virginia power recorded charge 346 million 257 million aftertax charge considered component virginia power’s base rates deemed recovered gtsa subject review discussed note 13 • may 2019 virginia power abandoned coal rail project mt storm generating facility result virginia power recorded charge 62 million 46 million aftertax • september 2019 dominion energy virginia power abandoned certain property plant equipment end useful life result dominion energy recorded charge 26 million 19 million aftertax virginia power recorded charge 17 million 12 million aftertax property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives companies’ average composite depreciation rates utility property plant equipment follows 1 excludes rates depreciation reported discontinued operations virginia power expects receive updated depreciation study nuclear plants first quarter 2020 anticipated reflect lower depreciation rates result expected approval license extensions nrc 2018 virginia power revised depreciation rates regulated nuclear plants comply virginia commission requirements year ended december 31 2018 adjustment resulted decrease 60 million 44 million aftertax depreciation expense virginia power’s consolidated statement income increase dominion energy’s eps 007 per share change resulted annual decrease depreciation expense 30 million 23 million aftertax 2017 virginia power revised depreciation rates assets reflect results new depreciation study change resulted increase annual depreciation expense 40 million 25 million aftertax 2017 additionally dominion energy revised depreciable lives merchant generation assets excluding millstone resulted decrease annual depreciation expense 26 million 16 million aftertax 2017 virginia power’s nonjurisdictional property plant equipment depreciated using straightline method estimated useful life 30 years combined notes consolidated financial statements continued capitalized costs development wells leaseholds amortized fieldbyfield basis using unitofproduction method estimated proved developed total proved gas oil reserves rate 180 189 per mcfe 2019 2018 respectively dominion energy’s nonutility property plant equipment depreciated using straightline method following estimated useful lives depreciation amortization related virginia power dominion energy gas’ nonutility property plant equipment exploration production properties immaterial years ended december 31 2019 2018 2017 except dominion energy gas’ nonutility lng facility depreciated using straightline method estimated useful life 40 years nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion energy virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets companies perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairment longlived assets regulatory assets liabilities accounting companies’ regulated electric gas operations differs accounting nonregulated operations companies required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred companies evaluate whether recovery regulatory assets future rates probable well whether regulatory liability due customers probable makes various assumptions analyses generally based • orders issued regulatory commissions legislation judicial actions • past experience • discussions applicable regulatory authorities legal counsel • forecasted earnings • considerations around likelihood impacts events unusual weather conditions extreme weather events natural disasters unplanned outages facilities generally regulatory assets liabilities amortized income period authorized regulator recovery regulatory asset determined less probable written period assessment made regulatory liability considered probable recorded period assessment made reversed earnings longer probable see notes 12 13 consolidated financial statements additional information leases companies lease certain assets including vehicles real estate office equipment operational assets operating finance leases companies’ operating leases rent expense recognized straightline basis term lease agreement subject regulatory framework rent expense associated operating leases shortterm leases variable leases primarily recorded operations maintenance expense companies’ consolidated statements income rent expense associated finance leases results separate presentation interest expense lease liability amortization expense related rightofuse asset companies’ consolidated statements income certain companies’ leases include one options renew renewal terms extend lease one 70 years exercise renewal options solely companies’ discretion included lease term option reasonably certain exercised rightofuse asset corresponding lease liability leases original lease terms one year less included consolidated balance sheets unless leases contain renewal options companies reasonably certain exercised additionally certain companies’ leases contain escalation clauses whereby payments adjusted consumer price indices contain fixed dollar percentage increases companies also leases variable payments based upon usage revenues associated leased assets determination discount rate utilized significant impact calculation present value lease liability included companies’ consolidated balance sheets companies’ fleet leased vehicles discount rate equal prevailing borrowing rate earned lessor companies’ remaining leased assets discount rate implicit lease generally unable determined lessee perspective companies use internallydeveloped incremental borrowing rates discount rate calculation present value lease liability incremental borrowing rates determined based analysis companies’ publicly available unsecured borrowing rates adjusted collateral discount various lengths time closely correspond companies’ lease maturities addition dominion energy acts lessor certain power purchase agreements counterparty counterparties purchase substantially output certain solar facilities leases considered operating nature leasing arrangements rental revenue associated accounts receivable recorded monthly output solar facility determined depreciation solar facilities computed straightline basis estimated useful life 30 years asset retirement obligations companies recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed legal obligation exists amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses quarterly companies assess aros determine circumstances indicate estimates amounts timing future cash flows associated retirement activities changed aros adjusted significant changes amounts timing future cash flows identified dominion energy dominion energy gas report accretion aros depreciation asset retirement costs associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros dominion energy virginia power report accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions additionally dominion energy virginia power report accretion aros depreciation asset retirement costs associated certain rider prospective rider projects adjustment regulatory asset certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense respectively consolidated statements income debt issuance costs companies defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others deferred debt issuance costs recorded reduction longterm debt consolidated balance sheets amortization issuance costs reported interest expense unamortized costs associated redemptions debt securities prior stated maturity dates generally recognized recorded interest expense immediately permitted regulatory authorities gains losses resulting refinancing redemption debt allocable utility operations subject costbased rate regulation deferred amortized investments debt equity securities readily determinable fair values dominion energy accounts classifies investments debt securities trading availableforsale securities virginia power classifies investments debt securities availableforsale securities • debt securities classified trading securities include securities held dominion energy rabbi trusts associated cer tain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income • debt securities classified availableforsale securities include debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale debt securities including held dominion energy’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses debt securities cost basis security based specific identification method equity securities readily determinable fair values include securities held dominion energy rabbi trusts associated certain deferred compensation plans securities held dominion energy virginia power nuclear decommissioning trusts dominion energy virginia power record equity securities readily determinable fair value permitted estimate fair value using nav equivalent fair value nuclear decommissioning trust funds investments consolidated balance sheets however dominion energy virginia power may elect measurement alternative equity securities without readily determinable fair value measurement alternative equity securities reported cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer dominion energy virginia power qualitatively assess equity securities reported using measurement alternative determine whether investment impaired ongoing basis net realized unrealized gains losses equity securities held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation equity securities including held dominion energy’s merchant generation nuclear decommissioning trusts rabbi trusts net realized unrealized gains losses included income consolidated statements income equity securities without readily determinable fair values companies account illiquid privately held securities without readily determinable fair values either equity method cost method equity securities without readily determinable fair values include • equity method investments companies ability exercise significant influence control combined notes consolidated financial statements continued investee dominion energy dominion energy gas’ investments included investments equity method affiliates consolidated balance sheets dominion energy dominion energy gas record equity method adjustments income earnings equity method investees respectively consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method • cost method investments dominion energy virginia power ability exercise significant influence investee dominion energy virginia power’s investments included investments nuclear decommissioning trust funds cost method investments reported cost less impairment plus minus changes resulting observable price changes orderly transactions identical similar investments issuer otherthantemporary impairment companies periodically review investments debt securities equity method investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investments special considerations debt securities • recognition provisions otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity • using information obtained nuclear decommissioning trust fixedincome investment managers dominion energy virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss dominion energy virginia power record credit loss earnings remaining portion unrealized loss aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory valued using weightedaverage cost method except east ohio gas distribution operations valued using lifo method lifo method current stored gas inventory valued 19 million 12 million december 31 2019 december 31 2018 respectively based average price gas purchased 2019 2018 cost replacing current portion stored gas inventory exceeded amount stated lifo basis 60 million 87 million respectively result dominion energy gas restructuring december 31 2018 east ohio’s stored gas inventory reported current assets discontinued operations consolidated balance sheets dominion energy gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion energy dominion energy gas value imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion energy dominion energy gas parties reported current assets gas imbalances respectively imbalances dominion energy dominion energy gas owe parties reported current liabilities consolidated balance sheets goodwill dominion energy dominion energy gas evaluate goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount new accounting standards revenue recognition may 2014 fasb issued revised accounting guidance revenue recognition contracts customers companies adopted revised accounting guidance interim annual reporting periods beginning january 1 2018 using modified retrospective method upon adoption standard dominion energy dominion energy gas recorded cumulativeeffect change accounting principle 3 million retained earnings membership interests respectively establish contract asset related changes timing revenue recognition three existing contracts customers deti result adopting revised accounting guidance dominion energy records offsetting operating revenue energyrelated purchases noncash consideration performing processing fractionation services related ngls amounts dominion energy 107 million recorded consolidated statements income year ended december 31 2018 amounts recorded year ended december 31 2017 dominion energy dominion energy gas longer record offsetting operating revenue purchased gas fuel retained offset costs certain transportation storage arrangements amounts dominion energy 111 million dominion energy gas 71 million recorded consolidated statements income year ended december 31 2017 financial instruments january 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure financial instruments guidance became effective companies’ interim annual reporting periods beginning january 1 2018 companies adopted standard using modified retrospective method upon adoption guidance equity securities held january 1 2018 dominion energy virginia power recorded cumulativeeffect change accounting principle reclassify net unrealized gains aoci retained earnings recognize equity securities previously categorized cost method investments fair value using nav nuclear decommissioning trust funds consolidated balance sheets cumulativeeffect adjustment retained earnings dominion energy virginia power reclassified approximately 11 billion 734 million aftertax 119 million 73 million aftertax respectively net unrealized gains aoci retained earnings dominion energy virginia power also recorded approximately 36 million 22 million aftertax net unrealized gains equity securities previously classified cost method investments 3 million recorded retained earnings 33 million recorded regulatory liabilities net unrealized gains subject costbased regulation result adopting revised accounting guidance dominion energy recorded unrealized losses equity securities net regulatory deferrals 190 million 142 million aftertax income consolidated statements income year ended december 31 2018 resulting 022 loss per share year ended december 31 2018 virginia power recorded unrealized losses equity securities net regulatory deferrals 24 million 18 million aftertax income consolidated statements income year ended december 31 2018 leases february 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure leasing arrangements update requires liability corresponding rightofuse asset recorded balance sheet leases including leases classified operating leases also refining definition lease addition lessees required disclose key information amount timing uncertainty cash flows arising leasing arrangements lessor accounting remains largely unchanged guidance became effective companies’ interim annual reporting periods beginning january 1 2019 companies adopted revised accounting guidance using modified retrospective approach requires lessees lessors recognize measure leases date adoption approach companies utilized transition practical expedient maintain historical presentation periods january 1 2019 companies also applied practical expedients required reassessment whether existing contracts contain leases reassessment lease classification existing leases reassessment existing expired land easements previously accounted leases connection adoption revised accounting guidance dominion energy virginia power dominion energy gas recorded 504 million 209 million 64 million respectively offsetting rightofuse assets liabilities operating leases effect adoption date result dominion energy gas restructuring 25 million rightofuse assets liabilities operating leases recorded dominion energy gas associated discontinued operations see note 15 additional information derecognition partial sales nonfinancial assets february 2017 fasb issued revised accounting guidance clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets guidance became effective companies’ interim annual reporting periods beginning january 1 2018 companies adopted standard using modified retrospective method upon adoption standard dominion energy recorded cumulativeeffect change accounting principle reclassify 127 million noncontrolling interests common stock related sale noncontrolling interest certain merchant solar projects completed december 2015 january 2016 net periodic pension postretirement benefit costs march 2017 fasb issued revised accounting guidance presentation net periodic pension postretirement benefit costs guidance became effective companies beginning january 1 2018 requires service cost component net periodic pension postretirement benefit costs classified line item compensation costs arising services rendered employees components net periodic pension postretirement costs classified outside income operations addition service cost component remains eligible capitalization construction changes impact accounting participants multiemployer plan standard also recognizes event regulator continues require capitalization net periodic benefit costs prospectively difference would result recognition regulatory asset liability costs capitalized regulators expected provide recovery regulatory asset established amounts eligible capitalization consolidated financial statements virginia power dominion energy gas subsidiary participants dominion energy’s multiemployer plans differ amounts eligible capitalization consolidated financial statements dominion energy plan administrator differences result regulatory asset liability recorded consolidated financial statements dominion energy tax reform december 2017 staff sec issued guidance clarifies accounting income taxes information yet available complete provided oneyear measurement period complete required analyses accounting guidance described three scenarios associated company’s status accounting income tax reform 1 company complete accounting certain effects tax reform 2 company able determine reasonable estimate certain effects tax reform records estimate provisional amount 3 company able determine reasonable estimate therefore continues apply accounting income taxes based provisions tax laws effect immediately prior 2017 tax combined notes consolidated financial statements continued reform act enacted companies accounted effects 2017 tax reform act although additional changes could occur guidance issued finalized described addition major states companies operate addressed conformity provisions 2017 tax reform act although states modified certain provisions august 2018 us department treasury issued proposed regulations addressing availability federal bonus depreciation period beginning september 27 2017 december 31 2017 application changes decreased dominion energy’s net operating loss carryforward utilization 2017 tax return impacts proposed final regulations issued 2019 applicability accelerated depreciation immaterial companies discussed note 5 november 2018 us department treasury issued proposed regulations defining interest amounts associated time value money use funds proposed regulations provide guidance purposes exception interest limitation regulated public utilities application interest limitation consolidated groups dominion energy interest limitation respect partnerships partners partnerships unclear guidance may finalized whether guidance could result disallowance portion companies’ interest deductions future february 2018 fasb issued revised accounting guidance provide clarification application 2017 tax reform act balances recorded within aoci revised guidance provides stranded amounts within aoci impacts 2017 tax reform act reclassified retained earnings companies adopted guidance interim annual reporting periods beginning january 1 2018 prospective basis connection adoption guidance dominion energy reclassified benefit 289 million aoci retained earnings virginia power reclassified benefit 3 million aoci retained earnings dominion energy gas reclassified benefit 26 million aoci membership interests amounts reclassified reflect reduction federal income tax rate federal benefit state income taxes components companies’ aoci note 3 acquisitions dispositions dominion energy acquisition scana january 2019 dominion energy issued 956 million shares dominion energy common stock valued 68 billion representing 06690 share dominion energy common stock share scana common stock connection completion scana combination scana regulated subsidiaries primarily engaged generation transmission distribution electricity central southern southwestern portions south carolina distribution natural gas north carolina south carolina addition closing scana combination scana marketed natural gas retail customers southeast us following completion scana combination scana operates whollyowned subsidiary dominion energy addition scana’s debt totaled 69 billion closing scana combination expanded dominion energy’s portfolio regulated electric generation transmission distribution regulated natural gas distribution infrastructure operations merger approval conditions merger approval scana combination required approval scana’s shareholders ferc north carolina commission south carolina commission georgia public service commission nrc clearance federal trade commission hartscottrodino act approvals received prior closing scana combination various parties filed petitions rehearing reconsideration scana merger approval order january 2019 south carolina commission issued order 1 granting request various parties finding desc imprudent actions disclosing material information south carolina office regulatory staff south carolina commission regard costs incurred subsequent march 2015 2 denying petitions rehearing consideration issues raised various petitions deadline appeal scana merger approval order rehearing expired april 2019 party sought appeal refunds customers condition scana merger approval order desc provide refunds restitution 20 billion 20 years capital support dominion energy september october 2017 desc received proceeds totaling 11 billion full satisfaction share settlement agreement among desc santee cooper toshiba corporation connection westinghouse wectec whollyowned subsidiaries toshiba corporation responsible engineering construction nnd project filing bankruptcy purchase price allocation includes previously established regulatory liability desc totaling 11 billion 67 million considered current associated monetization bankruptcy settlement toshiba corporation accordance terms scana merger approval order regulatory liability net amounts may required satisfy liens nnd project property totaling 10 billion refunded desc electric service customers 20year period ending 2039 additionally first quarter 2019 desc recorded reduction operating revenue corresponding regulatory liability 10 billion 137 million considered current representing refund amounts previously collected retail electric customers desc nnd project credited estimated 11year period result dominion energy’s consolidated statement income year ended december 31 2019 includes 756 million aftertax charge nnd project condition scana merger approval order desc committed excluding rate recovery 24 billion costs related nnd project 180 million costs associated purchase columbia energy center power station regulatory assets included scana’s historical balance sheet december 31 2018 reflected disallowances remaining regulatory asset associated nnd project 28 billion 138 million considered current collected 20year period including return investment january 2019 desc filed nnd project rider accordance terms scana merger approval order rates effective february 2019 desc’s retail electric customers south carolina commission approved filing january 2019 terms conditions • desc file application general rate case south carolina commission requested effective date earlier january 2021 • psnc file application general rate case north carolina commission requested effective date earlier april 2021 • dominion energy committed increasing scana’s historical level corporate contributions charities 1 million per year five years • dominion energy maintain desc psnc’s headquarters cayce south carolina gastonia north carolina respectively • dominion energy seek minimize reductions local employment allowing des employees supporting shared common services functions activities located cayce south carolina makes economic practical sense purchase price allocation scana’s assets acquired liabilities assumed measured estimated fair value closing included dominion energy south carolina gas transmission storage gas distribution operating segments majority operations acquired subject rate setting authority ferc north south carolina commissions therefore accounted pursuant asc 980 regulated operations fair values scana’s assets liabilities subject ratesetting cost recovery provisions provide revenues derived costs including return investment assets liabilities included rate base fair values assets liabilities equal carrying values accordingly neither assets liabilities acquired unaudited pro forma financial information reflect adjustments related amounts fair value scana’s assets acquired liabilities assumed subject ratesetting provisions discussed fair values scana’s investments accounted equity method determined using income approach market approach valuation scana’s longterm debt considered level 2 fair value measurement valuations considered level 3 fair value measurements due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risk inherent future market prices excess purchase price estimated fair values assets acquired liabilities assumed reflected goodwill reflects value associated enhancing dominion energy’s portfolio regulated operations growing southeast region us goodwill recognized deductible income tax purposes deferred taxes recorded related goodwill table shows allocation purchase price assets acquired liabilities assumed closing reflects certain adjustments related income taxes discussed note 5 preliminary valuation recognized measurement period 1 includes 389 million cash restricted cash equivalents 115 million considered restricted 2 includes 31 million equity method investments fair value adjustment equity method investments considered equity method goodwill amortized 3 includes 105 million certain property plant equipment associated nnd project dominion energy committed forgo recovery accordance scana merger approval order result dominion energy’s consolidated statements income year ended december 31 2019 include charge 105 million 79 million aftertax included impairment assets charges reflected corporate segment 4 nonregulated property plant equipment excluding land depreciated straightline basis remaining useful lives property primarily ranging 5 78 years 5 includes 258 million certain income taxrelated regulatory assets associated nnd project dominion energy committed forgo recovery accordance scana merger approval order see note 5 additional information 6 intangible assets estimated weightedaverage amortization period approximately five years 7 includes 40 million outstanding letters credit advances repaid january 2019 well 173 million outstanding commercial paper various credit facilities discussed note 17 credit facilities terminated 2019 8 includes 379 million pension postretirement benefit liability 9 includes stockbased compensation awards fair value 21 million results operations unaudited pro forma information impact scana combination dominion energy’s operating revenue net income attributable dominion energy consolidated statements income increase 31 billion decrease 11 billion year ended december 31 2019 respectively combined notes consolidated financial statements continued dominion energy incurred merger integrationrelated costs 646 million consolidated statements income year ended december 31 2019 amount year ended december 31 2019 includes 427 million charge related voluntary retirement program see note 22 additional information remaining merger integrationrelated costs 210 million recorded operations maintenance expense 9 million recorded interest related charges consolidated statements income year ended december 31 2019 year ended december 31 2018 dominion energy incurred merger integrationrelated costs 27 million recorded primarily operations maintenance expense consolidated statements income costs consist professional fees charitable contribution commitment described employeerelated expenses certain financing costs miscellaneous costs following unaudited pro forma financial information reflects consolidated results operations dominion energy assuming scana combination taken place january 1 2018 unaudited pro forma financial information presented illustrative purposes necessarily indicative consolidated results operations would achieved future consolidated results operations combined company 1 amounts include adjustments nonrecurring costs directly related scana combination sale interest cove point october 2019 dominion energy signed agreement sell 25 noncontrolling limited partnership interests cove point contributed dominion energy gas dominion energy gas restructuring brookfield december 2019 sale completed dominion energy received cash consideration 21 billion subject working capital adjustments sale accounted dominion energy following guidance change parent company’s ownership interest consolidated subsidiary dominion energy controls cove point sale noncontrolling interest changes dominion energy’s ownership interest cove point accounted equity transaction gain loss recognized acquisitions whollyowned merchant solar projects following table presents significant completed acquisitions whollyowned merchant solar projects dominion energy 1 purchase price primarily allocated property plant equipment 2 includes acquisition cost 3 april 2017 dominion energy discontinued efforts acquisition additional 20 mw solar project solar frontier americas holding llc addition 2016 dominion energy acquired 100 equity interests seven solar projects virginia north carolina south carolina aggregate purchase price 32 million allocated property plant equipment projects cost 421 million total including initial acquisition costs generate 221 mw combined one projects commenced commercial operations 2016 remaining projects commenced commercial operations 2017 longterm power purchase interconnection operation maintenance agreements executed projects described projects included contracted generation dominion energy claimed federal investment tax credits solar projects dominion energy gas dominion energy gas restructuring dominion energy gas restructuring considered reorganization entities common control result dominion energy gas’ basis dcp dmlphcii includes general partner dominion energy midstream controlling 75 interest cove point decg dominion energy questar pipeline 50 noncontrolling interest white river hub 2593 noncontrolling interest iroquois equal dominion energy’s cost basis assets liabilities entities since applicable inception dates common control november 2019 following completion dominion energy gas restructuring dcp dmlphcii whollyowned subsidiaries dominion energy gas therefore consolidated dominion energy gas accompanying consolidated financial statements notes dominion energy gas retrospectively adjusted include historical results financial position dcp dmlphcii 25 interest cove point retained dominion energy subsequently sold brookfield december 2019 nondominion energy held interest dominion energy midstream reflected noncontrolling interest dominion energy gas restructuring includes disposition east ohio dgp dominion energy gas november 2019 restructuring represents strategic shift operations dominion energy gas dominion energy gas’ operations consists lng importexport storage regulated gas transmission storage operations result accompanying consolidated financial statements notes dominion energy gas retrospectively adjusted include historical results financial position east ohio dgp discontinued operations november 2019 presented within corporate segment dominion energy gas restructuring considered reorganization entities common control dominion energy gas reflected disposition equity transaction following table represents selected information regarding results operations east ohio reported discontinued operations dominion energy gas’ consolidated statements income carrying amounts major classes assets liabilities relating east ohio reported discontinued operations dominion energy gas’ consolidated balance sheets follows 1 includes cash equivalents 9 million december 31 2018 capital expenditures significant noncash items relating east ohio included following table represents selected information regarding results operations dgp reported discontinued operations dominion energy gas’ consolidated statements income combined notes consolidated financial statements continued carrying amounts major classes assets liabilities relating dgp reported discontinued operations dominion energy gas’ consolidated balance sheets follows 1 includes cash equivalents less 1 million 2 primarily property plant equipment net capital expenditures significant noncash items dgp included following note 4 operating revenue companies’ operating revenue subsequent adoption revised guidance revenue recognition contracts customers consists following 1 see notes 9 25 amounts attributable related parties affiliates 2 amounts include sales considered goods transferred point time years ended december 31 2019 2018 amounts included 171 million 241 million respectively dominion energy 5 million 10 million respectively dominion energy gas primarily consisting ngl sales additionally amounts include sales renewable energy credits years ended december 31 2019 2018 sales 24 million 17 million respectively dominion energy 17 million 11 million respectively virginia power 3 includes alternative revenue 66 million 52 million year ended december 31 2019 dominion energy virginia power respectively 15 million year ended december 31 2018 dominion energy virginia power table discloses aggregate amount transaction price allocated fixedprice performance obligations unsatisfied partially unsatisfied end reporting period companies expect recognize revenue revenues relate contracts containing fixed prices companies earn associated revenue time stand ready perform services provided disclosure include revenue related performance obligations part contract original durations one year less addition disclosure include expected consideration related performance obligations companies elect recognize revenue amount right invoice contract assets represent entity’s right consideration exchange goods services entity transferred customer december 31 2019 2018 dominion energy’s contract asset balances 28 million 42 million respectively dominion energy gas’ contract asset balances 40 million 58 million december 31 2019 2018 respectively dominion energy dominion energy gas’ contract assets recorded deferred charges assets consolidated balance sheets contract liabilities represent entity’s obligation transfer goods services customer entity received consideration amount due customer december 31 2019 2018 dominion energy’s contract liability balances 123 million 106 million respectively december 31 2019 2018 virginia power’s contract liability balances 24 million 22 million respectively december 31 2019 2018 dominion energy gas’ contract liability balances 20 million 28 million respectively companies’ contract liabilities recorded current liabilities deferred credits liabilities consolidated balance sheets companies’ recognize revenue fulfill obligations provide service customers years ended december 31 2019 2018 dominion energy recognized revenue 94 million beginning contract liability balance years ended december 31 2019 2018 virginia power recognized revenue 22 million 25 million respectively beginning contract liability balance years ended december 31 2019 2018 dominion energy gas recognized revenue 8 million 3 million respectively beginning contract liability balance companies’ operating revenue prior adoption revised guidance revenue recognition contracts customers consisted following note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently companies routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material combined notes consolidated financial statements continued 2017 tax reform act included broad range tax reform provisions affecting companies discussed note 2 2017 tax reform act reduced corporate income tax rate 35 21 tax years beginning december 31 2017 date enactment deferred tax assets liabilities remeasured based upon new 21 enacted tax rate expected apply temporary differences realized settled specific provisions related regulated public utilities 2017 tax reform act generally allow continued deductibility interest expense changed tax depreciation certain property acquired september 27 2017 continued certain rate normalization requirements accelerated depreciation benefits indicated note 2 certain companies’ operations including accounting income taxes subject regulatory accounting treatment regulated operations many changes deferred taxes represent amounts probable collection refund customers recorded either increase regulatory asset liability 2017 tax reform act included provisions stipulate excess deferred taxes may passed back customers certain accelerated tax depreciation benefits potential refunds deferred taxes may determined companies’ regulators see note 13 information companies accounted effects 2017 tax reform act although changes could occur additional guidance issued finalized particularly relates deductibility interest expense consolidated groups dominion energy addition major states companies operate addressed conformity provisions 2017 tax reform act although states modified certain provisions changes deferred taxes resulting 2017 tax reform act companies’ interpretations proposed regulations issued 2018 applicability accelerated depreciation recorded either increase regulatory liability adjustment deferred tax provision impacts proposed final regulations issued 2019 applicability accelerated depreciation immaterial companies continuing operations details income tax expense continuing operations including noncontrolling interests follows 1 2017 tax reform act impact dominion energy gas includes expense 8 million year ended december 31 2018 benefit 93 million year ended december 31 2017 arising discontinued operations 2017 tax reform act reduced statutory federal income tax rate 21 beginning january 2018 accordingly current deferred income taxes recorded new 21 rate 2019 dominion energy gas restructuring caused changes tax status certain subsidiaries impacts changes tax status decreased deferred income tax expense 48 million dominion energy dominion energy gas addition dominion energy recognized taxable gain resulting sale 25 noncontrolling interest cove point direct tax effects transactions included provision current income taxes 362 million offsetting benefit deferred income taxes 147 million charged common shareholders’ equity utilization 208 million federal tax credit carryforwards offsetting portion federal tax liability transaction also charged common shareholders’ equity total taxes recorded common shareholders’ equity resulting transaction 215 million 2018 dominion energy less 1 million state deferred income tax expense result reversal deferred taxes upon sale interest blue racer fairless manchester dominion energy’s current federal income taxes primarily include recognition 47 million benefit related carryback claim specified liability losses involving prior tax years 2017 accounting reduction corporate income tax rate decreased deferred income tax expense 851 million dominion energy 93 million virginia power 246 million dominion energy gas year ending december 31 2017 decrease deferred income taxes dominion energy primarily relates remeasurement deferred taxes nonregulated operations includes effects virginia power dominion energy gas virginia power dominion energy gas certain regulatory assets liabilities yet charged returned customers rates earn return including unrecognized pension postretirement benefits remeasurement deferred taxes regulatory balances charged continuing operations 2017 ratemaking purposes dominion energy gas’ subsidiary deti follows cash method pension contributions deferred taxes recorded pension balances required gaap included component rates therefore remeasurement deferred taxes charged continuing operations 2017 discontinued operationsdominion energy gas tax expense reported discontinued operations period ended november 6 2019 33 million tax expense reported discontinued operations years ended december 31 2018 2017 dominion energy gas less 1 million 91 million respectively tax expense discontinued operations included benefits utilizing immaterial amount operating loss carryforwards 2018 5 million 2017 continuing operations continuing operations including noncontrolling interests statutory us federal income tax rate reconciles companies’ effective income tax rate follows 1 includes 32 46 67 relating absence tax noncontrolling interest 2019 2018 2017 respectively companies’ rateregulated entities deferred taxes reverse weighted average rate used originate deferred tax liability cases 35 companies recorded estimate excess deferred income tax amortization 2019 changes estimates amounts probable collection return customers reversal excess deferred income taxes impact effective tax rate may ultimately impact rates charged customers see note 13 current year developments connection scana combination dominion energy committed forgo limit recovery certain income taxrelated regulatory assets associated nnd project dominion energy’s effective tax rate reflects deferred income tax expense 194 million satisfaction commitment dominion energy’s effective tax rate also reflects changes consolidated state income taxes resulting scana combination 2018 companies applied provisions proposed regulations addressing availability federal bonus depreciation period beginning september 27 2017 december 31 2017 application changes increased dominion energy’s 2017 net operating loss carryforward benefit recognized 21 rate result dominion energy’s effective tax rate reflects 23 million increase deferred income tax expense associated remeasurement deferred tax asset application proposed regulations dominion energy gas impact income tax expense changes remeasurement deferred tax liabilities increased regulatory liabilities 35 million 23 million reflected noncurrent liabilities discontinued operations consolidated balance sheets effects changes virginia power immaterial amounts adjustments represent companies’ best estimate based available information could subject change based additional guidance yet finalized regulations addition changes estimates amounts probable return collection customers increased deferred income tax expense virginia power 23 million increased regulatory liabilities 31 million dominion energy gas similar changes estimates decreased income tax expense 5 million regulatory liabilities 8 million dominion energy gas’ discontinued operations similar changes estimates increased income tax expense 8 million reflected income tax expense continuing operations consolidated statements income regulatory liabilities 10 million reflected noncurrent liabilities discontinued operations consolidated balance sheets changes also impacted dominion energy addition dominion energy dominion energy gas’ effective tax rates reflect impacts state legislative change enacted second quarter 2018 retroactive january 1 2018 2017 companies’ effective tax rates reflect net benefit remeasurement deferred taxes resulting lower corporate income tax rate promulgated 2017 tax reform act completion audits state tax authorities resulted recognition previously unrecognized tax benefits december 31 2016 virginia power’s unrecognized tax benefits included state refund claims open tax years 2011 management believed settlement claims including interest thereon within next twelve months remote june 2017 virginia power received accepted cash offer settle refund claims result settlement virginia power decreased unrecognized tax benefits 8 million recognized 2 million tax benefit impacted effective tax rate also connection settlement virginia power realized interest income 11 million reflected income consolidated statements income combined notes consolidated financial statements continued companies’ deferred income taxes consist following significant impact reflected 2017 tax reform act adjustment net accumulated deferred income tax liability reduction corporate income tax rate 21 addition amounts recognized deferred income tax expense impacts 2017 tax reform act decreased accumulated deferred income tax liability 31 billion dominion energy 19 billion virginia power 08 billion dominion energy gas december 31 2017 04 billion reflected noncurrent liabilities discontinued operations consolidated balance sheets dominion energy december 31 2017 balance sheet reflected impact 2017 tax reform act regulatory liabilities increased regulatory liabilities 42 billion created corresponding deferred tax asset 11 billion virginia power regulatory liabilities increased 26 billion created deferred tax asset 07 billion dominion energy gas regulatory liabilities increased 11 billion 05 billion reflected noncurrent liabilities discontinued operations consolidated balance sheets created deferred tax asset 03 billion 01 billion reflected noncurrent liabilities discontinued operations consolidated balance sheets adjustments impact 2017 cash flows december 31 2019 dominion energy following deductible loss credit carryforwards december 31 2019 virginia power following deductible loss credit carryforwards december 31 2019 dominion energy gas immaterial deductible loss carryforwards less 1 million credit carryforwards expire 2032 2037 reconciliation changes companies’ unrecognized tax benefits follows 1 acquired unrecognized tax benefits reflect 106 million plus increases prior period positions 76 million decreases prior period positions 53 million recorded purchase accounting certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion energy subsidiaries unrecognized tax benefits 141 million 37 million 31 million december 31 2019 2018 2017 respectively dominion energy change unrecognized tax benefits increased income tax expense 3 million 5 million 2019 2018 respectively decreased income tax expense 9 million 2017 virginia power unrecognized tax benefits less 1 million 2 million 3 million december 31 2019 2018 2017 respectively virginia power change unrecognized tax benefits decreased income tax expense 2 million 2019 2018 respectively 6 million 2017 dominion energy gas unrecognized tax benefits 2 million december 31 2019 2018 2017 respectively dominion energy gas change unrecognized tax benefits decreased income tax expense less 1 million 2019 2018 respectively 5 million 2017 dominion energy participates irs compliance assurance process provides opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions agreed irs 2018 dominion energy submitted carryback claims specified liability losses involving prior tax years claims currently subject irs examination exception claims irs completed audit tax years 2018 statute limitations yet expired tax year 2014 years 2015 although dominion energy received final letter indicating changes taxable income tax year 2018 material adjustments expected irs examination tax year 2019 ongoing reasonably possible settlement negotiations expiration statutes limitations could result decrease unrecognized tax benefits 2020 86 million dominion energy less 1 million dominion energy gas changes occur revisions accrual interest tax underpayments overpayments earnings could increase 23 million dominion energy less 1 million dominion energy gas otherwise regard 2019 prior years dominion energy virginia power dominion energy gas cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2020 major states dominion energy operates earliest tax year remaining open examination follows 1 considered major state dominion energy gas’ operations 2 considered major state virginia power’s operations companies also obligated report adjustments resulting irs settlements state tax authorities addition dominion energy utilizes operating losses tax credits generated years statute limitations expired amounts generally subject examination note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact companies’ nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion energy applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments including held nuclear decommissioning dominion energy’s rabbi pension postretirement benefit plan trusts accordance requirements discussed virginia power applies fair combined notes consolidated financial statements continued value measurements certain assets liabilities including commodity interest rate derivative instruments investments including held nuclear decommissioning trust accordance requirements discussed dominion energy gas applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments including held pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described inputs assumptions fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including industry publications lesser extent broker quotes evaluating pricing information provided designated contract market settlement pricing services brokers companies consider ability transact quoted price ie quotes based active market inactive market extent pricing models used pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty sources options contracts optionlike characteristics observable pricing information available external sources dominion energy virginia power generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value dominion energy virginia power use option models special circumstances including limited spread approximation model swing option model contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity derivative contracts • forward commodity prices • transaction prices • price volatility • price correlation • volumes • commodity location • interest rates • credit quality counterparties companies • credit enhancements • time value interest rate derivative contracts • interest rate curves • credit quality counterparties companies • notional value • credit enhancements • time value foreign currency derivative contracts • foreign currency forward exchange rates • interest rates • credit quality counterparties companies • notional value • credit enhancements • time value investments • quoted securities prices indices • securities trading information including volume restrictions • maturity • interest rates • credit quality levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels • level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments certain exchangetraded derivatives exchangelisted equities us international equity securities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion energy virginia power benefit plan trust funds dominion energy dominion energy gas rabbi trust funds dominion energy • level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include commodity forwards swaps interest rate swaps foreign currency swaps cash equivalents corporate debt instruments government securities fixed income investments held nuclear decommissioning trust funds dominion energy virginia power benefit plan trust funds dominion energy dominion energy gas rabbi trust funds dominion energy • level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 companies consist longdated commodity derivatives ftrs certain natural gas power options modeled commodity derivatives fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability alternative investments consisting investments partnerships joint ventures alternative investments held nuclear decommissioning benefit plan trust funds generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date alternative investments recorded nav classified fair value hierarchy transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations companies enter certain physical financial forwards futures options swaps considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures contracts option model used value level 3 physical financial options discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices original sales prices volumes level 3 fair value measurements certain forward market prices implied price volatilities considered unobservable following table presents dominion energy’s quantitative information level 3 fair value measurements december 31 2019 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows nonrecurring fair value measurements dominion energy see note 9 information regarding impairment charge recognized associated dominion energy’s equity method investment fowler ridge also see note 9 information regarding fair value measurements associated dominion energy’s sale interest blue racer acquisition interest wrangler combined notes consolidated financial statements continued atlantic coast pipeline guarantee agreement october 2017 dominion energy entered guarantee agreement connection atlantic coast pipeline’s obligation 34 billion revolving credit facility see note 23 information guarantee agreement associated atlantic coast pipeline’s revolving credit facility dominion energy recorded liability 30 million fair value guarantee inception associated guarantee agreement fair value estimated using discounted cash flow method considered level 3 fair value measurement due use significant unobservable input related interest rate differential interest rate charged guaranteed revolving credit facility estimated interest rate would charged loan guaranteed dominion energy gas fourth quarter 2018 subsequent announcement sale dominion energy’s interest blue racer dominion energy gas conducted review strategic alternatives remaining gathering processing assets dgp based evaluation dgp’s longlived assets recoverability probability weighted approach dominion energy gas determined assets impaired result evaluation dominion energy gas recorded charge 219 million 165 million aftertax discontinued operations consolidated statements income reflected corporate segment write dgp’s property plant equipment estimated fair value 190 million charge recorded impairment assets related charges dominion energy’s consolidated statements income reflected corporate segment fair value property plant equipment estimated using income approach market approach valuation considered level 3 fair value measurement due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risks inherent future cash flows market prices recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion energy dominion energy gas’ pension postretirement benefit plans presented note 22 dominion energy following table presents dominion energy’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts excludes 274 million 220 million assets december 31 2019 2018 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change dominion energy’s assets liabilities measured fair value recurring basis included level 3 fair value category combined notes consolidated financial statements continued virginia power following table presents virginia power’s quantitative information level 3 fair value measurements december 31 2019 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trusts excludes 159 million 160 million assets december 31 2019 2018 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2019 2018 2017 dominion energy gas following table presents dominion energy gas’ assets liabilities derivatives measured fair value recurring basis hierarchy level including current noncurrent portions following table presents net change dominion energy gas’ derivative assets liabilities measured fair value recurring basis included level 3 fair value category changes assets liabilities measure fair value recurring basis included level 3 fair value category year ended december 31 2019 combined notes consolidated financial statements continued gains losses included earnings level 3 fair value category years ended december 31 2019 2018 2017 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2019 2018 2017 fair value financial instruments substantially companies’ financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash restricted cash equivalents customer receivables affiliated receivables shortterm debt affiliated current borrowings payables affiliates accounts payable representative fair value shortterm nature instruments companies’ financial instruments recorded fair value carrying amounts estimated fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issuances shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes current portions included securities due within one year amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments december 31 2019 2018 includes valuation certain fair value hedges associated dominion energy’s fixed rate debt 4 million 20 million respectively 3 carrying amount includes current portions included securities due within one year amounts represent unamortized debt issuance costs discount premium 4 carrying amount includes current portions included securities due within one year amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments note 7 derivatives hedge accounting activities see note 2 companies’ accounting policies objectives strategies using derivative instruments see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross companies’ consolidated balance sheets dominion energy’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared virginia power dominion energy gas’ derivative contracts include overthecounter transactions overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit cases forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized companies’ consolidated balance sheets well letters credit forms security included tables subject offset master netting similar arrangements would reduce net exposure see note 24 information regarding creditrelated contingent features companies derivative instruments dominion energy balance sheet presentation tables present dominion energy’s derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid 1 excludes 2 million 7 million derivative assets december 31 2019 2018 respectively subject master netting similar arrangements 1 excludes 5 million 1 million derivative liabilities december 31 2019 2018 respectively subject master netting similar arrangements combined notes consolidated financial statements continued volumes following table presents volume dominion energy’s derivative activity december 31 2019 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls 3 maturity determined based final settlement period aoci following table presents selected information related gains losses cash flow hedges included aoci dominion energy’s consolidated balance sheet december 31 2019 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates fair value hedges derivative instruments designated qualify fair value hedge gain loss derivative instrument well offsetting loss gain hedged item attributable hedged risk recognized current earnings presented line item gains losses derivatives fair value hedge relationships immaterial years ended december 31 2019 2018 2017 following table presents amounts recorded balance sheet related cumulative basis adjustments fair value hedges 1 includes 397 million 892 million related discontinued hedging relationships december 31 2019 december 31 2018 respectively 2 includes 3 million 8 million hedging adjustments discontinued hedging relationships december 31 2019 december 31 2018 respectively fair value gains losses derivative instruments following tables present fair values dominion energy’s derivatives presented consolidated balance sheets combined notes consolidated financial statements continued 1 current derivative assets presented current assets dominion energy’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets dominion energy’s consolidated balance sheets 3 current derivative liabilities presented current liabilities dominion energy’s consolidated balance sheets 4 noncurrent derivative liabilities presented deferred credits liabilities dominion energy’s consolidated balance sheets following tables present gains losses dominion energy’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion energy’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income 3 amounts recorded dominion energy’s consolidated statements income classified interest related charges 4 amounts recorded dominion energy’s consolidated statements income classified income 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income virginia power balance sheet presentation tables present virginia power’s derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid 1 excludes 3 million 26 million derivative assets december 31 2019 2018 respectively subject master netting similar arrangements 1 excludes 44 million 9 million derivative liabilities december 31 2019 2018 respectively subject master netting similar arrangements combined notes consolidated financial statements continued volumes following table presents volume virginia power’s derivative activity december 31 2019 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 maturity determined based final settlement period aoci following table presents selected information related losses cash flow hedges included aoci virginia power’s consolidated balance sheet december 31 2019 amounts reclassified aoci earnings generally offset recognition hedged transactions eg interest payments earnings thereby achieving realization interest rates contemplated underlying risk management strategies vary expected amounts presented result changes interest rates fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets virginia power’s consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases combined notes consolidated financial statements continued dominion energy gas balance sheet presentation tables present dominion energy gas’ derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid volumes following table presents volume dominion energy gas’ derivative activity december 31 2019 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 maturity determined based final settlement period oci following table presents selected information related gains losses cash flow hedges included aoci dominion energy gas’ consolidated balance sheet december 31 2019 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates fair value gains losses derivative instruments following table presents fair values dominion energy gas’ derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion energy gas’ consolidated balance sheets 2 current derivative liabilities presented current liabilities dominion energy gas’ consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities dominion energy gas’ consolidated balance sheets 4 current derivative assets include 2 million current assets remainder recorded current assets discontinued operations dominion energy gas’ consolidated balance sheets combined notes consolidated financial statements continued following tables present gains losses dominion energy gas’ derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion energy gas’ consolidated statements income 2 amounts recorded dominion energy gas’ consolidated statements income classified interest related charges 3 amounts recorded dominion energy gas’ consolidated statements income classified income note 8 earnings per share following table presents calculation dominion energy’s basic diluted eps 1 dilutive securities 2018 consist primarily forward sale agreements effective april 2018 december 2018 see notes 17 19 information 2019 equity units potentially dilutive securities forward stock purchase contracts included within 2019 equity units excluded calculation diluted eps year ended december 31 2019 dilutive stock price threshold met series preferred stock included within 2019 equity units excluded effect dilutive securities within diluted eps fair value adjustment reflected within net income attributable dominion energy calculation diluted eps year ended december 31 2019 based upon expectation conversion settled cash rather issuance dominion energy common stock 2016 equity units potentially dilutive securities excluded calculation diluted eps years ended december 31 2019 2018 2017 dilutive stock price threshold met dominion energy midstream convertible preferred units potentially dilutive securities effect calculation diluted eps years ended december 31 2018 2017 calculating diluted eps connection dominion energy midstream convertible preferred units dominion energy applied ifconverted method note 9 investments dominion energy equity debt securities rabbi trust securities equity fixed income securities cash equivalents dominion energy’s rabbi trusts classified trading totaled 120 million 111 million december 31 2019 2018 respectively decommissioning trust securities dominion energy holds equity fixed income securities insurance contracts cash equivalents nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion energy’s decommissioning trust funds summarized 1 unrealized gains losses equity securities included income nuclear decommissioning trust regulatory liability discussed note 2 unrealized gains losses fixed income securities included aoci nuclear decommissioning trust regulatory liability discussed note 2 3 includes pending purchases securities 1 million december 31 2019 4 fair value securities unrealized loss position 298 million 833 million december 31 2019 2018 respectively portion unrealized gains losses relates equity securities held within dominion energy’s nuclear decommissioning trusts summarized 1 included income nuclear decommissioning trust regulatory liability discussed note 2 fair value dominion energy’s fixed income securities readily determinable fair values held nuclear decommissioning trust funds december 31 2019 contractual maturity follows combined notes consolidated financial statements continued presented selected information regarding dominion energy’s equity fixed income securities readily determinable fair values held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 dominion energy recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses fixed income securities 5 million december 31 2017 virginia power virginia power holds equity fixed income securities cash equivalents nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 unrealized gains losses equity securities included income nuclear decommissioning trust regulatory liability discussed note 2 unrealized gains losses fixed income securities included aoci nuclear decommissioning trust regulatory liability discussed note 2 3 includes pending sales securities 6 million december 31 2018 4 fair value securities unrealized loss position 185 million 404 million december 31 2019 2018 respectively portion unrealized gains losses relates equity securities held within virginia power’s nuclear decommissioning trusts summarized 1 included income nuclear decommissioning trust regulatory liability discussed note 2 fair value virginia power’s fixed income securities readily determinable fair values held nuclear decommissioning trust funds december 31 2019 contractual maturity follows presented selected information regarding virginia power’s equity fixed income securities readily determinable fair values held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses fixed income securities 2 million december 31 2017 equity method investments dominion energy investments dominion energy account equity method accounting follows 1 liability less 1 million associated nedpower recorded deferred credits liabilities consolidated balance sheets december 31 2018 see additional discussion nedpower 2 dominion energy 80 million unfunded commitment made align rng end 2022 dominion energy’s equity earnings investments totaled 168 million 197 million 14 million 2019 2018 2017 respectively included income dominion energy’s consolidated statements income dominion energy received distributions investments 112 million 209 million 419 million 2019 2018 2017 respectively december 31 2019 2018 net difference carrying amount dominion energy’s investments share underlying equity net assets 110 million 161 million respectively december 31 2019 differences comprised 159 million equity method goodwill amortized net 49 million basis difference dominion energy’s investments fowler amortized useful lives underlying assets atlantic coast pipeline amortized term credit facility unfunded commitment made align rng december 31 2018 differences comprised 146 million equity method goodwill amortized 15 million related basis differences dominion energy’s investments wind projects amortized useful lives underlying assets atlantic coast pipeline amortized term credit facility atlantic coast pipeline september 2014 dominion energy along duke southern announced formation atlantic coast pipeline atlantic coast pipeline partnership agreement includes provisions allow dominion energy option purchase additional ownership interest atlantic coast pipeline maintain leading ownership percentage december 31 2019 members hold following membership interests dominion energy 48 duke 47 southern 5 atlantic coast pipeline focused constructing approximately 600mile natural gas pipeline running west virginia north carolina subsidiaries affiliates three members plan customers pipeline 20year contracts atlantic coast pipeline considered equity method investment dominion energy ability exercise significant influence control investee see note 16 information dominion energy recorded contributions 186 million 414 million 310 million 2019 2018 2017 respectively atlantic coast pipeline december 31 2019 dominion energy 7 million contributions payable atlantic coast pipeline included within current liabilities consolidated balance sheets dominion energy receive distributions atlantic coast pipeline 2019 received distributions 36 million 270 million 2018 2017 respectively october 2017 dominion energy entered guarantee agreement support portion atlantic coast pipeline’s obligation credit facility see note 23 information atlantic coast pipeline project subject challenges federal courts including among others challenges atlantic coast pipeline project’s biological opinion incidental take statement permits providing right way crossings certain federal lands us army corps engineers 404 permit air permit compressor station buckingham virginia ferc order approving cpcn challenges alleges noncompliance part federal state permitting authorities adverse ecological consequences atlantic coast pipeline project permitted proceed since december 2018 notable developments challenges include stay december 2018 issued us court appeals fourth circuit court’s july 2019 vacatur biological opinion incidental take statement stay subsequent vacatur halted project construction activity us court appeals fourth circuit decisions vacating permits cross certain federal forests air permit compressor station buckingham virginia us court appeals fourth circuit’s remand us army corps engineers atlantic coast pipeline’s huntington district 404 verification us court appeals fourth circuit’s remand national park service atlantic coast pipeline’s blue ridge parkway rightofway atlantic coast pipeline continues vigorously defend challenges coordinating federal state authorities obtain new authorizations atlantic coast pipeline continues coordinating working us fish wildlife service parties combined notes consolidated financial statements continued preparation reissuance biological opinion incidental take statement june 2019 solicitor general us atlantic coast pipeline filed petitions requesting supreme court us hear case regarding appalachian trail crossing february 2020 supreme court us heard oral arguments case expected issue ruling later june 2020 favorable ruling received atlantic coast pipeline also evaluating possible legislative administrative remedies issue given legal challenges described ongoing discussions customers project construction expected completed end 2021 full inservice early 2022 project costs estimated approximately 8 billion excluding financing costs atlantic coast pipeline reached agreements principle major customers amend contracted rate share certain delay cost increases pending certain regulatory approvals project construction activities schedules costs also subject uncertainty due permitting andor work delays including due judicial regulatory action abnormal weather conditions could result cost schedule modifications suspension afudc atlantic coast pipeline andor impairment charges potentially material dominion energy’s cash flows financial position andor results operations february 2020 dominion energy entered agreements southern acquire 5 membership interest atlantic coast pipeline 100 ownership interest pivotal lng inc approximately 175 million aggregate plus certain purchase price adjustments pivotal lng inc includes 50 noncontrolling interest jax lng llc lng supplier florida serving growing marine truck lng markets acquisitions expected close second quarter 2020 following completion acquisition dominion energy 53 noncontrolling membership interest atlantic coast pipeline continue reflected equity method investment power direct activities significant atlantic coast pipeline shared duke blue racer december 2018 dominion energy sold 50 limited partnership interest blue racer upfront cash consideration 105 billion additional consideration 150 million subject increase interest costs effective march 2019 payable upon purchaser’s availability cash additional consideration recorded fair value 150 million date sale following discounted cash flow model included within receivables consolidated balance sheets december 31 2018 valuation considered level 3 fair value measurement due use judgment unobservable inputs including projected timing amount future cash flows discount rate reflecting risks inherent future cash flows result sale dominion energy recognized gain 546 million 390 million aftertax included income consolidated statements income year ended december 31 2018 addition purchaser agreed pay additional consideration contingent upon achievement certain financial performance milestones blue racer 2019 2021 pursuant purchase agreement aggregate exceed 300 million represents gain contingency result dominion energy recognize additional gain unless consideration realizable first quarter 2019 dominion energy received 151 million additional consideration including applicable interest connection sale blue racer achieve 2019 financial performance milestones set forth sale agreement fowler ridge nedpower fourth quarter 2017 dominion energy recorded charge 126 million 76 million aftertax income consolidated statements income reflecting share longlived asset impairment property plant equipment recorded nedpower resulted losses excess dominion energy’s investment balance dominion energy recorded excess losses due commitment provide financial support nedpower resulting liability 17 million december 31 2017 recorded deferred credits liabilities consolidated balance sheets result impairment recorded nedpower dominion energy evaluated equity method investment fowler ridge similar windpowered merchant generation facility determined fair value thantemporarily impaired recorded impairment charge 32 million 20 million aftertax income consolidated statements income fair value 81 million estimated using discounted cash flow method considered level 3 fair value measurement due use significant unobservable inputs related timing amount future equity distributions based investee’s future wind generation operating costs wrangler september 2019 dominion energy entered agreement form wrangler partnership interstate gas supply inc wrangler operate nonregulated natural gas retail energy marketing business dominion energy contributing nonregulated retail energy marketing operations interstate gas supply inc contributing cash dominion energy 20 noncontrolling ownership interest wrangler accounted equity method investment dominion energy ability exercise significant influence control investee initial contribution consisting semi closed december 2019 dominion energy received 301 million cash proceeds 20 noncontrolling ownership interest wrangler initial fair value 75 million estimated using market approach valuation considered level 2 fair value measurement given based agreedupon sales price connection transaction dominion energy recorded gain 147 million net 73 million writeoff goodwill presented gains sales assets associated tax expense 82 million consolidated statement income next two years terms agreement dominion energy expects contribute remaining nonregulated retail energy marketing operations wrangler result contributions dominion energy receive additional cash consideration based upon future financial performance future contributions occur dominion energy expects retain 20 noncontrolling ownership interest wrangler december 31 2019 41 million assets associated dominion energy’s residential contracts contributed wrangler december 2020 classified held sale included current assets consolidated balance sheet related disposal group primarily comprised customer receivables inventories activity relating wrangler recorded within gas transmission storage catalyst old river hydroelectric limited partnership september 2018 dominion energy completed sale 25 limited partnership interest catalyst old river hydroelectric limited partnership received proceeds 91 million sale resulted gain 87 million 63 million aftertax included income dominion energy’s consolidated statement income dominion energy gas investments dominion energy gas account equity method accounting follows dominion energy gas’ equity earnings investment totaled 43 million 54 million 47 million 2019 2018 2017 respectively dominion energy gas received distributions investment 74 million 64 million 55 million 2019 2018 2017 respectively december 31 2019 2018 carrying amount dominion energy gas’ investment exceeded share underlying equity net assets 146 million difference reflects equity method goodwill amortized summarized financial information provided dominion energy gas iroquois 100 iroquois december 31 2019 2018 years ended december 31 2019 2018 2017 presented summarized financial information provided dominion energy gas white river hub 100 white river hub december 31 2019 2018 years ended december 31 2019 2018 2017 presented atlantic coast pipeline deti provides services atlantic coast pipeline totaled 103 million 203 million 129 million 2019 2018 2017 respectively included operating revenue dominion energy dominion energy gas’ consolidated statements income amounts receivable related services 7 million 13 million december 31 2019 2018 respectively composed entirely accrued unbilled revenue included receivables dominion energy gas’ consolidated balance sheets combined notes consolidated financial statements continued note 10 property plant equipment major classes property plant equipment respective balances companies follows jointlyowned power stations dominion energy virginia power’s proportionate share jointlyowned power stations december 31 2019 follows 1 units jointly owned virginia power 2 unit jointly owned dominion energy coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion energy virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income sale certain retail energy marketing assets october 2017 dominion energy entered agreement sell certain assets associated nonregulated retail energy marketing operations total consideration 143 million subject customary approvals certain adjustments december 2017 first phase agreement closed 79 million resulted recognition 78 million 48 million aftertax benefit included gains sales assets dominion energy’s consolidated statements income october 2018 second phase agreement closed 63 million resulted recognition 65 million 49 million aftertax benefit included gains sales assets dominion energy’s consolidated statements income pursuant agreement dominion energy entered commission agreement buyer upon first closing december 2017 buyer pay commission connection right use dominion energy’s brand marketing materials services tenyear term sale certain merchant generation facilities december 2018 dominion energy completed sale fairless manchester total consideration 12 billion subject customary closing adjustments dominion energy recognized gain 210 million 198 million aftertax included gains sales assets dominion energy’s consolidated statements income aftertax gain reflects dominion energy’s assessment morelikelythannot conclusion utilization state tax incentives reduce income tax expense associated sale facilities acquisition solar projects following table presents acquisitions virginia power solar projects virginia power claimed expects claim federal investment tax credits projects 1 includes acquisition costs following table presents acquisitions dominion energy solar projects dominion energy claimed expects claim federal investment tax credits projects 1 includes acquisition costs assignment tower rental portfolio virginia power rents space certain electric transmission towers various wireless carriers communications antennas equipment march 2017 virginia power sold rental portfolio vertical bridge towers ii llc 91 million cash proceeds subject virginia power’s fercregulated tariff required return half proceeds customers virginia power recorded 7 million 6 million operating revenue 2019 2018 respectively 11 million income 2017 22 million remaining recognized ratably 2023 assignments shale development rights december 2013 dominion energy gas closed agreements two natural gas producers convey time approximately 100000 acres marcellus shale development rights underneath several natural gas storage fields agreements provided payments dominion energy gas subject customary adjustments approximately 200 million period nine years overriding royalty interest gas produced acreage 2013 2016 dominion energy gas received approximately 116 million cash proceeds amendments closed immediate conveyance approximately 9000 acres 32 partial interest 70000 acres marcellus shale development rights resulted recognition 78 million gains august 2017 dominion energy gas natural gas producer signed amendment agreement included finalization contractual matters previous conveyances conveyance dominion energy gas’ remaining 68 interest approximately 70000 acres elimination dominion energy gas’ overriding royalty interest gas produced acreage dominion energy gas received total consideration 130 million 65 million received 2017 65 million received september 2018 connection final conveyance result amendment 2017 dominion energy gas recognized 56 million 33 million aftertax gain included gains sales assets dominion energy gas’ consolidated statements income associated finalization contractual matters previous conveyances 9 million 5 million aftertax gain included gains sales assets dominion energy gas’ consolidated statements income associated elimination overriding royalty interest 2018 65 million 47 million aftertax gain included gains sales assets dominion energy gas’ consolidated statements income associated final conveyance acreage november 2014 dominion energy gas closed agreement natural gas producer convey time approximately 24000 acres marcellus shale development rights underneath one natural gas storage fields agreement provided payments dominion energy gas subject customary adjustments approximately 120 million period four years overriding royalty interest gas produced acreage 2014 2016 dominion energy gas received approximately 70 million proceeds conveyance approximately 12000 acres well 50 interest approximately 4000 acres along overriding royalty interest resulted recognition 70 million gains july 2017 connection existing agreement dominion energy gas conveyed additional 50 interest approximately 2000 acres marcellus shale development rights received proceeds 5 million overriding royalty interest combined notes consolidated financial statements continued gas produced acreage transaction resulted 5 million 3 million aftertax gain gains included gains sales assets dominion energy gas’ consolidated statements income january 2018 dominion energy gas natural gas producer closed amendment agreement included conveyance dominion energy gas’ remaining 50 interest approximately 18000 acres elimination dominion energy gas’ overriding royalty interest gas produced acreage dominion energy gas received proceeds 28 million resulting approximately 28 million 20 million aftertax gain recorded gains sales assets dominion energy gas’ consolidated statements income march 2018 dominion energy gas closed agreement natural gas producer convey approximately 11000 acres utica point pleasant shale development rights underneath one natural gas storage fields agreement provided payment dominion energy gas subject customary adjustments 16 million march 2018 dominion energy gas received cash proceeds 16 million associated conveyance acreage resulting 16 million 12 million aftertax gain recorded gains sales assets dominion energy gas’ consolidated statements income june 2018 dominion energy gas closed amendment agreement natural gas producer elimination dominion energy gas’ overriding royalty interest gas produced approximately 9000 acres marcellus shale development rights underneath one natural gas storage fields previously conveyed december 2013 june 2018 dominion energy gas received proceeds 6 million associated transaction resulting 6 million 4 million aftertax gain recorded gains sales assets dominion energy gas’ consolidated statements income activity related shale development rights recorded within gas transmission storage note 11 goodwill intangible assets goodwill fourth quarter 2019 dominion energy realigned segments resulted formation five primary operating segments dominion energy gas finalized restructuring accounted reorganization entities common control historical information presented herein recast current segment presentation current structure dominion energy gas respect segment realignment goodwill reassigned affected reporting units operating segments using relative fair value allocation approach changes dominion energy’s dominion energy gas’ carrying amount segment allocation goodwill presented 1 goodwill amounts contain accumulated impairment losses 2 see note 3 discussion dominion energy’s acquisitions 3 see note 9 additional information intangible assets companies’ intangible assets subject amortization estimated useful lives dominion energy’s amortization expense intangible assets 106 million 82 million 80 million 2019 2018 2017 respectively 2019 addition intangible assets acquired scana combination dominion energy acquired 120 million intangible assets primarily representing software rightofuse assets estimated weightedaverage amortization period approximately 10 years amortization expense virginia power’s intangible assets 30 million 2019 31 million 2018 2017 2019 virginia power acquired 52 million intangible assets primarily representing software estimated weightedaverage amortization period 8 years dominion energy gas’ amortization expense intangible assets 11 million 2019 2018 9 million 2017 2019 dominion energy gas acquired 7 million intangible assets primarily representing software rightofuse assets estimated weightedaverage amortization period approximately 29 years components intangible assets follows annual amortization expense intangible assets estimated follows note 12 regulatory assets liabilities regulatory assets liabilities include following 1 reflects deferred fuel expenses virginia north carolina south carolina jurisdictions dominion energy’s electric generation operations 2 primarily reflects amounts expected collected owed gas customers dominion energy’s service territories associated current prospective rider projects including cep pir pipeline integrity management see note 13 information 3 reflects unrecovered overrecovered gas costs regulated gas operations recovered refunded filings applicable regulatory authority combined notes consolidated financial statements continued 4 reflects deferrals virginia power’s electric transmission ferc formula rate deferral costs associated certain current prospective rider projects net income taxes refundable 2017 tax reform act virginia power see note 13 information 5 result actions virginia commission first quarter 2019 regarding ratemaking treatment excess deferred taxes adoption 2017 tax reform act existing rate adjustment clauses virginia power recorded 29 million 22 million aftertax charge operating revenue consolidated statements income amounts probable returned customers 6 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 7 reflects expenditures desc associated nnd project pursuant scana merger approval order recovered desc electric service customers 20year period ending 2039 see note 3 information 8 reflects amounts recovered retail rates virginia payments virginia power make pjm tenyear period ending 2028 terms ferc settlement agreement may 2018 resolving pjm cost allocation matter 9 represents unrecognized pension postretirement employee benefit costs expected recovered refunded future rates generally expected remaining service period plan participants certain dominion energy’s rateregulated subsidiaries 10 2019 virginia power recorded charge 17 million 13 million aftertax impairment assets charges reflected corporate segment writeoff balance regulatory asset longer seeking recovery 11 reflects interest rate hedges recoverable refundable customers certain instruments settled related payments amortized interest expense life related debt weightedaverage useful life approximately 27 years december 31 2019 12 represents deferred depreciation accretion expense related legal obligations associated future retirement generation transmission distribution properties aros primarily relate desc’s electric generating facilities including summer expected recovered related property lives periods decommissioning may range approximately 105 years 13 costs reacquisition debt deferred amortized interest expense wouldbe remaining life reacquired debt reacquired debt costs weightedaverage life approximately 26 years december 31 2019 14 2019 desc purchased certain first mortgage bonds discussed note 18 result transactions desc incurred net costs including writeoffs unamortized discount premium debt issuance costs 270 million 15 primarily reflects legislation enacted virginia march 2019 requires ccr unit located certain virginia power stations closed removing ccrs approved landfill recycling beneficial reuse subject approval virginia commission amounts expected collected period 15 18 years commencing earlier 2021 virginia power entitled collect carrying costs expenditures made see note 23 additional information 16 rates charged customers dominion energy’s regulated businesses include provision cost future activities remove assets expected incurred time retirement 17 reflects amounts previously collected retail electric customers desc nnd project credited estimated 11year period connection scana merger approval order virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers virginia see notes 3 13 additional information 18 balance refundable customers related decrease revenue requirements recovery income taxes companies’ regulated electric generation electric natural gas distribution operations see notes 3 13 additional information 19 amounts recorded pass effect reduced income taxes 2017 tax reform act customers future periods reverse weighted average tax rate used build reserves remaining book life property net amounts recovered future rates pay income taxes become payable rate revenue provided recover afudc equity 20 reflects amounts refunded desc electric service customers 20year period ending 2039 associated monetization bankruptcy settlement agreement see note 3 additional information 21 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon applicable future decommissioning dominion energy’s utility nuclear generation stations excess related aros 22 reflects regulatory liability collection postretirement benefit costs allowed rates excess expense incurred 1 reflects deferred fuel expenses virginia north carolina jurisdictions virginia power’s generation operations 2 reflects deferrals virginia power’s electric transmission ferc formula rate deferral costs associated certain current prospective rider projects net income taxes refundable 2017 tax reform act virginia power see note 13 information 3 result actions virginia commission first quarter 2019 regarding ratemaking treatment excess deferred taxes adoption 2017 tax reform act existing rate adjustment clauses virginia power recorded 29 million 22 million aftertax charge operating revenue consolidated statements income amounts probable returned customers 4 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 5 reflects amounts recovered retail rates virginia payments virginia power make pjm tenyear period ending 2028 terms ferc settlement agreement may 2018 resolving pjm cost allocation matter 6 2019 virginia power recorded charge 17 million 13 million aftertax impairment assets charges reflected corporate segment writeoff balance regulatory asset longer seeking recovery 7 reflects interest rate hedges recoverable refundable customers certain instruments settled related payments amortized interest expense life related debt weightedaverage useful life approximately 24 years december 31 2019 8 primarily reflects legislation enacted virginia march 2019 requires ccr unit located certain virginia power stations closed removing ccr approved landfill recycling beneficial reuse subject approval virginia commission amounts expected collected period 15 18 years commencing earlier 2021 virginia power entitled collect carrying costs expenditures made see note 23 additional information 9 rates charged customers virginia power’s regulated businesses include provision cost future activities remove assets expected incurred time retirement 10 balance refundable customers related decrease revenue requirements recovery income taxes regulated electric generation distribution operations see note 13 additional information 11 charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers see note 13 additional information 12 amounts recorded pass effect reduced income taxes 2017 tax reform act customers future periods reverse weighted average tax rate used build reserves remaining book life property net amounts recovered future rates pay income taxes become payable rate revenue provided recover afudc equity 13 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aros 1 reflects unrecovered overrecovered gas costs regulated gas operations recovered refunded filings applicable regulatory authority 2 current regulatory assets presented current assets dominion energy gas’ consolidated balance sheets 3 represents unrecognized pension postretirement employee benefit costs expected recovered refunded future rates generally expected remaining service period plan participants certain dominion energy gas’ rateregulated subsidiaries 4 reflects interest rate hedges recoverable refundable customers certain instruments settled related payments amortized interest expense life related debt weighted average useful life approximately 30 years 5 rates charged customers dominion energy gas’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 6 current regulatory liabilities presented current liabilities dominion energy gas’ consolidated balance sheets 7 amounts recorded pass effect reduced income taxes 2017 tax reform act customers future periods reverse weighted average tax rate used build reserves remaining book life property net amounts recovered future rates pay income taxes become payable rate revenue provided recover afudc equity 8 reflects regulatory liability collection postretirement benefit costs allowed rates excess expense incurred december 31 2019 dominion energy virginia power dominion energy gas’ regulatory assets include 33 billion 18 billion 46 million respectively expect earn return applicable recovery period exception certain items discussed majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business companies involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders andor involve significant factual issues need resolved possible companies estimate range possible loss regulatory matters companies cannot estimate statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties may represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect companies’ financial position liquidity results operations ferc electric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities virginia power purchases market based rate authority sells electricity pjm wholesale market combined notes consolidated financial statements continued wholesale purchasers virginia north carolina desc sells electricity wholesale purchasers balancing authority area electric cost based tariff wholesale purchasers outside balancing authority area market based rate authority dominion energy’s merchant generators sell electricity pjm caiso isone wholesale markets wholesale purchasers states virginia north carolina indiana connecticut tennessee georgia california south carolina utah dominion energy’s marketbased sales tariffs authorized ferc pursuant ferc authority sell qualified facility addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return investment electric transmission infrastructure march 2010 odec north carolina electric membership corporation filed complaint ferc virginia power claiming among issues incremental costs undergrounding certain transmission line projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate settlement issues raised complaint approved ferc may 2012 march 2014 ferc issued order excluding virginia power’s transmission rates wholesale transmission customers located outside virginia incremental costs undergrounding certain transmission line projects ferc found reasonable nonvirginia wholesale transmission customers allocated incremental costs undergrounding facilities projects direct result virginia legislation virginia commission pilot programs intended benefit citizens virginia order retroactively effective march 2010 cause reallocation costs charged wholesale transmission customers loads outside virginia wholesale transmission customers loads virginia ferc determined sufficient evidence record determine magnitude underground increment held hearing determine appropriate amount undergrounding cost allocated wholesale transmission customer virginia october 2017 ferc issued order determining calculation incremental costs undergrounding transmission projects affirming costs recovered wholesale transmission customers loads located virginia ferc directed virginia power rebill wholesale transmission customers retroactively march 2010 within 30 days proceeding becomes final longer subject rehearing november 2017 virginia power north carolina electric membership corporation wholesale transmission customers filed petitions rehearing july 2018 ferc denied rehearing requests related october 2017 order determining calculation undergrounding costs several parties appealed ferc’s decision us court appeals dc circuit december 2019 us court appeals dc circuit denied appeal january 2019 ferc issued order denying pjm’s request waive certain provisions pjm tariff regarding liquidation portfolio ftrs owned greenhat defaulted financial obligations result ferc’s order pjm required use existing tariff provisions liquidate greenhat’s ftr portfolio allocate resulting costs pjm members february 2019 pjm filed request clarification rehearing ferc also february 2019 virginia power certain pjm members filed request rehearing ferc june 2019 ferc established hearing settlement proceedings address issues raised pjm’s request clarification rehearing october 2019 pjm submitted settlement offer ferc approved ferc december 2019 based terms settlement impact virginia power expected immaterial fercgas july 2017 ferc audit staff communicated deti substantially completed audit deti’s compliance accounting reporting requirements ferc’s uniform system accounts provided description matters preliminary recommendations november 2017 ferc audit staff issued audit report could potential result adjustments could material dominion energy dominion energy gas’ results operations december 2017 deti provided response audit report deti requested ferc review contested findings submitted plan compliance uncontested portions report connection one uncontested issue deti recognized charge 15 million 9 million aftertax recorded within impairment assets related charges dominion energy dominion energy gas’ consolidated statements income reflected corporate segment 2017 writeoff balance regulatory asset originally established 2008 longer considered probable recovery deti recognized charge 129 million 94 million aftertax recorded primarily within impairment assets related charges dominion energy dominion energy gas’ consolidated statements income reflected corporate segment 2018 disallowance plant originally established beginning 2012 resolution one matter ferc pending final resolution audit process determination ferc management unable estimate potential impact remaining finding amounts recognized 2017 tax reform act subsequent enactment 2017 tax reform act companies’ state regulators issued orders requesting public utilities evaluate total tax impact entity’s cost service accrue regulatory liability attributable benefits reduction corporate income tax rate certain orders requested public utilities submit response state regulatory commissions detailing total tax impact utility’s cost service companies began reserve impacts costofservice reduction regulatory liabilities january 2018 continue rates reset pursuant state regulators’ approvals companies recorded reasonable estimate net income taxes refundable future rates jurisdictions operate currently assessing actions decisions could material impact companies’ results operations financial condition andor cash flows september 2018 virginia commission issued order directing virginia power submit filing quantifying impacts 2017 tax reform act advance april 1 2019 implementation required legislation filing submitted october 2018 january 2019 virginia power filed updated testimony proposed annual revenue reduction approximately 171 million additionally virginia power proposed issue onetime bill credit customers within 90 days effective date trueup difference final revenue reduction period january 1 2018 march 31 2019 125 million interim rate reduction implemented july 1 2018 march 2019 virginia commission issued order approving annual revenue reduction approximately 183 million effective april 2019 ordered virginia power implement onetime customer credit july 1 2019 second quarter 2019 virginia power refunded customers 132 million august 2018 virginia power filed ferc waive protocols begin reflecting projected tax reform benefits approximately 100 million transmission formula rate prior normal formula rate process ferc granted waiver amounts began reflected customer billings november 2018 reflecting adjustment effective january 1 2018 october 2018 north carolina commission issued order requesting companies file reduce base rates expeditiously virginia power made compliance filing october 2018 submitted annual base rate revenue decrease approximately 14 million effective early 2019 virginia power also proposed issue onetime bill credit early 2019 2018 tax savings collected provisionally customers march 2019 north carolina commission issued order approving virginia power’s proposed annual base rate revenue decrease onetime bill credit second quarter 2019 virginia power refunded customers 13 million march 2019 questar gas filed utah wyoming commissions impact excess deferred income taxes resulting 2017 tax reform act questar gas proposed return 2018 amortization excess deferred income taxes customers incorporate remaining excess deferred income tax impact next general rate cases jurisdiction may 2019 utah commission issued order approving questar gas’ proposal pass back 2018 amortization excess deferred income taxes twelve months beginning june 2019 matter wyoming commission pending october 2018 ohio commission issued order requiring rateregulated utilities file application reflecting impact 2017 tax reform act current rates january 1 2019 december 2018 east ohio filed application proposing approach establishing rates charges return tax reform benefits customers december 2019 ohio commission issued order approving customer credits approximately 600 million shared customers primarily remaining book life property excess deferred income taxes relate addition east ohio reduce rates approximately 19 million per year account 2017 tax reform act’s impact equity return component rates charged customers connection scana merger approval order south carolina commission approved desc’s provision approximately 100 million bill credits related 2017 tax reform act’s impact retail electric customer rates period beginning january 2018 january 2019 credits included bills rendered first billing cycle february 2019 addition south carolina commission approved tax rider whereby effects reduction corporate income tax rate resulting 2017 tax reform act benefit retail electric customers tax rider reduced base rates retail electric customers approximately 63 million 2019 expected reduce rates 67 million 2020 october 2018 south carolina commission issued order approving adjustment desc’s natural gas rate schedules terms natural gas rate stabilization act reflect reduction federal corporate tax rate arising 2017 tax reform act approved natural gas rate schedules also included tax reform rate rider refund certain income tax amounts previously collected customers lower rates representing 20 million decreased revenue requirement became effective bills rendered first billing cycle november 2018 december 2018 north carolina commission issued order approving psnc’s proposed adjustments customer rates representing 13 million decreased revenue requirement reflect reduction federal corporate tax rate arising 2017 tax reform act lower rates became effective service rendered january 1 2019 amounts collected customer rates 2018 amounts arising excess deferred income taxes recorded regulatory liabilities must considered psnc’s next general rate case proceeding three years whichever sooner reduction federal corporate tax rate impact psnc’s various rate riders addressed future proceedings related riders 2018 dominion energy’s fercregulated pipelines including accounted equity method investments filed form 501g ferc dominion energy overthrust pipeline llc white river hub dominion energy questar pipeline deti decg cove point iroquois reached resolution ferc waiver ferc terminating 501g proceeding settlement result material impact results operations financial condition andor cash flows dominion energy dominion energy gas combined notes consolidated financial statements continued regulatory matters virginia regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs underground distribution lines environmental compliance conservation energy efficiency programs renewable energy programs nuclear license renewals also contains statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission amended provides enhanced returns capital expenditures specific newlyproposed generation projects virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows grid transformation security act 2018 march 2018 gtsa reinstated base rate reviews triennial basis first review quadrennial review occurring virginia power 2021 four successive 12month test periods beginning january 1 2017 ending december 31 2020 review virginia power occur one year earlier regulation act legislation enacted february 2015 triennial review proceedings earnings 70 basis points utility’s authorized roe might refunded customers served basis reduction future rates may reduced virginia commission approved investment amounts qualifying solar wind generation facilities electric distribution grid transformation projects virginia power elects include customer credit reinvestment offset legislation declares electric distribution grid transformation projects public interest provides costs projects may recovered rate adjustment clause subject customer credit reinvestment offset costs subject customer credit reinvestment offset may recovered base rates service life projects may included base rates future triennial review proceedings triennial review virginia commission determines utility’s earnings 70 basis points authorized roe base rates subject reduction prospectively customer refunds would due unless total customer credit reinvestment offset elected utility equals exceeds amount earnings excess 70 basis points 2021 review rate reduction limited 50 million legislation also includes provisions requiring virginia power provide current customers onetime rate credits totaling 200 million reduce base rates reflect reductions income tax expense resulting 2017 tax reform act result virginia power incurred 215 million 160 million aftertax charge connection legislation including impact certain nonjurisdictional customers follow virginia power’s jurisdictional customer rate methodology july 2018 january 2019 virginia power credited 138 million 77 million respectively current customers’ bills addition virginia power reduced base rates annual basis 125 million effective july 2018 reflect estimated effect 2017 tax reform act march 2019 virginia commission directed annual revenue reduction 183 million rates generation distribution services pursuant gtsa effective april 2019 july 2018 virginia power filed petition virginia commission approval first three years tenyear plan electric distribution grid transformation projects authorized gtsa first three years plan virginia power proposed focus following seven foundational components overall grid transformation plan smart meters ii customer information platform iii reliability resilience iv telecommunications infrastructure v cyber physical security vi predictive analytics vii emerging technology total estimated capital investment 20192021 816 million proposed operations maintenance expenses 102 million january 2019 virginia commission issued final order approving capital spending first three years plan totaling 68 million cyber physical security related telecommunications infrastructure phase ia virginia commission declined approve remainder proposed components first three years plan proposed spending found reasonable prudent based record proceeding september 2019 virginia power filed revised plan includes six components smart meters ii customer information platform iii grid improvement projects iv telecommunications infrastructure v cyber security vi smart charging electric vehicle infrastructure pilot program phase ib phase ib total proposed capital investment 2019 2021 503 million proposed operations maintenance investment 78 million matter pending regulation act march 2019 virginia power filed application virginia commission determine general roe virginia power’s nontransmission rate adjustment clauses purposes determining virginia power’s base rate earnings 2021 quadrennial review four successive 12month test periods beginning january 1 2017 ending december 31 2020 application supported 1075 roe rate adjustment clauses quadrennial review period november 2019 virginia commission approved 92 general roe virginia power virginia fuel expenses may 2019 virginia power filed annual fuel factor virginia commission recover estimated 15 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2019 projected june 30 2019 recovered balance 124 million virginia power’s proposed fuel rate represented fuel revenue decrease 192 million applied projected kilowatthour sales period july 1 2019 june 30 2020 subsequently may 2019 virginia power revised fuel factor filing reduce projected june 30 2019 underrecovered balance 107 million fuel revenue decrease 254 million august 2019 virginia commission approved virginia power’s fuel rate february 2020 virginia power filed annual fuel factor virginia commission recover estimated 12 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2020 projected overrecovery approximately 81 million prior year balance june 30 2020 virginia power requested new fuel factor rate implemented interim basis two months early beginning may 1 2020 virginia power’s proposed fuel rate represents fuel revenue decrease approximately 393 million applied projected kilowatthour sales rate year beginning may 1 2020 matter pending battery storage pilot august 2019 virginia power filed application virginia commission participate pilot program electric power storage batteries includes three projects deployment battery energy storage systems virginia power also requested amended cpcn construct operate battery energy storage system scott solar projects estimated cost approximately 35 million february 2020 virginia commission approved request solar facility projects • july 2018 virginia power filed application virginia commission cpcns construct two solar facilities colonial trail west spring grove 1 estimated cost approximately 410 million excluding financing costs colonial trail west commenced commercial operations december 2019 spring grove 1 expected commence commercial operations fourth quarter 2020 virginia power also applied approval rider us3 associated projects proposed 10 million total revenue requirement rate year beginning june 1 2019 january 2019 virginia commission issued final order granting cpcns construct solar facilities subject 20year performance guarantee facilities 25 solar capacity factor normalized force majeure events april 2019 virginia commission approved rider us3 • july 2019 virginia power filed application virginia commission cpcn construct sadler solar estimated cost approximately 146 million excluding financing costs sadler solar expected commence commercial operations subject regulatory approvals associated project fourth quarter 2020 virginia power also applied approval rider us4 associated project proposed 9 million total revenue requirement rate year beginning june 1 2020 january 2020 virginia commission issued final order granting cpcn construct sadler solar subject 20 year performance guarantee facility 22 solar capacity factor normalized force majeure events matter regarding rider us4 pending rate adjustment clauses discussion significant riders associated various virginia power projects • virginia commission previously approved rider t1 concerning transmission rates may 2019 virginia power proposed 920 million total revenue requirement consisting 474 million transmission component virginia power’s base rates 446 million rider t1 rate year beginning september 1 2019 total revenue requirement represents 271 million increase versus revenues produced rate year current rates july 2019 virginia commission approved filing • virginia commission previously approved rider u conjunction cost recovery move certain electric distribution facilities underground authorized virginia legislation october 2019 virginia commission approved virginia power’s proposed fourth phase conversions totaling 123 million total 52 million revenue requirement rate year beginning february 1 2020 continuing recovery previously approved phase conversions proposed fourth phase conversions • virginia commission previously approved riders c1a c2a c3a connection cost recovery dsm programs december 2019 virginia power filed petition approve additional 10 new energy efficiency programs one new demand response dsm program five years subject future extension 186 million cost cap proposed total 60 million revenue requirement rate year beginning september 1 2020 total revenue requirement represents 11 million increase previous year • december 2018 virginia power filed petition requesting approval rider e proposed 114 million total revenue requirement rate year beginning november 1 2019 august 2019 virginia commission issued order approving part denying part petition result virginia power recorded 21 million 16 million aftertax charge impairment assets charges consolidated statements income three nine months ended september 30 2019 writeoff certain disallowed environmental property plant equipment regulatory assets august 2019 virginia commission granted virginia power’s petition reconsideration disallowed amount stayed order issued earlier august 2019 october 2019 virginia commission approved virginia power’s request implement total revenue requirement 104 million interim basis subject trueup pending resolution petition reconsideration november 2019 virginia commission denied petition reconsideration 104 million total revenue requirement remains effect • additional significant riders associated various virginia power projects follows combined notes consolidated financial statements continued coastal virginia offshore wind project november 2018 virginia power received approval virginia commission petition seeking prudency determination provided gtsa respect proposed coastal virginia offshore wind pilot project consisting two 6 mw wind turbine generators located approximately 27 miles coast virginia beach virginia federal waters cpcn generation tie line connecting generators shore project expected cost approximately 300 million placed service end 2020 electric transmission projects november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton february 2019 transmission line project placed service march 2019 us court appeals dc circuit issued order vacating permit us army corps engineers issued july 2017 ordered us army corps engineers full environmental impact study project april 2019 virginia power us army corps engineers filed petitions rehearing us court appeals dc circuit asking permit us army corps engineers remain effect environmental impact study performed may 2019 us court appeals dc circuit denied request rehearing ordered us district court dc circuit consider issue ruling whether permit vacated us army corps engineers’ preparation environmental impact statement november 2019 us district court dc circuit issued order allowing permit remain effect environmental impact study performed matter pending additional significant virginia power electric transmission projects approved applied follows north carolina regulation north carolina base rate case march 2019 virginia power filed base rate case schedules north carolina commission virginia power proposed nonfuel base rate increase 27 million effective november 1 2019 interim basis subject refund permanent rates ordered north carolina commission effective january 1 2020 base rate increase proposed recover significant investments generation transmission distribution infrastructure benefit north carolina customers virginia power presented earned return 752 based upon fullyadjusted test period compared authorized 990 return proposed 1075 roe september 2019 virginia power revised filing reduce nonfuel base rate increase 24 million january 2020 north carolina commission approved 975 roe disallowed certain costs associated coal ash remediation chesterfield power station february 2020 north carolina commission issued final order relating base rates virginia power reviewing order assessing options north carolina fuel filing august 2019 virginia power submitted annual filing north carolina commission adjust fuel component electric rates virginia power proposed total 18 million decrease fuel component electric rates rate year beginning february 1 2020 january 2020 north carolina commission approved virginia power’s proposed fuel change adjustment south carolina regulation dsm programs desc approval dsm rider recovers expenditures related dsm programs january 2019 desc filed application south carolina commission seeking approval recover 30 million costs net lost revenues associated programs along incentive invest programs april 2019 south carolina commission approved request rate year beginning first billing cycle may 2019 january 2020 desc filed application south carolina commission seeking approval recover 40 million costs net lost revenues associated programs along incentive invest programs matter pending natural gas rate stabilization act june 2019 desc filed south carolina commission monitoring report 12month period ended march 31 2019 total revenue requirement 437 million represents 7 million overall increase natural gas rates terms natural gas rate stabilization act effective rate year beginning november 2019 october 2019 south carolina commission approved total revenue requirement 436 million effective first billing cycle november 2019 cost fuel desc’s retail electric rates include cost fuel component approved south carolina commission may adjusted periodically reflect changes price fuel purchased desc april 2019 south carolina commission approved desc’s proposal decrease total fuel cost component retail electric rates desc’s proposal included maintaining base fuel component current level produce projected underrecovered balance 35 million end 12month period beginning first billing cycle may 2019 requested carrying costs base fuel undercollected balances occur desc also proposed reducing variable environmental component maintaining reducing distributed energy resource components changes rates became effective beginning first billing cycle may 2019 february 2020 desc filed proposal south carolina commission decrease total fuel cost component retail electric rates desc’s proposed decrease would reduce annual base fuel component recoveries approximately 44 million projected return customers existing overcollected balance recovering desc’s current base fuel costs 12month period beginning first billing cycle may 2020 addition desc proposed increase variable environmental distributed energy resource components matter pending electric transmission projects 2020 desc expects begin several electric transmission projects connection two new nuclear plants development southern transmission projects required place prior plants beginning operations maintain reliability desc anticipates projects go service phases costing approximately 75 million aggregate february 2020 desc filed application south carolina commission requesting approval construct operate 28 miles 230 kv transmission lines aiken county south carolina estimated cost approximately 30 million matter pending ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 25 pipeline system september 2016 ohio commission approved stipulation filed jointly east ohio staff ohio commission continue pir program associated cost recovery another fiveyear term calendar years 2017 2021 permit east ohio increase annual capital expenditures 200 million 2018 3 per year thereafter subject cost recovery rate increase caps proposed east ohio april 2019 ohio commission approved east ohio’s application adjust pir cost recovery rates 2018 costs filing reflects gross plant investment 2018 202 million cumulative gross plant investment 16 billion revenue requirement 190 million cep program 2011 east ohio began cep enables east ohio defer depreciation expense property tax expense carrying costs debt rate 65 capital investments covered pir program expand upgrade replace pipeline system information technology systems well investments necessary comply ohio commission government regulation may 2019 east ohio filed application alternative rate plan establish cep rider recover existing ceprelated deferrals establish ongoing recovery mechanism future deferrals filing reflects cumulative gross plant investment 723 million 2018 revenue requirement 83 million matter pending west virginia regulation prep may 2019 hope filed prep application west virginia commission requesting approval recover prep costs related 29 million 39 million projected capital investment 2019 2020 respectively application also includes trueup prep costs related 2018 actual capital investment 30 million sets forth 10 million annual prep costs recovered proposed rates effective november 1 2019 october 2019 west virginia commission approved prep rates effective november 1 2019 utah wyoming regulation lng storage facility april 2019 questar gas filed request utah commission preapproval construct lng storage facility liquefaction rate 82 million cubic feet per day october 2019 utah commission granted preapproval construct lng storage facility utah base rate case july 2019 questar gas filed base rate case schedules utah commission questar gas proposed nonfuel base rate increase 19 million effective march 2020 base rate increase proposed recover significant investment distribution infrastructure benefit utah customers questar gas presented earned return 905 based upon fullyadjusted test period compared authorized 985 return proposed 105 roe february 2020 utah commission approved nonfuel base rate increase 3 million effective march 2020 revenue requirement increase based approved roe 950 wyoming base rate case november 2019 questar gas filed base rate case schedules wyoming commission questar gas proposed nonfuel base rate increase 4 million effective september 2020 combined notes consolidated financial statements continued base rate increase proposed replace aging infrastructure expand system questar gas presented earned return 746 based upon fullyadjusted test period compared authorized 95 return proposed 105 roe matter pending rural expansion program december 2019 questar gas filed application utah commission cpcn construct natural gas infrastructure extend service eureka utah project expected include 11 miles highpressure pipeline 360 service lines service late 2021 questar gas also requested approval rural expansion rate adjustment tracker recover construction costs project matter pending fercgas cove point february 2019 cove point submitted annual electric power cost adjustment ferc requesting approval recover 24 million ferc approved adjustment march 2019 june 2015 cove point executed two binding precedent agreements approximately 150 million eastern market access project january 2018 cove point received ferc authorization construct operate project facilities october 2018 cove point announced evaluating alternatives proposed charles county maryland compressor station initially part project december 2018 working project customers alternative solutions decided pursue construction location resulting revised project estimate approximately 45 million writeoff 37 million 28 million aftertax may 2019 cove point filed application amendment vacate ferc authorization charles county maryland compressor station revised project scope august 2019 cove point received ferc authorization eastern market access project commenced commercial operations september 2019 connection eastern market access project august 2019 cove point filed update annual electric power cost adjustment requesting ferc approval recover 25 million representing increase 1 million adjustment approved march 2019 ferc approved adjustment august 2019 january 2020 pursuant terms previous settlement cove point filed general rate case fercjurisdictional services proposed rates effective march 1 2020 cove point proposed annual costofservice approximately 182 million cove point anticipates ferc suspend changes rates five months following proposed effective date august 1 2020 deti september 2019 deti submitted annual transportation cost rate adjustment ferc requesting approval recover 38 million also september 2019 deti submitted annual electric power cost adjustment ferc requesting approval recover 10 million october 2019 ferc approved adjustments december 2019 deti filed application request ferc authorization construct operate maintain triwest project provide 120000 dth per day firm transportation service pennsylvania ohio delivery tennessee gas pipeline company project facilities expected cost approximately 25 million service end 2020 august 2018 deti executed binding precedent agreement customer west loop project expected cost approximately 95 million provide 150000 dth per day firm transportation service pennsylvania ohio delivery proposed combinedcycle natural gasfired electric power generation facility located columbiana county ohio december 2018 deti filed application request ferc authorization construct operate maintain project facilities expected service end 2021 december 2019 deti received ferc authorization january 2018 deti filed application request ferc authorization construct operate certain facilities located ohio pennsylvania sweden valley project june 2019 deti withdrew application project due certain regulatory delays result project abandonment second quarter 2019 deti recorded charge 13 million 10 million aftertax included impairment assets charges dominion energy dominion energy gas’ consolidated statements income reflected corporate segment note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain companies’ longlived assets dominion energy virginia power’s aros primarily associated decommissioning nuclear generation facilities ash pond landfill closures dominion energy gas’ aros primarily include plugging abandonment gas oil wells interim retirement natural gas gathering transmission distribution storage pipeline components companies also identified recognized aros related retirement cove point lng facility dominion energy dominion energy gas’ storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed dominion energy virginia power’s generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2018 2019 follows 1 includes 282 million 408 million reported current liabilities december 31 2018 2019 respectively 2 reflects future ash pond landfill closure costs certain utility generation facilities see note 23 information 3 reflects revisions future ash pond landfill closure costs certain utility generation facilities well revisions 20 year license extensions regulated nuclear power stations virginia 4 includes 74 million 75 million reported deferred credits liabilities remainder recorded current liabilities december 31 2018 2019 respectively dominion energy’s aros december 31 2019 2018 include 17 billion 16 billion respectively 08 billion 09 billion recorded virginia power related future decommissioning nuclear facilities dominion energy virginia power established trusts dedicated funding future decommissioning activities december 31 2019 2018 aggregate fair value dominion energy’s trusts consisting primarily equity debt securities totaled 62 billion 49 billion respectively december 31 2019 2018 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 29 billion 24 billion respectively addition aros december 31 2019 include 26 billion related virginia power’s future ash pond landfill closure costs regulatory mechanisms primarily associated legislation enacted virginia march 2019 provide recovery costs incurred see notes 12 23 additional information note 15 leases december 31 2019 companies following lease assets liabilities recorded consolidated balance sheets 1 included deferred charges assets companies’ consolidated balance sheets 2 included property plant equipment companies’ consolidated balance sheets net 27 million 4 million 1 million accumulated amortization dominion energy virginia power dominion energy gas respectively december 31 2019 3 included current liabilities companies’ consolidated balance sheets 4 included securities due within one year companies’ consolidated balance sheets 5 included deferred credits liabilities companies’ consolidated balance sheets addition amounts disclosed dominion energy’s consolidated balance sheet december 31 2019 includes property plant equipment accumulated depreciation 28 billion 364 million respectively related facilities subject power purchase agreements dominion energy lessor combined notes consolidated financial statements continued year ended december 31 2019 total lease cost associated companies’ leasing arrangements consisted following year ended december 31 2019 cash paid amounts included measurement lease liabilities consisted following amounts included companies’ consolidated statements cash flows addition amounts disclosed dominion energy’s consolidated statement income year ended december 31 2019 includes 174 million rental revenue included operating revenue 94 million depreciation expense included depreciation depletion amortization related facilities subject power purchase agreements dominion energy lessor december 31 2019 weighted average remaining lease term weighted discount rate companies’ finance operating leases follows companies’ lease liabilities following maturities corporate office leasing arrangements july 2016 dominion energy signed agreement lessor construct lease new corporate office property richmond virginia lessor provided equity obtained financing commitments debt investors totaling 365 million funded total project costs project became substantially complete august 2019 point facility available dominion energy’s use fiveyear lease term commenced upon commencement lease facility classified finance lease end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 87 project costs difference project costs sale proceeds endofterm options deemed reasonably certain exercise commencement date commencement dominion energy recorded rightofuse asset offsetting lease obligation 67 million representing present value consideration fiveyear term rate implicit lease dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense december 2019 dominion energy signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 465 million fund estimated project costs dominion energy ultimately proceeds project completion expected completed earlier mid2023 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs project terminated certain events default dominion energy could required pay 899 funded amount specific full recourse events dominion energy could required pay 100 funded amount 51month lease term commence construction substantially complete facility able occupied end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 83 project costs difference project costs sale proceeds dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements dominion energy expects recognize rightofuse asset corresponding finance lease liability commencement lease term dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense note 16 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie dominion energy december 31 2019 dominion energy owns manager 67 membership interest certain merchant solar facilities discussed note 2 dominion energy concluded entities vies due members lacking characteristics controlling financial interest addition 2016 dominion energy created wholly owned subsidiary sbl holdco holding company interest vie merchant solar facilities accordingly sbl holdco vie dominion energy primary beneficiary sbl holdco merchant solar facilities power direct activities significantly impact economic performance well obligation absorb losses benefits could significant dominion energy’s securities due within one year longterm debt include 31 million 267 million respectively debt issued sbl holdco net issuance costs nonrecourse dominion energy secured sbl holdco’s interest certain merchant solar facilities dominion energy owns 48 membership interest atlantic coast pipeline see note 9 details regarding nature entity dominion energy concluded atlantic coast pipeline vie insufficient equity finance activities without additional subordinated financial support dominion energy concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance power direct shared among multiple unrelated parties february 2020 dominion energy entered agreement acquire southern’s 5 membership interest expected close second quarter 2020 following completion acquisition dominion energy 53 noncontrolling membership interest atlantic coast pipeline expected change dominion energy’s conclusion primary beneficiary power direct activities significant atlantic coast pipeline shared duke dominion energy obligated provide capital contributions based ownership percentage dominion energy’s maximum exposure loss limited current future investment well obligations guarantee provided see note 23 information dominion energy previously concluded dominion energy midstream vie due limited partners lacking characteristics controlling financial interest primary beneficiary power direct activities significantly impact economic performance well absorb losses benefits could significant dominion energy midstream january 2019 dominion energy acquired outstanding partnership interests owned dominion energy dominion energy midstream became whollyowned subsidiary dominion energy result dominion energy concluded dominion energy midstream longer vie dominion energy virginia power dominion energy virginia power’s nuclear decommissioning trust funds dominion energy’s rabbi trusts hold investments limited partnerships similar type entities see note 9 details dominion energy virginia power concluded partnership investments vies due limited partners lacking characteristics controlling financial interest dominion energy virginia power concluded neither primary beneficiary power combined notes consolidated financial statements continued direct activities significantly impact vies’ economic performance dominion energy virginia power obligated provide capital contributions partnerships required partnership agreement based ownership percentages dominion energy virginia power’s maximum exposure loss limited current future investments virginia power virginia power longterm power capacity contract one nonutility generator aggregate summer generation capacity approximately 218 mw contract contained certain variable pricing mechanisms form partial fuel reimbursement virginia power considered variable interests virginia power previously concluded generation facility vie would primary beneficiary may 2019 virginia power entered agreement paid 135 million terminate remaining contract nonutility generator 135 million 100 million aftertax charge recorded impairment assets charges virginia power’s consolidated statements income second quarter 2019 virginia power paid 13 million 50 million 86 million electric capacity nonutility generators 1 million 18 million 24 million electric energy nonutility generators years ended december 31 2019 2018 2017 respectively dominion energy dominion energy gas part dominion energy gas restructuring dominion energy contributed dominion energy gas 75 controlling limited partner interest cove point december 2019 dominion energy sold retained 25 noncontrolling limited partner interest cove point dominion energy gas concluded cove point vie due limited partners lacking characteristics controlling financial interest dominion energy gas primary beneficiary cove point power direct activities significantly impact economic performance well obligation absorb losses benefits could significant dominion energy gas deti engaged oversee construction subsequently operate maintain projects undertaken atlantic coast pipeline based overall direction oversight atlantic coast pipeline’s members affiliate deti holds membership interest atlantic coast pipeline therefore deti considered variable interest atlantic coast pipeline members atlantic coast pipeline hold power direct construction operations maintenance activities entity deti concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance deti obligation absorb losses vie see note 25 information associated related party receivable balances dominion energy gas purchased shared services decgs deqps affiliated vies 49 million 45 million 45 million years ended december 31 2019 2018 2017 respectively dominion energy gas’ consolidated balance sheets included amounts due decgs deqps 15 million 6 million december 31 2019 december 31 2018 respectively dominion energy gas determined neither consolidated entities primary beneficiary decgs deqps neither consolidated entities power direct activities significantly impact economic performance well obligation absorb losses benefits could significant decgs deqps provide marketing operational services dominion energy subsidiaries subsidiary service companies neither dominion energy gas consolidated entities obligation absorb allocated share decgs deqps costs virginia power dominion energy gas virginia power dominion energy gas purchased shared services des affiliated vie 387 million 119 million 335 million 106 million 340 million 106 million years ended december 31 2019 2018 2017 respectively virginia power dominion energy gas’ consolidated balance sheets included amounts due des 102 million 27 million respectively december 31 2019 107 million 43 million respectively december 31 2018 recorded payables affiliates consolidated balance sheets virginia power dominion energy gas determined neither primary beneficiary des neither power direct activities significantly impact economic performance well obligation absorb losses benefits could significant des provides accounting legal finance certain administrative technical services dominion energy subsidiaries including virginia power dominion energy gas virginia power dominion energy gas obligation absorb allocated shares des costs note 17 shortterm debt credit agreements companies use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties dominion energy dominion energy’s shortterm financing supported access joint revolving credit facility described commercial paper letters credit outstanding well capacity available credit facility follows 1 weightedaverage interest rates outstanding commercial paper supported dominion energy’s credit facility 210 293 december 31 2019 2018 respectively 2 credit facility matures march 2023 used borrowers credit facility support bank borrowings issuance commercial paper well support combined 20 billion letters credit march 2019 desc’s 700 million credit facility terminated desc added borrower joint revolving credit facility discussed dominion energy virginia power dominion energy gas questar gas desc’s shortterm financing supported access coborrower facility december 31 2019 sublimit desc 500 million questar gas’ shortterm financing supported access coborrower joint revolving credit facility discussed dominion energy virginia power dominion energy gas desc december 31 2019 sublimit questar gas 250 million south carolina fuel company inc’s credit facility terminated february 2019 scana psnc’s credit facilities terminated march 2019 liquidity needs entities may satisfied shortterm intercompany borrowings dominion energy april 2019 desc renewed ferc authority april 2020 issue shortterm indebtedness pursuant section 204 federal power act amounts exceed 22 billion outstanding maturity dates one year less addition april 2019 genco renewed ferc authority april 2020 issue shortterm indebtedness exceed 200 million outstanding maturity dates one year less january 2020 desc genco applied ferc twoyear shortterm borrowing authorization applications pending addition credit facilities mentioned sbl holdco 30 million credit facilities original stated maturity date december 2017 automatic oneyear renewals maturity sbl holdco term loan agreement december 2023 dominion solar projects iii inc 25 million credit facilities original stated maturity date may 2018 automatic oneyear renewals maturity dominion solar projects iii inc term loan agreement may 2024 december 31 2019 amounts outstanding either facilities february 2019 dominion energy midstream terminated 500 million revolving credit facility subsequent repaying outstanding balance 73 million plus accrued interest addition joint revolving credit facility mentioned dominion energy also credit facility maturity date june 2020 allows dominion energy issue approximately 21 million letters credit december 31 2019 dominion energy 21 million letters credit outstanding agreement september 2019 dominion energy questar borrowed 30 billion 364day term loan agreement accrued interest variable rate proceeds borrowing used repay principal cove point’s 30 billion term loan due 2021 dominion energy provided guarantee support dominion energy questar’s obligation 364day term loan agreement november december 2019 principal 10 billion 20 billion respectively plus accrued interest repaid virginia power virginia power’s shortterm financing supported access coborrower joint revolving credit facility credit facility used working capital support combined commercial paper programs borrowers credit facility general corporate purposes virginia power’s share commercial paper letters credit outstanding joint credit facility dominion energy dominion energy gas questar gas desc follows 1 weightedaverage interest rates outstanding commercial paper supported credit facility 210 294 december 31 2019 2018 respectively 2 full amount facility available virginia power less amounts outstanding coborrowers dominion energy dominion energy gas questar gas desc sublimit virginia power set within facility limit changed option borrowers credit facility multiple times per year december 31 2019 sublimit virginia power 15 billion virginia power liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion energy credit facility matures march 2023 used support bank borrowings issuance commercial paper well support 20 billion sublimit whichever less letters credit dominion energy gas dominion energy gas’ shortterm financing supported access coborrower joint revolving credit facility credit facility used working capital support combined commercial paper programs borrowers credit facility general corporate purposes dominion energy gas’ share commercial paper letters credit outstanding joint credit facility dominion energy virginia power questar gas desc follows 1 weightedaverage interest rates outstanding commercial paper supported credit facility 198 258 december 31 2019 2018 respectively 2 maximum 15 billion facility available dominion energy gas assuming adequate capacity available giving effect uses coborrowers dominion energy virginia power questar gas desc sublimit dominion energy gas set within facility limit changed option borrowers credit facility multiple times per year december 31 2019 sublimit dominion energy gas 750 million dominion energy gas liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion energy credit facility matures march 2023 used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit combined notes consolidated financial statements continued note 18 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2019 2 amount includes foreign currency remeasurement adjustments 3 september 2019 cove point repaid 30 billion term loan due 2021 4 february 2019 dominion energy midstream repaid 300 million variable rate term loan due december 2019 terminated credit facility due march 2021 subsequent repaying 73 million outstanding balance credit facility borrowings presented within current liabilities dominion energy gas’ consolidated balance sheets december 31 2018 5 financings relate certain pollution control equipment virginia power’s generating facilities 6 may 2019 virginia power redeemed 40 million 50 economic development authority county chesterfield pollution control refunding revenue bonds series 2009a due 2023 principal outstanding plus accrued interest 7 includes debt assumed dominion energy merger former cng subsidiary 8 february 2020 dominion energy purchased cancelled remaining 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 borrowings presented within securities due within one year dominion energy’s consolidated balance sheets december 31 2019 9 march 2019 scana purchased certain medium term notes aggregate purchase price 300 million pursuant tender offer expired first quarter 2019 10 february 2020 scana provided notice redeem remaining principal outstanding 183 million 475 mediumterm notes 155 million 4125 mediumterm notes plus accrued interest makewhole premiums march 2020 notes would otherwise matured may 2021 february 2022 respectively borrowings presented within securities due within one year dominion energy’s consolidated balance sheets december 31 2019 11 january 2020 scana provided notice redeem floating rate senior notes remaining principal outstanding 66 million plus accrued interest march 2020 notes would otherwise matured june 2034 borrowings presented within securities due within one year dominion energy’s consolidated balance sheets december 31 2019 12 february march september 2019 desc purchased certain first mortgage bonds aggregate purchase price 18 billion pursuant tender offers february march tender offers expired first quarter 2019 september tender offer expired third quarter 2019 13 industrial revenue bonds totaling 68 million secured letters credit expire subject renewal fourth quarter 2020 14 may 2019 genco redeemed 549 senior secured notes due 2024 remaining principal outstanding 33 million plus accrued interest june 2019 first mortgage lien electric generating facility previously secured notes released 15 represents debt associated eagle solar sbl holdco dominion solar projects iii inc debt nonrecourse dominion energy secured eagle solar’s sbl holdco’s dominion solar projects iii inc’s interest certain solar facilities 16 represents valuation certain fair value hedges associated dominion energy’s fixed rate debt 17 includes 20 million estimated mandatory prepayments due within one year based estimated cash flows excess debt service sbl holdco dominion solar projects iii inc based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2019 follows 1 excludes mandatory prepayments associated sbl holdco dominion solar projects iii inc based cash flows excess debt service december 31 2019 20 million estimated mandatory prepayments due within one year included securities due within one year dominion energy’s consolidated balance sheets 2 january 2020 scana provided notice redeem floating rate senior notes remaining principal outstanding 66 million plus accrued interest march 2020 notes would otherwise matured june 2034 3 february 2020 scana provided notice redeem remaining principal outstanding 183 million 475 mediumterm notes 155 million 4125 mediumterm notes plus accrued interest makewhole premiums march 2020 notes would otherwise matured may 2021 february 2022 respectively 4 february 2020 dominion energy purchased cancelled remaining 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 borrowings presented within current liabilities dominion energy’s consolidated balance sheets december 31 2019 combined notes consolidated financial statements continued companies’ shortterm credit facility longterm debt agreements contain customary covenants default provisions december 31 2019 events default covenants senior note redemptions november 2018 december 2018 dominion energy redeemed following outstanding series senior notes 2011 series 445 senior notes due 2021 2014 series b 250 senior notes due 2019 2014 series c 3625 senior notes due 2024 2018 series floating rate senior notes due 2020 aggregate outstanding principal 22 billion aggregate redemption price paid 22 billion represents principal amount outstanding accrued unpaid interest applicable makewhole premium 34 million total charges 69 million including makewhole premium recognized recorded interest expense dominion energy’s consolidated statements income enhanced junior subordinated notes june 2006 september 2006 dominion energy issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids september 2006 hybrids bore interest threemonth libor plus 2825 reset quarterly threemonth libor plus 23 reset quarterly respectively dominion energy executed rccs connection issuance june 2006 hybrids september 2006 hybrids terms rccs redemptions hybrids subject certain conditions 2019 dominion energy purchased cancelled 12 million 13 million june 2006 hybrids september 2006 hybrids respectively february 2020 dominion energy purchased cancelled remaining 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 purchases conducted compliance applicable rcc terminated february 2020 october 2014 dominion energy issued 685 million october 2014 hybrids bear interest 575 per year october 1 2024 thereafter bear interest threemonth libor plus 3057 reset quarterly july 2016 dominion energy issued 800 million 525 july 2016 hybrids july 2016 hybrids listed nyse symbol drua dominion energy may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion energy may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion energy may make payments redeem repurchase debt securities equal right payment subordinated hybrids remarketable subordinated notes july 2014 dominion energy issued 10 billion 2014 series 6375 equity units initially form corporate units august 2016 dominion energy issued 14 billion 2016 series 675 equity units initially form corporate units corporate units listed nyse symbols dcuc dcud respectively 2014 series corporate unit consisted stock purchase contract 120 interest rsn issued dominion energy 2016 series corporate unit consisted stock purchase contract 140 interest 2016 series a1 rsn issued dominion energy 140 interest 2016 series a2 rsn issued dominion energy stock purchase contracts obligated holders purchase shares dominion energy common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion energy common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts may 2017 dominion energy successfully remarketed 10 billion 2014 series 150 rsns due 2020 pursuant terms related 2014 equity units connection remarketing interest rate junior subordinated notes reset 2579 payable semiannual basis dominion energy ceased ability redeem notes option defer interest payments june 2019 dominion energy successfully remarketed 700 million 2016 series a1 20 rsns due 2021 700 million 2016 series a2 20 rsns due 2024 pursuant terms related 2016 equity units connection remarketing interest rates series a1 series a2 notes reset 2715 3071 respectively payable semiannual basis dominion energy ceased ability redeem notes option defer interest payments december 31 2019 securities included junior subordinated notes dominion energy’s consolidated balance sheets dominion energy receive proceeds remarketings remarketing proceeds belonged investors holding related equity units temporarily used purchase portfolio treasury securities upon maturity portfolio proceeds applied behalf investors related stock purchase contract settlement date pay purchase price dominion energy issuance 125 million shares common stock july 2017 185 million shares common stock august 2019 note 19 preferred stock dominion energy authorized issue 20 million shares preferred stock may designated separate classes december 31 2019 dominion energy issued outstanding 24 million shares preferred stock 16 million 08 million designated series preferred stock series b preferred stock respectively shares preferred stock outstanding december 31 2018 desc authorized issue 20 million shares preferred stock december 31 2019 desc issued outstanding 1000 shares preferred stock held scana eliminated consolidation 2019 corporate units june 2019 dominion energy issued 16 billion 2019 equity units initially form 2019 series corporate units corporate units listed nyse symbol dcue net proceeds used general corporate purposes repay shortterm debt including commercial paper 2019 series corporate unit consists stock purchase contract 110 10 undivided beneficial ownership interest one share series preferred stock beginning june 2022 series preferred stock convertible option holder dominion energy common stock formula based upon average closing price dominion energy common stock prior conversion date series preferred stock redeemable cash dominion energy beginning september 2022 liquidation preference settlement conversion payable cash common stock combination thereof dominion energy’s election stock purchase contracts obligate holders purchase shares dominion energy common stock june 2022 purchase price paid stock purchase contracts 100 per corporate unit number shares purchased determined formula based upon average closing price dominion energy common stock near settlement date series preferred stock pledged upon issuance collateral secure purchase common stock related stock purchase contracts dominion energy pays cumulative dividends series preferred stock quarterly contract adjustment payments stock purchase contracts rates described dominion energy may elect pay dividends andor payments cash shares dominion energy common stock combination cash shares dominion energy common stock dominion energy may defer contract adjustment payments one consecutive periods generally beyond purchase contract settlement date payments deferred dominion energy may make distributions related capital stock including dividends redemptions repurchases liquidation payments also deferral period dominion energy may make payments redeem repay repurchase debt securities equal right payment subordinated contract adjustment payments make payment guarantee security subsidiary guarantee ranks equal junior contract adjustment payments unless accumulated unpaid dividends series preferred stock declared paid dominion energy may make distributions capital stock ranking equal junior series preferred stock dividends upon liquidation applicable including dividends redemptions repurchases liquidation payments circumstances dominion energy also may make contract adjustment payments similar types payments subject certain exceptions dominion energy recorded present value stock purchase contract payments liability offset common stock purchase contract payments recorded liability accretion stock purchase contract liability recorded imputed interest expense calculating diluted eps dominion energy applies treasury stock method stock purchase contracts ifconverted method series preferred stock terms stock purchase contracts assuming antidilution adjustments maximum number shares common stock dominion energy issue june 2022 218 million selected information dominion energy’s 2019 equity units presented 1 issuance costs 28 million recorded reduction preferred stock 14 million common stock 14 million consolidated balance sheets 2 dominion energy recorded dividends 15 million 9479 per share year ended december 31 2019 3 payments 38 million made 2019 stock purchase contract liability 212 million december 31 2019 series b preferred stock december 2019 dominion energy issued 800000 shares series b preferred stock 791 million net 9 million issuance costs preferred stock liquidation preference 1000 per share currently pays 465 dividend per share liquidation preference dividends paid cumulatively semiannual basis commencing june 15 2020 dominion energy recorded dividends 2 million 19375 per share year ended december 31 2019 dividend rate series b preferred stock reset every five years beginning december 15 2024 equal thencurrent fiveyear us treasury rate plus spread 2993 unless accumulated unpaid dividends series b preferred stock declared paid dominion energy may make dis tributions capital stock ranking equal junior series b preferred stock dividends upon liquidation including dividends redemptions repurchases otherwise dominion energy may option redeem series b preferred stock whole part december 15 2024 subsequent fifth anniversary date price equal 1000 per share plus accumulated unpaid dividends dominion energy may also option redeem series b preferred stock whole part price equal 1020 per share plus accumulated unpaid dividends time within certain period time following change criteria ratings agencies use assign equity credit securities series b preferred stock certain adverse effects equity credit actually received series b preferred stock combined notes consolidated financial statements continued holders series b preferred stock voting rights except limited circumstances provided terms series b preferred stock otherwise required applicable law series b preferred stock subject sinking fund obligation redeem repurchase retire series b preferred stock preferred stock contains conversion rights virginia power virginia power authorized issue 10 million shares preferred stock 100 liquidation preference however none issued outstanding december 31 2019 2018 note 20 equity common stock dominion energy 2019 2018 2017 dominion energy recorded net fees commissions 110 billion 25 billion 13 billion issuance approximately 157 million 36 million 17 million shares common stock respectively acquisitions settlements stock purchase contracts various programs including dominion energy direct® atthemarket program acquisitions 2019 dominion energy issued 956 million shares common stock connection acquisition scana time issuance common stock shares valued 68 billion see note 3 information issuance dominion energy common stock connection scana combination january 2019 dominion energy dominion energy midstream closed agreement plan merger pursuant dominion energy acquired outstanding common unit representing limited partner interests dominion energy midstream already owned dominion energy issuance 225 million shares common stock valued 16 billion terms agreement plan merger publicly held outstanding common unit representing limited partner interests dominion energy midstream converted right receive 02492 shares dominion energy common stock immediately prior closing series preferred unit representing limited partner interests dominion energy midstream converted common units representing limited partner interests dominion energy midstream accordance terms dominion energy midstream’s partnership agreement merger accounted dominion energy following guidance change parent company’s ownership interest consolidated subsidiary dominion energy controls dominion energy midstream merger changes dominion energy’s ownership interest dominion energy midstream accounted equity transaction gain loss recognized connection merger dominion energy recognized 40 million income taxes equity primarily attributable establishing additional regulatory liabilities related excess deferred income taxes changes state income taxes subsequent activity result dominion energy gas restructuring dominion energy gas considered acquired outstanding partnership interests dominion energy midstream dominion energy midstream became whollyowned subsidiary dominion energy gas pension plan contribution december 2019 dominion energy contributed 61 million shares common stock valued 499 million qualified defined benefit pension plans see note 22 information regarding activity surrounding pension plan contributions dominion energy direct® dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans currently dominion energy issuing new shares common stock direct stock purchase plans 2019 dominion energy received cash 309 million issuance 40 million shares dominion energy direct® employee savings plans stock purchase contracts august 2019 dominion energy issued 185 million shares related stock purchase contracts entered part dominion energy’s 2016 equity units received proceeds 14 billion 2017 dominion energy issued 125 million shares related stock purchase contracts entered part dominion energy’s 2014 equity units received proceeds 10 billion see note 18 information surrounding stock purchase contracts atthemarket program june 2017 dominion energy filed sec shelf registration sale debt equity securities including ability sell common stock atthemarket program also june 2017 dominion energy entered three separate sales agency agreements effect sales program pursuant may offer time 500 million aggregate amount common stock sales common stock made means privately negotiated transactions nyse market prices transactions agreed upon dominion energy sales agents conformance applicable securities laws january 2018 dominion energy provided sales instructions one sales agents issued 66 million shares atthemarket issuances received cash proceeds 495 million net fees commissions paid 5 million following issuances dominion energy remaining ability issue stock 2017 sales agency agreements completed program february 2018 dominion energy entered six separate sales agency agreements effect sales new atthemarket program pursuant may offer time 10 billion aggregate amount common stock agreements replaced sales agency agreements entered dominion energy june 2017 sales common stock made means private negotiated transactions nyse market prices transactions agreed upon dominion energy sales agents conformance applicable securities laws fourth quarter 2018 dominion energy provided sales instructions two sales agents issued 27 million shares atthemarket issuances received cash proceeds 197 million net fees commissions paid 2 million first quarter 2019 dominion energy provided sales instructions one sales agents issued 21 million shares received cash proceeds 154 million net fees commissions paid 2 million fourth quarter 2019 dominion energy provided sales instructions two sales agents issued 78 million shares received cash proceeds 639 million net fees commissions paid 6 million following issuances dominion energy remaining ability issue stock 2018 sales agency agreements completed program forward sale agreements 2018 dominion energy entered separate forward sale agreements goldman sachs co llc credit suisse capital llc forward purchasers underwriting agreement credit suisse securities usa llc goldman sachs co llc representatives several underwriters named therein relating aggregate 20 million shares dominion energy common stock underwriting agreement granted underwriters 30day option purchase additional three million shares dominion energy common stock underwriters exercised respect approximately 21 million shares april 2018 dominion energy entered separate forward sale agreements forward purchasers respect additional shares december 2018 dominion energy received proceeds 14 billion deducting underwriting discounts deducting expenses subject forward price adjustments forward sale agreements upon physical settlement 221 million shares repurchase common stock dominion energy repurchase shares 2019 2018 plan repurchase shares 2020 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization virginia power 2019 2018 2017 virginia power issue shares common stock dominion energy noncontrolling interests sale interest cove point december 2019 dominion energy completed sale 25 noncontrolling limited partnership interest cove point brookfield exchange cash consideration 21 billion subject working capital adjustments see note 3 information sale interest remeasurement dominion energy midstream units may 2018 subordinated units dominion energy midstream held dominion energy converted common units 11 ratio following payment dominion energy midstream’s distribution first quarter 2018 june 2018 dominion energy general partner exercised incentive distribution right reset defined dominion energy midstream’s partnership agreement received 27 million common units representing limited partner interests dominion energy midstream result increase ownership interest dominion energy midstream dominion energy recorded decrease noncontrolling interest corresponding increase shareholders’ equity 375 million reflecting change carrying value interest net assets dominion energy midstream held others accumulated comprehensive income loss presented table summary aoci component combined notes consolidated financial statements continued dominion energy following table presents dominion energy’s changes aoci component net tax 1 see table details reclassifications following table presents dominion energy’s reclassifications aoci component virginia power following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications following table presents virginia power’s reclassifications aoci component dominion energy gas following table presents dominion energy gas’ changes aoci component net tax 1 see table details reclassifications combined notes consolidated financial statements continued following table presents dominion energy gas’ reclassifications aoci component stockbased awards 2014 incentive compensation plan permits stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan options outstanding either plan december 31 2019 approximately 21 million shares available future grants plans goalbased stock awards granted lieu cashbased performance grants certain officers achieved certain targeted level share ownership december 31 2019 unrecognized compensation cost related nonvested goalbased stock awards immaterial dominion energy measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion energy’s results years ended december 31 2019 2018 2017 include 46 million 48 million 45 million respectively compensation costs 11 million 12 million 16 million respectively income tax benefits related dominion energy’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion energy’s consolidated statements income excess tax benefits classified financing cash flow restricted stock restricted stock grants made officers dominion energy’s ltip may also granted certain key nonofficer employees fair value dominion energy’s restricted stock awards equal closing price dominion energy’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2019 2018 2017 december 31 2019 unrecognized compensation cost related nonvested restricted stock awards totaled 59 million expected recognized weightedaverage period 21 years fair value restricted stock awards vested 23 million 23 million 21 million 2019 2018 2017 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion energy stock applicable federal state local tax withholding rates cashbased performance grants cashbased performance grants made dominion energy’s officers dominion energy’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved february 2017 two cashbased performance grants made officers dominion energy transitioned twoyear performance period threeyear performance period payout twoyear performance grant occurred january 2019 based achievement two performance metrics 2017 2018 tsr relative companies members dominion energy’s compensation peer group roic additional partial payout based dominion energy’s priceearnings ratio relative members dominion energy’s compensation peer group total payout twoyear grant 13 million payout threeyear performance grant occurred january 2020 based achievement two performance metrics 2017 2018 2019 tsr relative companies members dominion energy’s compensation peer group roic additional partial payout based dominion energy’s priceearnings ratio relative members dominion energy’s compensation peer group total payout threeyear grant 13 million liability 13 million accrued award february 2018 cashbased performance grant made officers payout performance grant expected occur march 15 2021 based achievement two performance metrics 2018 2019 2020 tsr relative companies members dominion energy’s compensation peer group roic additional opportunities earn portion award based dominion energy’s absolute tsr relative priceearnings ratio performance december 31 2019 targeted amount threeyear grant 15 million liability 8 million accrued award february 2019 cashbased performance grant made officers payout performance grant expected occur march 15 2022 based achievement two performance metrics 2019 2020 2021 tsr relative companies members dominion energy’s compensation peer group roic additional opportunities earn portion award based dominion energy’s absolute tsr relative priceearnings ratio performance december 31 2019 targeted amount threeyear grant 16 million liability 5 million accrued award note 21 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found inconsistent public interest december 31 2019 virginia commission restricted payment dividends virginia power north carolina commission order approving scana combination limited cumulative dividends payable dominion energy virginia power psnc amount retained earnings closing scana combination plus ii future earnings recorded virginia power psnc date addition notice north carolina commission required payment dividends causes equity component virginia power psnc’s capital structure fall 45 ohio commission may prohibit public service company including east ohio declaring paying dividend affiliate found detrimental public interest december 31 2019 ohio commission restricted payment dividends east ohio pursuant scana merger approval order amount desc dividends paid must reasonable consistent longterm payout ratio electric utility industry gas distribution industry specific restriction payment dividends desc december 31 2019 desc’s retained earnings balance established federal power act reserve earnings attributable hydroelectric generation plants result desc prohibited payment dividends without regulatory approval balance retained earnings increases utah commission may prohibit public service company including questar gas declaring paying dividend affiliate found detrimental public interest december 31 2019 utah commission restricted payment dividends questar gas certain agreements associated companies’ credit facility contain restrictions ratio debt total capitalization limitations restrict companies’ ability pay dividends receive dividends subsidiaries december 31 2019 connection scana combination terms merger agreement dominion energy could declare set aside pay dividends make distributions whether cash stock property respect capital stock regular quarterly cash dividends january 2018 january 2019 part merger agreement dominion energy midstream november 2018 january 2019 dominion energy could declare set aside pay dividends make distributions whether cash stock property respect capital stock regular quarterly cash dividends see notes 18 19 description potential restrictions common stock dividend payments dominion energy connection deferral contract adjustment payments 2019 equity units failure pay dividends series preferred stock series b preferred stock note 22 employee benefit plans dominion energy dominion energy gasdefined benefit plans dominion energy provides certain retirement benefits eligible active employees retirees qualifying dependents dominion energy gas participates number dominion energysponsored retirement plans terms benefit plans dominion energy reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion energy maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion energy’s funding policy contribute annually amount accordance provisions erisa pension programs also provide combined notes consolidated financial statements continued benefits certain retired executives companysponsored nonqualified employee benefit plans nonqualified plans funded contributions grantor trusts dominion energy also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension benefits dominion energy gas employees represented collective bargaining units covered dominion energy pension plan defined benefit pension plan sponsored dominion energy provides benefits multiple dominion energy subsidiaries pension benefits dominion energy gas employees represented collective bargaining units covered sepa rate pension plan provides benefits employees deti hope employee compensation basis allocating pension costs obligations deti hope retiree healthcare life insurance benefits dominion energy gas employees represented collective bargaining units covered dominion energy retiree health welfare plan sponsored dominion energy provides certain retiree healthcare life insurance benefits multiple dominion energy subsidiaries retiree healthcare life insurance benefits dominion energy gas employees represented collective bargaining units covered sepa rate postretirement benefit plan provides benefits deti hope employee headcount basis allocating postretirement benefit costs obligations deti hope dominion energy gas included separate pension postretirement benefit plans east ohio employees covered collective bargaining units november 2019 effective date dominion energy gas restructuring see note 3 information dominion energy gas restructuring pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates rate compensation increases dominion energy uses december 31 measurement date employee benefit plans including dominion energy gas participates dominion energy uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost pension plans including dominion energy gas participates marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion energy’s pension postretirement benefit plans hold investments trusts fund employee benefit payments dominion energy’s pension postretirement plan assets experienced aggregate actual returns losses 21 billion 605 million 2019 2018 respectively versus expected returns 848 million 806 million respectively dominion energy gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns losses 167 million 129 million 2019 2018 respectively versus expected returns 70 million 178 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans voluntary retirement program march 2019 companies announced voluntary retirement program employees meet certain age service requirements voluntary retirement program compromise safety companies’ ability comply applicable laws regulations 2019 upon determinations made concerning number employees elected participate program dominion energy recorded charge 427 million 319 million aftertax included within operations maintenance expense 291 million taxes 24 million income 112 million virginia power recorded charge 198 million 146 million aftertax included within operations maintenance expense 190 million taxes 8 million dominion energy gas recorded charge 74 million 58 million aftertax included within operations maintenance expense 39 million taxes 2 million income 1 million discontinued operations 32 million respective consolidated statements income second quarter 2019 dominion energy dominion energy gas remeasured pension postretirement benefit plans result voluntary retirement program remeasurement resulted increase pension benefit obligation 484 million 32 million increase fair value pension plan assets 671 million 146 million dominion energy dominion energy gas respectively addition remeasurement resulted increase accumulated postretirement benefit obligation 101 million 8 million increase fair value postretirement benefit plan assets 156 million 29 million dominion energy dominion energy gas respectively impact remeasurement net periodic benefit cost credit recognized prospectively remeasurement date discount rate used remeasurement 407410 dominion energy pension plans 410 dominion energy gas pension plans 405408 dominion energy postretirement benefit plans 405 dominion energy gas postretirement benefit plans assumptions used remeasurement consistent measurement december 31 2018 third quarter 2019 dominion energy remeasured pension plan result settlement voluntary retirement program scana settlement related remeasurement resulted increase pension benefit obligation 37 million increase fair value pension plan assets 51 million dominion energy impact remeasurement net periodic benefit cost credit recognized prospectively remeasurement date discount rate used remeasurement 357 assumptions used remeasurement consistent measurement december 31 2018 funded status following table summarizes changes pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status dominion energy dominion energy gas employees represented collective bargaining units 1 2019 amounts relate primarily settlement result voluntary retirement program combined notes consolidated financial statements continued abo dominion energy’s defined benefit pension plans 97 billion 78 billion december 31 2019 2018 respectively abo defined benefit pension plans covering dominion energy gas employees represented collective bargaining units 279 million 689 million december 31 2019 2018 respectively funding policies dominion energy evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion energy determines amount contributions current year time 2019 dominion energy made 520 million contributions qualified defined benefit pension plans including 61 million shares common stock valued 499 million shares contributed private placement exempt registration requirements independent fiduciary investment manager separate account within qualified defined benefit pension plans dominion energy also entered registration rights agreement independent fiduciary investment manager pursuant dominion energy agreed provide registrations rights customary terms respect shares dominion energy gas make contributions qualified defined benefit pension plans 2019 dominion energy expects make 29 million minimum required contributions 2020 contributions currently expected 2020 dominion energy gas certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion energy’s subsidiaries including dominion energy gas fund postretirement benefit costs vebas dominion energy’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion energy’s contributions vebas pertained dominion energy gas employees totaled 12 million 2019 2018 dominion energy expects contribute approximately 12 million dominion energy vebas 2020 pertains dominion energy gas employees dominion energy dominion energy gas expect pension postretirement plan assets returned 2020 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets dominion energy dominion energy gas employees represented collective bargaining units following table provides information abo fair value plan assets dominion energy’s pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid dominion energy dominion energy gas’ employees represented collective bargaining units plans plan assets dominion energy’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk participating employer various pension plans sponsored dominion energy dominion energy gas subject dominion energy’s investment policies plans minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments us equity includes investments largecap midcap smallcap companies located us nonus equity includes investments largecap smallcap companies located outside us including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity real estate investment trusts investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies dominion energy also utilizes commoncollective trust funds investment vehicle defined benefit plans commoncollective trust fund pooled fund operated bank trust company investment assets various organizations individuals welldiversified portfolio commoncollective trust funds grouped assets follow various investment strategies strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 fair values dominion energy dominion energy gas’ employees represented collective bargaining units pension plan assets asset category follows 1 includes 508 million dominion energy common stock december 31 2019 2 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 3 excludes net assets related pending sales securities 52 million net accrued income 24 million includes net assets related pending purchases securities 99 million december 31 2019 excludes net assets related pending sales securities 12 million net accrued income 21 million includes net assets related pending purchases securities 22 million december 31 2018 4 excludes net assets related pending sales securities 2 million net accrued income 2 million includes net assets related pending purchases securities 6 million december 31 2019 excludes net assets related pending sales securities 3 million net accrued income 5 million includes net assets related pending purchases securities 5 million december 31 2018 combined notes consolidated financial statements continued fair values dominion energy dominion energy gas’ employees represented collective bargaining units postretirement plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 excludes net assets related pending sales securities 2 million net accrued income 2 million includes net assets related pending purchases securities 5 million december 31 2019 excludes net assets related pending sales securities 1 million net accrued income 2 million includes net assets related pending purchases securities 2 million december 31 2018 plan’s investments determined based fair values investments underlying investments determined follows • cash equivalents investments held primarily shortterm notes treasury bills valued cost plus accrued interest • common preferred stocks investments valued closing price reported active market individual securities traded • insurance contracts investments group annuity contracts john hancock entered 1992 stated fair value based fair value underlying securities provided managers include investments us government securities corporate debt instruments state municipal debt securities • corporate debt instruments investments valued using pricing models maximizing use observable inputs similar securities includes basing value yields currently available comparable securities issuers similar credit ratings quoted prices available identical similar instruments instrument valued discounted cash flows approach maximizes observable inputs current yields similar instruments includes adjustments certain risks may observable credit liquidity risks broker quote available • government securities investments valued using pricing models maximizing use observable inputs similar securities • commoncollective trust funds commoncollective trust funds invest debt equity securities instruments characteristics similar funds’ benchmarks primary objectives funds seek investment returns approximate overall performance benchmark indexes benchmarks major equity indices fixed income indices money market indices focus growth income liquidity strategies applicable investments commoncollective trust funds stated nav determined issuer commoncollective trust funds based fair value underlying investments held fund less liabilities nav used practical expedient estimate fair value commoncollective trust funds unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment • alternative investments real estate funds private equity funds debt funds hedge funds stated fair value based nav plan’s proportionate share partnership joint venture alternative investment’s fair value determined reference audited financial statements nav statements provided investment manager nav used practical expedient estimate fair value combined notes consolidated financial statements continued net periodic benefit credit cost service cost component nonservice cost components net periodic benefit credit cost reflected operations maintenance expense income respectively consolidated statements income components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities dominion energy dominion energy gas’ employees represented collective bargaining units plans follows 1 assumptions used determine net periodic cost following year 2 amounts related east ohio presented within discontinued operations components aoci regulatory assets liabilities dominion energy dominion energy gas’ employees represented collective bargaining units plans recognized components net periodic benefit credit cost follows 1 december 31 2019 33 billion 98 million related pension benefits postretirement benefits 20 billion 65 million respectively included aoci remainder included regulatory assets liabilities december 31 2018 35 billion 43 million related pension benefits postretirement benefits 20 billion 41 million respectively included aoci remainder included regulatory assets liabilities 2 december 31 2019 150 million related pension benefits 147 million included aoci remainder included regulatory assets liabilities 5 million related postretirement benefits included entirely regulatory assets liabilities december 31 2018 555 million related pension benefits 200 million included aoci remainder included noncurrent assets discontinued operations 37 million related postretirement benefits 22 million included noncurrent assets discontinued operations remainder included regulatory assets liabilities following table provides components aoci regulatory assets liabilities dominion energy dominion energy gas’ employees represented collective bargaining units plans december 31 2019 expected amortized components net periodic benefit credit cost 2020 expected longterm rates return plan assets discount rates healthcare cost trend rates mortality critical assumptions determining net periodic benefit credit cost dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions used dominion energy’s pension postretirement plans including dominion energy gas participates including discount rates expected longterm rates return healthcare cost trend rates mortality rates dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans including dominion energy gas participates using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset classes’ volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major capital market assumptions • investment allocation plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans including dominion energy gas participates mortality rates developed actual projected plan experience postretirement benefit plans dominion energy’s actuary conducts experience study periodically part process select best estimate mortality dominion energy considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate assumed healthcare cost trend rates significant effect amounts reported dominion energy’s retiree healthcare plans including dominion energy gas participates one percentage point change assumed healthcare cost trend rates would following effects dominion energy dominion energy gas’ employees represented collective bargaining units postretirement benefit plans dominion energy gas employees represented collective bargaining units virginia powerparticipation defined benefit plans virginia power employees dominion energy gas employees represented collective bargaining units covered dominion energy pension plan described participating employers virginia power dominion energy gas subject dominion energy’s funding policy contribute annually amount accordance erisa 2019 virginia power dominion energy gas made contributions dominion energy pension plan contributions plan currently expected 2020 virginia power’s net periodic pension cost related plan 152 million 126 million 110 million 2019 2018 2017 respectively dominion energy gas’ net periodic pension combined notes consolidated financial statements continued credit related plan 8 million 35 million 35 million 2019 2018 2017 respectively net periodic pension credit cost reflected operations maintenance expense respective consolidated statements income except 14 million 21 million 20 million dominion energy gas’ costs 2019 2018 2017 respectively recorded net income discontinued operations funded status various dominion energy subsidiary groups employee compensation basis determining share total pension costs participating dominion energy subsidiaries see note 25 virginia power dominion energy gas amounts due tofrom dominion energy related plan retiree healthcare life insurance benefits virginia power employees dominion energy gas employees represented collective bargaining units covered dominion energy retiree health welfare plan described virginia power’s net periodic benefit credit cost related plan 27 million 51 million 42 million 2019 2018 2017 respectively dominion energy gas’ net periodic benefit credit cost related plan 4 million 8 million 6 million 2019 2018 2017 respectively net periodic benefit credit cost reflected operations maintenance expenses respective consolidated statements income except less 1 million 2 million 2 million dominion energy gas’ costs 2019 2018 2017 respectively recorded net income discontinued operations employee headcount basis determining share total postretirement benefit costs participating dominion energy subsidiaries see note 25 virginia power dominion energy gas amounts due tofrom dominion energy related plan dominion energy holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power dominion energy gas’ employees participate investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash virginia power dominion energy gas provide dominion energy shares employee benefit plan contributions certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power dominion energy gas fund postretirement benefit costs vebas 2019 2018 virginia power dominion energy gas made contributions vebas expect contribute vebas 2020 defined contribution plans dominion energy also sponsors defined contribution employee savings plans cover substantially employees 2019 2018 2017 dominion energy recognized 73 million 51 million 45 million respectively employer matching contributions plans dominion energy gas participates employee savings plans specific dominion energy gas cover multiple dominion energy subsidiaries 2019 2018 2017 dominion energy gas recognized 4 million 8 million 8 million respectively employer matching contributions plans virginia power also participates employee savings plans 2019 2018 2017 virginia power recognized 20 million 20 million 19 million respectively employer matching contributions plans note 23 commitments contingencies result issues generated ordinary course business companies involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect companies’ financial position liquidity results operations environmental matters companies subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements mats february 2019 epa published proposed rule reverse previous finding appropriate necessary regulate toxic emissions power plants however emissions standards requirements mats rule would remain place epa proposing remove coal oilfired power plants list sources regulated mats although litigation mats rule outcome epa’s rulemaking still pending regulation remains effect dominion energy virginia power complying applicable requirements rule expect adverse impacts operations time ozone standards epa published final nonattainment designations october 2015 ozone standard june 2018 states august 2021 develop plans address new standard states developed implementation plans standard companies unable predict whether extent new rules ultimately require additional controls expenditures required implement additional controls could material impact companies’ results operations cash flows oil gas nsps august 2012 epa issued nsps impacting new modified facilities natural gas production gathering sectors made revisions nsps natural gas processing transmission facilities rules establish equipment performance specifications emissions standards control voc emissions natural gas production wells tanks pneumatic controllers compressors upstream sector june 2016 epa issued another nsps regulation oil natural gas sector regulate methane voc emissions new modified facilities transmission storage gathering boosting production processing facilities projects commenced construction september 2015 required comply regulation october 2018 epa published proposed rule reconsidering amending portions 2016 rule including limited fugitive emissions requirements well sites compressor stations amended portions 2016 rule effective immediately upon publication proposed rule regarding reconsideration final dominion energy dominion energy gas implementing 2016 regulation dominion energy dominion energy gas still evaluating whether potential impacts results operations financial condition andor cash flows related matter material ace rule july 2019 epa published final rule informally referred ace rule replacement clean power plan ace rule applies existing coalfired power plants final rule includes unitspecific performance standards based degree emission reduction levels achievable unit efficiency improvements determined permitting agency ace rule requires states develop plans july 2022 implement performance standards state plans must approved epa january 2024 impacts rule could material dominion energy virginia power’s results operations financial condition andor cash flows existing regulatory frameworks south carolina virginia provide rate recovery mechanisms could substantially mitigate impacts regulated electric utilities carbon regulations august 2016 epa issued draft rule proposing reaffirm source’s obligation obtain psd title v permit ghgs triggered permitting requirements first triggered nonghg conventional pollutants regulated new source review program set significant emissions rate 75000 tons per year co2 equivalent emissions source would required apply bact ghg emissions epa ultimately takes final action rulemaking companies cannot predict impact results operations financial condition andor cash flows december 2018 epa proposed revised standards performance greenhouse gas emissions new modified reconstructed stationary sources proposed rule would amend previous determination best system emission reduction newly constructed coalfired steam generating units longer partial carbon capture storage instead proposed revised best system emission reduction source category efficient demonstrated steam cycle eg supercritical steam conditions large units subcritical steam conditions small units combination best operating practices state regulations may 2019 vdeq issued final rule establishing state carbon regulation program 280 million ton initial statewide carbon cap 2020 cap reduced approximately three percent per year 2030 resulting ultimate cap 196 million tons final rule includes provision vdeq delay implementation rule possible adjustments baseline cap pending authorization general assembly governor virginia vdeq authorized begin implementation rule impacts program could material dominion energy virginia power’s results operations financial condition andor cash flows however existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impact water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms companies must comply applicable aspects cwa programs operating facilities regulation 316b october 2014 final regulations section 316b cwa govern existing facilities new units existing facilities employ cooling water intake structure flow levels exceeding minimum threshold became effective combined notes consolidated financial statements continued rule establishes national standard impingement based seven compliance options forgoes creation single technology standard entrainment instead epa delegated entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination five mandatory facilityspecific factors including social costbenefit test six optional facilityspecific factors rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd dominion energy virginia power currently 13 seven facilities respectively subject final regulations dominion energy anticipates may install impingement control technologies certain stations oncethrough cooling systems dominion energy virginia power currently evaluating need potential entrainment controls final rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies desc conducting studies implementing plans required rule determine appropriate intake structure modifications certain facilities ensure compliance rule impacts rule could material dominion energy virginia power’s results operations financial condition andor cash flows existing regulatory frameworks south carolina virginia provide rate recovery mechanisms could substantially mitigate impacts regulated electric utilities effluent limitations guidelines september 2015 epa released final rule revise effluent limitations guidelines steam electric power generating category final rule establishes updated standards wastewater discharges apply primarily coal oil steam generating stations affected facilities required convert wet dry closed cycle coal ash management improve existing wastewater treatment systems andor install new wastewater treatment technologies order meet new discharge limits april 2017 epa granted two separate petitions reconsideration effluent limitations guidelines final rule stayed future compliance dates rule also april 2017 us court appeals fifth circuit granted epa’s request stay pending consolidated litigation challenging rule epa addresses petitions reconsideration september 2017 epa signed rule postpone earliest compliance dates certain waste streams regulations effluent limitations guidelines final rule november 2018 november 2020 however latest date compliance regulations remains december 2023 impacts rule could material dominion energy virginia power’s results operations financial condition andor cash flows existing regulatory frameworks south carolina virginia provide rate recovery mechanisms could substantially mitigate impacts regulated electric utilities waste management remediation operations companies subject variety state federal laws regulations governing management disposal solid hazardous waste release hazardous substances associated current andor historical operations cercla amended similar state laws may impose joint several strict liability cleanup potentially responsible parties owned operated arranged disposal facilities affected release hazardous substances addition many states created programs incentivize voluntary remediation sites historical releases hazardous substances identified property owners responsible parties decide initiate cleanups time dominion energy virginia power dominion energy gas may identified potentially responsible party connection alleged release hazardous substances wastes site applicable federal state laws companies could responsible costs associated investigation remediation impacted sites subject contribution claims responsible parties costs incurred sites companies also may identify evaluate remediate potentially impacted sites voluntary state programs remediation costs may subject reimbursement companies’ insurance policies rate recovery mechanisms except described companies believe matters material effect results operations financial condition andor cash flows dominion energy determined associated former manufactured gas plant sites including certain sites associated virginia power 11 sites associated dominion energy including certain sites acquired scana combination remediation work substantially completed federal state oversight required sites following stateapproved groundwater monitoring programs dominion energy proposed expects propose remediation plans associated three sites including one virginia power expects conduct remediation activities primarily 2020 december 31 2019 dominion energy virginia power 34 million 16 million respectively reserves recorded including charge 16 million 12 million aftertax virginia power recorded 2018 operations maintenance expense consolidated statements income addition one site associated dominion energy updated work plan submitted scdhec september 2018 would increase costs approximately 8 million approved dominion energy associated 13 additional sites including two associated virginia power investigation state federal environmental agency subject current proposed plans perform remediation activities due uncertainty surrounding sites dominion energy virginia power unable make estimate potential financial statement impacts ash pond landfill closure costs april 2015 epa enacted final rule regulating ccr landfills existing ash ponds still receive manage ccrs inactive ash ponds receive still store ccrs dominion energy currently operates inactive ash ponds existing ash ponds ccr landfills subject final rule 11 different facilities eight virginia power rule created legal obligation dominion energy virginia power retrofit close inactive existing ash ponds certain period time well perform required monitoring corrective action postclosure care activities necessary december 2016 legislation enacted creates framework epa approved state ccr permit programs august 2017 epa issued interim guidance outlining framework state ccr program approval epa enforcement authority state programs approved epa states approved programs authority enforce ccr requirements respective rules programs september 2017 epa agreed reconsider portions ccr rule response two petitions reconsideration march 2018 epa proposed certain changes ccr rule related issues remanded part pending litigation issues epa reconsidering several proposed changes would allow states approved ccr permit programs additional flexibilities implementing programs july 2018 epa promulgated first phase changes ccr rule phases ccr rule promulgated dominion energy virginia power cannot forecast potential incremental impacts costs related existing coal ash sites connection future implementation 2016 ccr legislation reconsideration ccr rule august 2018 us court appeals dc circuit issued decision pending challenges ccr rule vacating remanding epa three provisions rule dominion energy virginia power expect scope us court appeals dc circuit’s decision impact closure plans cannot forecast incremental impacts associated future changes ccr rule connection court’s remand april 2017 governor virginia signed legislation law placed moratorium vdeq issuing solid waste permits closure ash ponds virginia power’s bremo chesapeake chesterfield possum point power stations may 2018 law also required virginia power conduct assessment closure alternatives ash ponds four stations include evaluation excavation recycling offsite disposal surface groundwater conditions safety virginia power completed assessments provided report december 1 2017 april 2018 governor virginia signed legislation law extending existing permit moratorium july 2019 legislation also required virginia power solicit compile november 2018 information third parties suitability cost market demand beneficiation recycling coal ash units coal ash recycling business plan submitted legislature november 2018 extended moratorium apply permit required impoundment ccrs already removed placed another impoundment onsite removed impoundment processed connection recycling beneficial use project connection legislation second quarter 2018 virginia power recorded increase aro related environmental liability related future ash pond landfill closure costs 131 million resulted 81 million 60 million aftertax charge recorded operations maintenance expense consolidated statement income 46 million increase property plant equipment associated asset retirement costs 4 million increase regulatory assets march 2019 governor virginia signed law legislation requires ccr unit located virginia power’s bremo chesapeake chesterfield possum point power stations stop accepting ccr prior july 2019 closed removing ccr approved landfill recycling beneficial reuse legislation requires least 68 million cubic yards ccr beneficially reused costs associated closure ccr units recoverable rate adjustment clause approved virginia commission revenue requirement cannot exceed 225 million 12month period associated costs allocated customers outside virginia actually recovered customers recoverable virginia rate adjustment clause connection legislation virginia power recorded 24 billion aro related cost landfills beneficial reuse offsetting increase property plant equipment 13 billion chesterfield power station increase primarily regulatory assets remaining portion related bremo chesapeake possum point power stations first quarter 2019 addition virginia power revised estimated cash flows existing aro related future ash pond landfill closure costs resulted decrease 202 million corresponding 113 million 84 million aftertax benefit operations maintenance expense consolidated statement income first quarter 2019 legal matters companies defendants number lawsuits claims involving unrelated incidents property damage personal injury due uncertainty surrounding matters companies unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows scana legal proceedings following describes certain legal proceedings involving dominion energy scana desc relating events occurring closing scana combination dominion energy intends vigorously contest lawsuits claims assessments filed initiated scana desc reference disclosure proceeding item matter described shall construed admission indication proceeding item matter material certain matters unless otherwise noted therein dominion energy unable estimate reasonable range possible loss related financial statement impacts matter could material impact results operations financial condition andor cash flows matters dominion energy able reasonably estimate probable loss dominion energy’s consolidated balance sheets include reserves 696 million insurance receivables 111 million included within receivables december 31 2019 dominion energy’s consolidated statements income year ended december 31 2019 includes charges 641 million 480 million aftertax included within impairment assets charges included within corporate segment combined notes consolidated financial statements continued ratepayer class actions may 2018 consolidated complaint desc scana state south carolina filed state court common pleas hampton county south carolina desc ratepayer case september 2018 court certified case class action plaintiffs allege among things desc negligent unjustly enriched breached alleged fiduciary contractual duties committed fraud misrepresentation failing properly manage nnd project desc committed unfair trade practices violated state antitrust laws plaintiffs sought declaratory judgment desc may charge customers past continuing costs nnd project sought scana desc’s assets frozen monies recovered toshiba corporation sources placed constructive trust benefit ratepayers sought specific performance alleged implied contract construct nnd project december 2018 state court common pleas hampton county entered order granting preliminary approval class action settlement stay pretrial proceedings desc ratepayer case settlement agreement contingent upon closing scana combination provided scana desc would establish escrow account proceeds escrow account would distributed class members payment certain taxes attorneys’ fees expenses administrative costs escrow account would include 1 20 billion net credit 20 billion future electric bill relief would inure benefit escrow account favor class members period time established south carolina commission order related matters south carolina commission related nnd project 2 cash payment 115 million 3 transfer certain descowned real estate sales proceeds sale properties counsel desc ratepayer class estimate aggregate value 60 million 85 million closing scana combination scana desc funded cash payment portion escrow account court held fairness hearing settlement may 2019 june 2019 court entered order granting final approval settlement order became effective july 2019 july 2019 desc transferred 117 million representing cash payment plus accrued interest plaintiffs addition property plant equipment net recorded value 54 million process transferred plaintiffs coordination courtappointed real estate trustee satisfy settlement agreement september 2017 purported class action filed santee cooper ratepayers santee cooper desc palmetto electric cooperative inc central electric power cooperative inc state court common pleas hampton county south carolina santee cooper ratepayer case allegations substantially similar desc ratepayer case plaintiffs seek declaratory judgment defendants may charge purported class reimbursement past future costs nnd project march 2018 plaintiffs filed amended complaint including additional named defendants including certain current former directors santee cooper scana june 2018 santee cooper filed notice petition original jurisdiction supreme court south carolina december 2018 santee cooper filed answer plaintiffs’ fourth amended complaint filed cross claims desc denied october 2019 santee cooper voluntarily consented stay cross claims desc pending outcome trial underlying case november 2019 desc removed case us district court district south carolina december 2019 plaintiffs santee cooper filed motion remand case state court january 2020 case remanded state court february 2020 parties executed preliminary settlement term sheet relating matter well luquire case glibowski case described proposed settlement expected 520 million dominion energy’s portion 320 million parties currently negotiating settlement agreement based preliminary settlement term sheet presented court preliminary approval case pending july 2019 similar purported class action filed certain santee cooper ratepayers desc scana dominion energy former directors officers scana state court common pleas orangeburg south carolina luquire case august 2019 desc scana dominion energy voluntarily dismissed case claims similar santee cooper ratepayer case february 2020 parties executed preliminary settlement term sheet described relating matter well santee cooper ratepayer case glibowski case pending rico class action january 2018 purported class action filed subsequently amended scana desc certain former executive officers us district court district south carolina glibowski case plaintiff alleges among things scana desc individual defendants participated unlawful racketeering enterprise violation rico conspired violate rico fraudulently inflating utility bills generate unlawful proceeds desc ratepayer class action settlement described previously contemplates dismissal claims desc ratepayers case desc scana officers august 2019 individual defendants filed motions dismiss february 2020 parties executed preliminary settlement term sheet described relating matter well santee cooper ratepayer case luquire case pending scana shareholder litigation september 2017 purported class action filed scana certain former executive officers directors us district court district south carolina subsequent additional purported class actions separately filed nearly defendants january 2018 us district court district south carolina consolidated suits plaintiffs filed consolidated amended complaint march 2018 plaintiffs allege among things defendants violated §10b securities exchange act 1934 amended rule 10b5 promulgated thereunder individually named defendants liable §20a act june 2018 defendants filed motions dismiss march 2019 us district court district south carolina granted part denied part defendants’ motions dismiss december 2019 parties executed settlement agreement pursuant scana pay 1925 million 325 million satisfied issuance shares dominion energy common stock subject approval us district court district south carolina february 2020 us district court district south carolina granted preliminary approval settlement agreement pending fairness hearing september 2017 shareholder derivative action filed certain former executive officers directors scana state court common pleas richland county south carolina september 2018 action consolidated another action business court pilot program richland county plaintiffs allege among things defendants breached fiduciary duties shareholders gross mismanagement nnd project defendants unjustly enriched bonuses paid connection project defendants filed motion dismiss consolidated action february 2019 one action voluntarily dismissed case pending january 2018 purported class action filed scana dominion energy certain former executive officers directors scana state court common pleas lexington county south carolina city warren lawsuit plaintiff alleges among things defendants violated fiduciary duties shareholders executing merger agreement would unfairly deprive plaintiffs true value scana stock dominion energy aided abetted actions among remedies plaintiff seeks enjoin andor rescind merger february 2018 dominion energy removed case us district court district south carolina filed motion dismiss march 2018 june 2018 case remanded back state court common pleas lexington county dominion energy appealed decision remand us court appeals fourth circuit appeal consolidated similar appeal metzler lawsuit discussed june 2019 us court appeals fourth circuit reversed order remanding case state court case pending us district court district south carolina february 2018 purported class action filed dominion energy certain former directors scana desc state court common pleas richland county south carolina metzler lawsuit allegations made relief sought plaintiffs substantially similar described city warren lawsuit february 2018 dominion energy removed case us district court district south carolina filed motion dismiss march 2018 august 2018 case remanded back state court common pleas richland county dominion energy appealed decision remand us court appeals fourth circuit appeal consolidated city warren lawsuit june 2019 us court appeals fourth circuit reversed order remanding case state court case pending us district court district south carolina september 2019 us district court district south carolina granted plaintiffs’ motion consolidate city warren lawsuit metzler lawsuit october 2019 plaintiffs filed amended complaint certain former directors executive officers scana desc stated substantially similar allegations city warren lawsuit metzler lawsuit november 2019 defendants filed motion dismiss case pending may 2019 case filed certain former executive officers directors scana state court common pleas richland county south carolina plaintiffs allege among things defendants breached fiduciary duties shareholders gross mismanagement nnd project unjustly enriched bonuses paid connection project breached fiduciary duties secure obtain best price sale scana also may 2019 case removed us district court south carolina nonsouth carolina defendants june 2019 plaintiffs filed motion remand case state court january 2020 case remanded state court case pending employment class actions indemnification august 2017 case filed us district court district south carolina behalf persons formerly employed nnd project july 2018 court certified case class action february 2019 certain plaintiffs filed additional case dismissed plaintiffs joined case filed august 2017 plaintiffs allege among things scana desc fluor corporation fluor enterprises inc violated worker adjustment retraining notification act connection decision stop construction nnd project plaintiffs allege defendants failed provide adequate advance written notice terminations employment seeking damages could much 100 million 100 nnd project september 2018 case filed state court common pleas fairfield county south carolina fluor enterprises inc fluor daniel maintenance services inc desc santee cooper plaintiffs make claims indemnification breach contract promissory estoppel arising among things defendants’ alleged failure refusal defend indemnify fluor defendants aforementioned case cases pending filot litigation related matters november 2017 fairfield county filed complaint motion temporary injunction desc state court common pleas fairfield county south carolina making allegations breach contract fraud negligent misrepresentation breach fiduciary duty breach implied duty good faith fair dealing unfair trade practices related desc’s termination filot agreement desc fairfield county related nnd project plaintiff sought temporary permanent injunction prevent desc terminating filot agreement plaintiff withdrew motion temporary injunction december 2017 case pending governmental proceedings investigations june 2018 desc received notice proposed assessment approximately 410 million excluding interest scdor following audit desc’s sales use tax returns periods september 1 2008 december 31 2017 proposed assessment includes 100 nnd project based scdor’s position desc’s sales combined notes consolidated financial statements continued use tax exemption nnd project apply facility become operational desc protested proposed assessment remains pending september october 2017 scana served subpoenas issued us attorney’s office district south carolina staff sec’s division enforcement seeking documents related nnd project february 2020 sec filed complaint scana two former executive officers desc us district court district south carolina alleging defendants violated federal securities laws making false misleading statements nnd project addition south carolina law enforcement division conducting criminal investigation handling nnd project scana desc matters pending scana desc cooperating fully investigations including responding additional subpoenas document requests however dominion energy cannot currently predict whether extent scana desc may incur material liability litigation december 2018 arbitration proceedings commenced desc cameco corporation related supply agreement signed may 2008 agreement provides terms conditions desc agreed purchase uranium hexafluoride cameco corporation period 2010 2020 cameco corporation alleges desc violated agreement failing purchase stated quantities uranium hexafluoride 2017 2018 delivery years desc denies breach agreement believes reduced purchase quantity within terms agreement matter pending abandoned nnd project desc agent santee cooper entered engineering construction procurement contract westinghouse wectec 2008 design construction nnd project desc’s ownership share 55 various difficulties encountered connection project ability westinghouse wectec adhere established budgets construction schedules affected many variables including unanticipated difficulties encountered connection project engineering construction project components constrained financial resources contractors regulatory legal training construction processes associated securing approvals permits licenses necessary amendments within projected time frames availability labor materials estimated costs efficiency project labor also contractor supplier performance issues difficulties timely meeting critical regulatory requirements contract disputes changes key contractors subcontractors matters preceded filing bankruptcy protection westinghouse wectec march 2017 subject comprehensive analyses performed scana santee cooper based results scana’s analysis light santee cooper’s decision suspend construction nnd project july 2017 scana determined stop construction units pursue recovery costs incurred connection construction abandonment provisions base load review act means decision scana became focus numerous legislative regulatory legal proceedings remain unresolved described september 2017 desc agent santee cooper filed us bankruptcy court southern district new york proofs claim unliquidated damages westinghouse wectec proofs claim based upon anticipatory repudiation material breach westinghouse wectec contract assert westinghouse wectec claims based thereon may related thereto westinghouse’s reorganization plan confirmed us bankruptcy court southern district new york became effective august 2018 connection effectiveness reorganization plan contract associated nnd project deemed rejected desc contesting approximately 285 million filed liens fairfield county south carolina asserted liens claims relate work performed westinghouse subcontractors westinghouse bankruptcy although claims arising work performed westinghouse bankruptcy westinghouse indicated unsecured creditors sought may seek amounts beyond westinghouse allocated submitted reorganization plan us bankruptcy court southern district new york unsecured creditor successful attempt include claim part class general unsecured creditors beyond amounts bankruptcy reorganization plan allocated westinghouse possible reorganization plan provide payment full nearly full prepetition trade creditors shortfall could significant desc santee cooper responsible amounts owed westinghouse valid work performed westinghouse subcontractors nnd project westinghouse bankruptcy filing termination interim assessment agreement december 2019 desc santee cooper entered confidential settlement agreement w wind co llc resolving claims relating interim assessment agreement westinghouse subcontractors made claims westinghouse bankruptcy proceeding also filed desc santee cooper south carolina state court damages many claimants also asserted construction liens nnd project site desc also intends oppose claims liens respect claims westinghouse subcontractors desc believes sufficient amounts previously funded interim assessment agreement period pay validly asserted claims respect westinghouse subcontractor claims relate periods desc understands claims paid pursuant westinghouse’s confirmed bankruptcy reorganization plan desc understands amounts paid plan may satisfy claims full therefore desc believes westinghouse subcontractors may paid substantially potentially full westinghouse dominion energy cannot assured exposure account unpaid westinghouse subcontractor claims desc presently disputing dominion energy believes unlikely required make payments account claims appalachian gateway gas producers litigation connection appalachian gateway project dominion energy field services inc entered contracts firm purchase rights group small gas producers june 2016 gas producers filed complaint circuit court marshall county west virginia dominion energy deti dominion energy field services inc among defendants claiming contracts unenforceable seeking compensatory punitive damages third quarter 2016 dominion energy deti dominion energy field services inc served complaint also third quarter 2016 dominion energy deti consent defendants removed case us district court northern district west virginia october 2016 defendants filed motion dismiss plaintiffs filed motion remand february 2017 us district court entered order remanding matter circuit court marshall county west virginia march 2017 dominion energy voluntarily dismissed case however deti dominion energy field services inc remained parties matter april 2017 case transferred business court division west virginia january 2018 court granted motion dismiss filed defendants two counts 2019 claims settled dominion energy field services inc gas producers claims deti dominion energy field services inc dismissed material impact dominion energy dominion energy gas’ results operations financial condition cash flows ferc staff office enforcement division investigations conducted nonpublic investigation virginia power’s offers combustion turbines generators pjm dayahead markets april 2010 september 2014 ferc staff notified virginia power preliminary findings relating virginia power’s alleged violation ferc’s rules connection activities virginia power provided response ferc staff’s preliminary findings letter explaining virginia power’s conduct lawful refuting allegation wrongdoing may 2019 ferc issued order approving agreement virginia power ferc staff settled potential claims relating types activities subject investigation virginia power neither admits denies alleged violations paid 7 million disgorgement pjm 7 million penalty us department treasury nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews nrc industry groups institute nuclear power operations like us nuclear operators dominion energy gathered supporting data participated industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisted actions nrc staff determined started without unnecessary delay tier 2 3 items consisted items could initiated near term resource restraints need technical assessment dependent activities related higher priority tier 1 issues december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactor licensees construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion energy requiring implementation safety enhancements related mitigation strategies responding extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation implemented information requests issued nrc requested reactor licensee reevaluate seismic external flooding hazards facility using presentday methods information conduct walkdowns facility ensure protection hazards current design basis reevaluate emergency communications systems staffing levels walkdowns unit completed audited nrc found adequate reevaluation emergency communications systems staffing levels completed part effort comply orders reevaluation seismic hazards complete final nrc acceptance received dominion energy facilities reevaluation external flooding hazards complete dominion energy facilities however nrc acceptance external flooding hazards reevaluations millstone surry yet received nrc expected accept external flooding hazards analyses 2020 dominion energy virginia power currently expect compliance nrc’s information requests materially impact financial position results operations cash flows implementation period nrc staff resolved tier 2 tier 3 recommendations additional future actions part dominion energy anticipated respect recommendations therefore dominion energy virginia power expect material financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc combined notes consolidated financial statements continued 2019 calculation nrc minimum financial assurance amount aggregated dominion energy virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 28 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2019 nrc minimum financial assurance amounts calculated using preliminary december 31 2019 us bureau labor statistics indices dominion energy believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion energy virginia power continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial instruments recognized nrc see note 9 additional information nuclear decommissioning trust investments nuclear insurance priceanderson amendments act 1988 provides public 141 billion liability protection per site per nuclear incident basis via obligations required owners nuclear power plants allows inflationary provision adjustment every five years second quarter 2019 total liability protection per nuclear incident available participants secondary financial protection program decreased 141 billion 139 billion decrease impact dominion energy’s responsibility per active unit priceanderson amendments act 1988 dominion energy virginia power purchased 450 million coverage commercial insurance pools millstone surry north anna remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us dominion energy virginia power could assessed 138 million licensed reactors exceed 21 million per year per reactor limit number incidents retrospective premium assessed nrc granted exemption march 2015 remove kewaunee secondary financial protection program exemption permitted dominion energy reduce kewaunee’s required level liability coverage 100 million reduction implemented january 2018 following removal storage spent nuclear fuel spent fuel pool current levels nuclear property insurance coverage dominion energy virginia power’s nuclear units follows 1 surry north anna share blanket property limit 200 million dominion energy virginia power’s nuclear property insurance coverage millstone surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site march 2015 nrc granted exemption allowed kewaunee reduce property insurance limit 50 million reduction implemented january 2018 following removal storage spent nuclear fuel spent fuel pool includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion energy virginia power’s maximum retrospective premium assessment current policy period 81 million 50 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion energy virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination millstone virginia power also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program dominion energy virginia power subject retrospective premium assessment policy year losses exceed funds available neil dominion energy virginia power’s maximum retrospective premium assessment current policy period 31 million 10 million respectively odec part owner north anna massachusetts municipal green mountain part owners millstone’s unit 3 responsible dominion energy virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance priceanderson desc behalf santeecooper maintains agreements indemnity nrc together private insurance cover thirdparty liability arising nuclear incident occurring summer priceanderson provides funds 140 billion public liability claims could arise single nuclear incident nuclear plant insured liability maximum 450 million american nuclear insurers remaining coverage provided mandatory program deferred premiums could assessed nuclear incident owners commercial nuclear reactors reactor licensee liable 138 million per reactor owned nuclear incident occurring reactor us provided 21 million liability per reactor would assessed per year desc’s maximum assessment based twothirds ownership summer would 92 million per incident 14 million per year maximum assessment per reactor maximum yearly assessment adjusted inflation least every five years desc currently maintains insurance policies behalf santee cooper neil policies provide coverage summer property damage outage costs 275 billion resulting event nuclear origin 233 billion resulting event nonnuclear origin neil policies aggregate subject maximum loss 275 billion single loss occurrence neil policies permit retrospective assessments certain conditions cover insurer’s losses based current annual premium desc’s portion retrospective premium assessment would exceed 24 million desc currently maintains excess property insurance policy behalf santee cooper european mutual association nuclear insurance policy provides coverage summer property damage outage costs 415 million resulting event nonnuclear origin european mutual association nuclear insurance policy permits retrospective assessments certain conditions cover insurer’s losses based current annual premium desc’s portion retrospective premium assessment would exceed 2 million extent insurable claims property damage decontamination repair replacement costs expenses arising incident summer exceed policy limits insurance extent insurance becomes unavailable future extent desc’s rates would recover cost purchased replacement power desc retain risk loss selfinsurer desc reason anticipate serious nuclear incident however incident occur likely would material impact desc’s results operations cash flows financial position spent nuclear fuel dominion energy virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act dominion energy virginia power’s contracts doe dominion energy virginia power previously received damages award payments settlement payments related contracts mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 settlement agreements surry north anna millstone nuclear power stations extended provide periodic payments damages incurred december 31 2019 additional extensions contemplated settlement agreements similar agreement summer extends doe accepted amount spent fuel facility fully performed contractual obligations june 2018 lawsuit kewaunee filed us court federal claims recovery spent nuclear fuel storage costs incurred period january 1 2014 december 31 2017 march 2019 dominion energy amended filing recovery spent nuclear fuel storage include costs incurred year ended december 31 2018 matter pending 2019 virginia power received payments 15 million resolution claims incurred north anna surry period january 1 2017 december 31 2017 11 million resolution claims incurred millstone period july 1 2017 june 30 2018 2019 dominion energy received payment 3 million resolution share claims incurred summer period january 1 2018 december 31 2018 virginia power dominion energy received payments 16 million resolution claims incurred north anna surry period january 1 2016 december 31 2016 13 million resolution claims incurred millstone period july 1 2016 june 30 2017 virginia power dominion energy received payments 22 million resolution claims incurred north anna surry period january 1 2015 december 31 2015 14 million resolution claims incurred millstone period july 1 2015 june 30 2016 dominion energy virginia power continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion energy’s receivables spent nuclear fuelrelated costs totaled 52 million 49 million december 31 2019 2018 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 35 million 30 million december 31 2019 2018 respectively dominion energy virginia power continue manage spent fuel accepted doe longterm purchase agreements december 31 2019 dominion energy following longterm commitments noncancelable cancelable certain conditions third party used secure financing facility provide contracted goods services 1 commitments represent estimated amounts payable energy power purchase contracts qualifying facilities expire various dates 2046 energy payments generally based fixed dollar amounts per month totaled 29 million year ended december 31 2019 guarantees surety bonds letters credit october 2017 dominion energy entered guarantee agreement support portion atlantic coast pipeline’s obligation 34 billion revolving credit facility combined notes consolidated financial statements continued stated maturity date october 2021 dominion energy’s maximum potential loss exposure terms guarantee limited 48 outstanding borrowings revolving credit facility equal percentage dominion energy’s ownership atlantic coast pipeline december 31 2019 atlantic coast pipeline borrowed 18 billion revolving credit facility borrowed additional 27 million january february 2020 dominion energy’s consolidated balance sheet includes liability 14 million 21 million associated guarantee agreement december 31 2019 2018 respectively addition december 31 2019 dominion energy issued additional 27 million guarantees primarily support equity method investees amounts related guarantees recorded dominion energy also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties subsidiaries fail perform pay contracts counterparties seek performance payment dominion energy would obligated satisfy obligation extent liability subject guarantee incurred one dominion energy’s consolidated subsidiaries liability included consolidated financial statements dominion energy required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion energy currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2019 dominion energy issued following subsidiary guarantees 1 guarantees related commodity commitments certain subsidiaries guarantees provided counterparties order facilitate physical financial transaction related commodities services 2 guarantees primarily related certain dgi subsidiaries’ regarding aspects running nuclear facility 3 guarantees related cove point support terminal services transportation construction cove point two guarantees maximum limit therefore included amount 4 includes guarantees facilitate development solar projects also includes guarantees entered dgi behalf certain subsidiaries facilitate acquisition development solar projects 5 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects insurance programs due uncertainty worker’s compensation claims parental guarantee stated limit 6 excludes dominion energy’s guarantees new corporate office properties discussed within note 15 additionally december 31 2019 dominion energy purchased 163 million surety bonds including 77 million virginia power 26 million dominion energy gas authorized issuance letters credit financial institutions 89 million facilitate commercial transactions subsidiaries third parties terms surety bonds companies obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business companies may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law companies unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2019 companies believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position note 24 credit risk dominion energy diversified energy company dominion energy transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest rocky mountain southeast regions us dominion energy believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion energy exposed significant concentration credit risk receivables arising electric gas utility operations dominion energy’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion energy transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2019 dominion energy’s credit exposure totaled 233 million amount investment grade counterparties including internally rated represented 88 single counterparty whether investment grade noninvestment grade exceeded 61 million exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2019 virginia power’s credit exposure totaled 71 million amount investment grade counterparties including internally rated represented 96 single counterparty exceeded 61 million exposure dominion energy gas dominion energy gas transacts mainly major companies energy industry transactions principally occur eastern rocky mountain regions us dominion energy gas believe geographic concentration contributes overall exposure credit risk addition result large diverse customer base dominion energy gas exposed significant concentration credit risk receivables arising regulated operations dominion energy gas’ gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2019 dominion energy gas’ credit exposure totaled 46 million amount investment grade counterparties including internally rated represented 81 single counterparty whether investment grade noninvestment grade exceeded 9 million exposure upon liquefaction facility commencing commercial operations april 2018 majority cove point’s revenue earnings expected generated annual reservation payments certain terminalling storage transportation contracts export customers agreements terminated cove point unable replace agreements comparable terms could material impact results operations financial condition andor cash flows export customers comprised approximately 34 32 dominion energy gas’ operating revenues years ended december 31 2019 2018 respectively dominion energy gas’ largest customer representing approximately 17 12 amounts 2019 deti provided service 296 customers approximately 98 storage transportation revenue provided firm services ten largest customers provided approximately 38 total storage transportation revenue thirty largest provided approximately 72 total storage transportation revenue creditrelated contingent provisions majority dominion energy’s derivative instruments contain creditrelated contingent provisions require dominion energy provide collateral upon occurrence specific events primarily credit rating downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2019 2018 dominion energy would required post additional 10 million 1 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion energy posted collateral december 31 2019 2018 related derivatives creditrelated contingent provisions liability position fully collateralized cash aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2019 2018 10 million 1 million respectively include impact offsetting asset positions creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2019 virginia power would required post additional 8 million collateral counterparties creditrelated contingent provisions virginia power material december 31 2018 creditrelated contingent provisions dominion energy gas material december 31 2019 2018 see note 7 information derivative instruments note 25 relatedparty transactions virginia power dominion energy gas engage related party transactions primarily dominion energy subsidiaries affiliates virginia power dominion energy gas’ receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power dominion energy gas included dominion energy’s consolidated federal income tax return applicable combined income tax returns dominion energy filed various states see note 2 information dominion energy’s transactions equity method investments described note 9 discussion significant related party transactions follows virginia power transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised forward commodity purchases manage commodity price risks associated purchases natural gas see notes 7 19 information december 31 2019 virginia power’s derivative assets liabilities affiliates 3 million 53 million respectively december 31 2018 virginia power’s derivative assets liabilities affiliates 26 million 10 million respectively virginia power participates certain dominion energy benefit plans described note 22 december 31 2019 2018 virginia power’s amounts due dominion energy associated dominion energy pension plan combined notes consolidated financial statements continued reflected noncurrent pension postretirement benefit liabilities consolidated balance sheets 782 million 632 million respectively december 31 2019 2018 virginia power’s amounts due dominion energy associated dominion energy retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 287 million 254 million respectively des affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage financial statements years presented include costs certain general administrative corporate expenses assigned des virginia power basis direct allocated methods accordance virginia power’s services agreements des costs incurred cannot determined specific identification costs allocated based proportional level effort devoted des resources attributable entity determined reference number employees salaries wages similar measures relevant des service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable presented significant transactions des affiliates 1 includes capitalized expenditures 133 million 145 million 144 million year ended december 31 2019 2018 2017 respectively virginia power borrowed funds dominion energy shortterm borrowing arrangements 107 million 224 million shortterm demand note borrowings dominion energy december 31 2019 2018 respectively weightedaverage interest rate borrowings 322 294 december 31 2019 2018 respectively virginia power outstanding borrowings net repayments dominion energy money pool nonregulated subsidiaries december 31 2019 2018 interest charges related virginia power’s borrowings dominion energy immaterial years ended december 31 2019 2018 2017 issuances virginia power’s common stock dominion energy 2019 2018 2017 dominion energy gas transactions related parties dominion energy gas transacts affiliates certain quantities natural gas commodities market prices ordinary course business additionally dominion energy gas provides transportation storage services affiliates dominion energy gas also enters certain contracts affiliates related parties including construction services presented separately contracts involving commodities services december 31 2019 2018 dominion energy gas commodity derivative assets liabilities see notes 7 20 information see note 9 information regarding transactions affiliate see note 3 information regarding dominion energy gas restructuring affiliated transaction dominion energy gas participates certain dominion energy benefit plans described note 22 december 31 2019 2018 dominion energy gas’ amounts due dominion energy associated dominion energy pension plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 326 million 319 million respectively dominion energy gas’ amounts due dominion energy associated dominion energy retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 17 million 13 million december 31 2019 2018 respectively des decgs deqps affiliates provide accounting legal finance certain administrative technical services dominion energy gas dominion energy gas provides certain services related parties including technical services financial statements years presented include costs certain general administrative corporate expenses assigned des decgs deqps dominion energy gas basis direct allocated methods accordance dominion energy gas’ services agreements des decgs deqps costs incurred cannot determined specific identification costs allocated based proportional level effort devoted des decgs deqps resources attributable entity determined reference number employees salaries wages similar measures relevant des service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable costs services follow 1 includes capitalized expenditures 19 million 37 million 53 million year ended december 31 2019 2018 2017 respectively 2 amounts primarily attributable atlantic coast pipeline related party vie following table presents affiliated related party balances reflected dominion energy gas’ consolidated balance sheets 1 represents amounts due atlantic coast pipeline related party vie 2 amounts presented current liabilities dominion energy gas’ consolidated balance sheets affiliated receivables december 31 2019 december 31 2018 included 22 million 7 million accrued unbilled revenue respectively revenue based estimated amounts services provided yet billed various affiliates affiliated notes receivable east ohio dgp borrowings irca dominion energy gas 704 million december 31 2018 interest income ircas 14 million 15 million 5 million years ended december 31 2019 2018 2017 respectively 2016 dmlphcii issued fiveyear 150 million promissory note dominion energy interest rate fixed 275 per annum interest income earned promissory note immaterial years ended december 31 2019 2018 2017 2018 connection closing 30 billion term loan cove point loaned dominion energy 30 billion exchange promissory note promissory note annual interest rate 36 payable quarterly scheduled mature 2021 interest income related dominion energy’s borrowing 82 million 21 million years ended december 31 2019 december 31 2018 respectively presented income consolidated statements income accrued interest immaterial december 31 2018 presented affiliated receivables consolidated balance sheets september 2019 dominion energy repaid promissory note cove point proceeds used cove point repay 30 billion term loan november 2019 dominion energy gas issued fiveyear promissory note dominion energy may lend 30 billion dominion energy gas’ affiliated notes receivable dominion energy totaled 18 billion december 31 2019 promissory note fixed annual interest rate 25 payable quarterly interest income promissory note 5 million year ended december 31 2019 december 31 2019 2018 dominion energy gas’ affiliated notes receivable east ohio totaled 17 billion 14 billion respectively promissory notes fixed annual interest rates 367 490 payable semiannually interest income promissory notes 72 million year ended december 31 2019 64 million years ended december 31 2018 2017 dominion energy gas’ borrowings irca dominion energy totaled 251 million 218 million december 31 2019 2018 respectively weightedaverage interest rate borrowings 202 278 december 31 2019 2018 respectively interest charges related dominion energy gas’ total borrowings dominion energy 3 million december 31 2019 less 1 million december 31 2018 2017 respectively dcp borrowings irca dominion energy 28 billion december 31 2018 weightedaverage interest rate borrowings 343 december 31 2018 october 2019 dcp repaid outstanding balance accrued interest utilizing funds capital contribution dominion energy interest charges related dcp’s total borrowings dominion energy totaled 94 million 96 million 82 million years ended december 31 2019 2018 2017 respectively addition dcp borrowings 9 million 57 million des december 31 2019 2018 respectively weightedaverage interest rate borrowings 385 345 december 31 2019 2018 respectively interest related dcp’s total borrowings des totaled 3 million 1 million less 1 million years ended december 31 2019 2018 2017 respectively dmlphcii borrowings irca dominion energy 22 million december 31 2018 weightedaverage interest rate borrowings 343 december 31 2018 october 2019 dmlphcii repaid outstanding balance accrued interest utilizing funds capital contribution dominion energy interest charges related dmlphcii’s total borrowings dominion energy less 1 million years ended december 31 2019 2018 2017 first quarter 2019 dominion energy midstream borrowed 395 million dominion energy 400 million promissory note dominion energy scheduled mature 2022 interest rate fixed 35 per annum october 2019 dominion energy midstream repaid outstanding balance accrued interest utilizing funds capital contribution dominion energy interest charges 10 million incurred year ended december 31 2019 periods ending december 31 2019 2018 2017 dominion energy gas including entities acquired dominion energy gas restructuring distributed 603 million 230 million 239 million dominion energy respectively note 26 operating segments companies organized primarily basis products services sold us description operations included companies’ primary operating segments follows combined notes consolidated financial statements continued 1 includes virginia power’s nonjurisdictional generation operations 2 includes gathering processing activities 3 includes wexpro’s natural gas development production operations addition operating segments companies also report corporate segment dominion energy corporate segment dominion energy includes corporate service companies functions including unallocated debt addition corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources 2019 dominion energy reported aftertax net expenses 26 billion corporate segment 20 billion net expenses attributable specific items related operating segments net expenses specific items 2019 primarily related impact following items • 10 billion 756 million aftertax charge refunds amounts previously collected retail electric customers desc nnd project attributable dominion energy south carolina • 641 million 480 million aftertax charges associated litigation acquired scana combination attributable dominion energy south carolina • 484 million 315 million aftertax charges merger integrationrelated costs associated scana combination including 444 million 332 million aftertax charge related voluntary retirement program attributable • dominion energy virginia 151 million aftertax • gas distribution 56 million aftertax • dominion energy south carolina 75 million aftertax • contracted generation 38 million aftertax partially offset • gas transmission storage 5 million aftertax benefit • 346 million 257 million aftertax charge related early retirement certain virginia power electric generation facilities attributable dominion energy virginia • 194 million tax charge 258 million income taxrelated regulatory assets acquired scana combination dominion energy committed forgo recovery attributable dominion energy south carolina • 160 million 119 million aftertax charge related virginia power’s planned early retirement certain automated meter reading infrastructure attributable dominion energy virginia • 135 million 100 million aftertax charge related virginia power’s contract termination nonutility generator attributable dominion energy virginia • 114 million 86 million aftertax charge property plant equipment acquired scana combination primarily dominion energy committed forgo recovery attributable dominion energy south carolina partially offset • 553 million 411 million aftertax net gain related investments nuclear decommissioning trust funds attributable • dominion energy virginia 49 million aftertax • contracted generation 362 million aftertax • 113 million 84 million aftertax benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 attributable dominion energy virginia 2018 dominion energy reported aftertax net expenses 611 million corporate segment 88 million net expenses attributable specific items related operating segments net expenses specific items 2018 primarily related impact following items • 219 million 164 million aftertax charge related impairment certain gathering processing assets attributable gas transmission storage • 215 million 160 million aftertax charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers attributable dominion energy virginia • 170 million 134 million aftertax net loss related investments nuclear decommissioning trust funds attributable • dominion energy virginia 14 million aftertax • contracted generation 120 million aftertax • 124 million 88 million aftertax charge disallowance fercregulated plant attributable gas transmission storage • 81 million 60 million aftertax charge associated primarily asset retirement obligations ash ponds landfills certain utility generation facilities connection enactment virginia legislation april 2018 attributable dominion energy virginia • 70 million 52 million aftertax charge associated major storm damage service restoration attributable dominion energy virginia partially offset • 828 million 619 million aftertax benefit associated sale certain merchant generation facilities equity method investments attributable • contracted generation 229 million aftertax • gas transmission storage 390 million aftertax 2017 dominion energy reported aftertax net benefits 377 million corporate segment 861 million net benefits attributable specific items related operating segments net benefits specific items 2017 primarily related impact following items • 10 billion tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act primarily attributable • dominion energy virginia 83 million • gas transmission storage 302 million • gas distribution 56 million • contracted generation 569 million partially offset • 158 million 96 million aftertax charges associated equity method investments windpowered generation facilities attributable contracted generation following table presents segment information pertaining dominion energy’s operations intersegment sales transfers dominion energy based contractual arrangements may result intersegment profit loss eliminated consolidation combined notes consolidated financial statements continued virginia power corporate segment virginia power primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources 2019 virginia power reported aftertax net expenses 634 million corporate segment 627 million net expenses attributable operating segment net expenses specific items 2019 primarily related impact following items • 346 million 257 million aftertax charge related early retirement certain electric generation facilities • 198 million 146 million aftertax charge related voluntary retirement program • 160 million 119 million aftertax charge related planned early retirement certain automated meter reading infrastructure • 135 million 100 million aftertax charge related contract termination nonutility generator • 62 million 46 million aftertax charge related abandonment project electric generating facility partially offset • 113 million 84 million aftertax benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 2018 virginia power reported aftertax net expenses 312 million corporate segment attributable primary operating segment net expenses specific items 2018 primarily related impact following items • 215 million 160 million aftertax charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers • 81 million 60 million aftertax charge associated primarily asset retirement obligations ash ponds landfills certain utility generation facilities connection enactment virginia legislation april 2018 • 70 million 52 million aftertax charge associated major storm damage service restoration 2017 virginia power reported aftertax net benefit 74 million corporate segment attributable primary operating segment net benefit specific items 2017 primarily related impact following item • 93 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act following table presents segment information pertaining virginia power’s operations dominion energy gas corporate segment dominion energy gas primarily includes specific items attributable dominion energy gas’ operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion energy gas result dominion energy’s basis net assets contributed addition corporate includes net impact discontinued operations discussed note 3 2019 dominion energy gas reported aftertax net benefit 127 million corporate segment 12 million net expense attributable operating segment net expense specific items 2019 primarily related impact following items • 48 million tax benefit resulting changes tax status certain subsidiaries connection dominion energy gas restructuring • 42 million 31 million aftertax charge related voluntary retirement program 2018 dominion energy gas reported aftertax net expenses 90 million corporate segment 107 million net expenses attributable operating segment net expense specific items 2018 primarily related 124 million 88 million aftertax charge disallowance fercregulated plant 2017 dominion energy gas reported aftertax net benefit 389 million corporate segment 156 million net benefit attributable operating segment net benefit specific items 2017 primarily related 169 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act following table presents segment information pertaining dominion energy gas’ operations combined notes consolidated financial statements continued note 27 quarterly financial data unaudited summary companies’ quarterly results operations years ended december 31 2019 2018 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion energy dominion energy’s 2019 results include impact following significant items • fourth quarter results include 244 million aftertax charge related litigation acquired scana combination offset 150 million net gain related nuclear decommissioning trust funds • second quarter results include 316 million aftertax charge related voluntary retirement program 100 million aftertax charge related contract termination nonutility generator 75 million aftertax charge litigation acquired scana combination • first quarter results include 13 billion aftertax merger integrationrelated costs related scana combination inclusive 756 million aftertax charge refunds amounts previously collected retail electric customers desc nnd project 277 million aftertax charge certain regulatory assets property plant equipment acquired scana combination dominion energy committed forego recovery 134 million aftertax charge litigation acquired scana combination 409 million aftertax charge planned early retirement certain virginia power electric generation facilities automated metering reading infrastructure partially offset 197 million aftertax net gain related nuclear decommissioning trust funds 84 million aftertax revision future ash ponds landfill closure costs dominion energy’s 2018 results include impact following significant items • fourth quarter results include 536 million aftertax gains sale certain merchant generation facilities equity method investments partially offset 164 million aftertax impairment charge certain gathering processing assets • second quarter results include 89 million aftertax charge disallowance fercregulated plant • first quarter results include 160 million aftertax charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers virginia power virginia power’s quarterly results operations follows virginia power’s 2019 results include impact following significant item • second quarter results include 144 million aftertax charge related voluntary retirement program 100 million aftertax charge related contract termination nonutility generator 47 million aftertax charge abandonment project electric generation facility • first quarter results include 409 million aftertax charge planned early retirement certain electric generation facilities automated metering reading infrastructure partially offset 84 million aftertax revision future ash ponds landfill closure costs virginia power’s 2018 results include impact following significant item • first quarter results include 160 million aftertax charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers dominion energy gas dominion energy gas’ quarterly results operations follows dominion energy gas’s 2019 results include impact following significant items • second quarter results include 58 million aftertax charge related voluntary retirement program including 32 million discontinued operations dominion energy gas’s 2018 results include impact following significant items • fourth quarter results include 165 million aftertax impairment charge certain gathering processing assets included discontinued operations • second quarter results include 89 million aftertax charge disallowance fercregulated plant combined notes consolidated financial statements continued item 9 item 8 financial statements supplementary data index page report independent registered public accounting firm consolidated statements income years ended december 31 2008 2007 2006 consolidated balance sheets december 31 2008 2007 consolidated statements common shareholder’s equity december 31 2008 2007 2006 years ended consolidated statements comprehensive income december 31 2008 2007 2006 years ended consolidated statements cash flows years ended december 31 2008 2007 2006 notes consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion subsidiaries “company” december 31 2008 2007 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2008 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2008 2007 results operations cash flows three years period ended december 31 2008 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements company changed methods accounting adopt new accounting standards fair value measurements 2008 uncertain tax positions 2007 deloitte touche llp richmond virginia february 24 2009 consolidated statements income 1 2007 2006 consolidated statements income recast reflect revised derivative income statement classification policy described note 2 consolidated financial statements 2 reflects 259 million 158 million aftertax extraordinary charge connection reapplication sfas 71 accounting certain types regulation virginia jurisdiction generation operations accompanying notes integral part consolidated financial statements consolidated balance sheets 1 300000 shares authorized 209833 shares 198047 shares outstanding december 31 2008 2007 respectively accompanying notes integral part consolidated financial statements consolidated statements common shareholder’s equity accompanying notes integral part consolidated financial statements consolidated statements comprehensive income accompanying notes integral part consolidated financial statements consolidated statements cash flows accompanying notes integral part consolidated financial statements notes consolidated financial statements note 1 nature operations virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina december 31 2008 served approximately 24 million retail customer accounts including governmental agencies well wholesale customers rural electric cooperatives municipalities member pjm rto electric transmission facilities integrated pjm wholesale electricity markets common stock owned parent company dominion manage daily operations two primary operating segments dvp generation addition also report corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments assets remain wholly owned us legal subsidiaries terms “company” “we” “our” “us” used throughout report depending context use may represent following legal entity virginia power one consolidated subsidiaries operating segments entirety virginia power including virginia north carolina operations consolidated subsidiaries note 2 significant accounting policies general make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses periods presented actual results may differ estimates consolidated financial statements include eliminating intercompany transactions balances accounts majorityowned subsidiaries accordance gaap report certain contracts instruments fair value see note 6 information fair value measurements accordance sfas 157 certain amounts 2007 2006 consolidated financial statements footnotes recast conform 2008 presentation see note 3 discussion recast 2007 consolidated balance sheet due adoption fsp fin 391 amendment fin 39 offsetting amounts related certain contracts additionally fourth quarter 2008 revised derivative income statement classification policy described derivative instruments present income statement activity nontrading derivatives based nature underlying risk includes unrealized changes fair value settlements financiallysettled derivatives held trading purposes well gains losses attributable ineffectiveness changes time value options discontinuances hedging instruments previously presented operations maintenance expense net basis prior year consolidated statements income recast conform 2008 presentation however impact earnings reapplication sfas 71 march 1999 discontinued application sfas 71 majority generation operations upon enactment deregulation legislation virginia transmission distribution operations continued apply provisions sfas 71 since remained subject costofservice rate regulation april 2007 virginia general assembly passed legislation returned virginia jurisdiction generation operations costofservice rate regulation result reapplied provisions sfas 71 operations april 4 2007 date legislation enacted connection reapplication sfas 71 operations prospectively changed certain accounting policies used costofservice rateregulated entities extraordinary item discussed overall impact changes material results operations financial condition 2007 policy changes discussed derivative instruments investments property plant equipment asset retirement obligations reapplication sfas 71 virginia jurisdiction generation operations resulted 259 million 158 million tax extraordinary charge reclassification 195 million 119 million tax unrealized gains aoci related nuclear decommissioning trust funds established 454 million longterm regulatory liability amounts previously collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning nuclear generation stations excess amounts recorded pursuant sfas 143 operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers customer receivables december 31 2008 2007 included 341 million 270 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers estimate unbilled revenue based historical usage applicable customer rates weather factors total daily electric generation supplied adjusting estimated losses energy transmission primary types sales service activities reported operating revenue follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily excess generation sold marketbased rates miscellaneous service revenue electric distribution operations miscellaneous revenue accounted less ten percent operating revenue 2008 2007 2006 electric fuel purchased energydeferred costs permitted regulatory authorities differences notes consolidated financial statements continued actual electric fuel purchased energy expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability electric fuel purchased energy expenses effective january 1 2004 fuel factor provisions virginia retail customers fixed july 1 2007 effective july 1 2007 2008 fuel factor adjusted discussed virginia fuel expenses note 20 cost fuel used electric generation energy purchases serve utility customers approximately 82 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms income taxes file consolidated federal income tax return participate intercompany tax sharing agreement dominion subsidiaries addition applicable file combined income tax returns dominion subsidiaries various states otherwise file separate state income tax returns current income taxes based taxable income loss determined separate company basis sfas 109 accounting income taxes requires asset liability approach accounting income taxes deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes establish valuation allowance likely portion deferred tax asset realized permitted regulatory authorities treatment temporary differences may differ requirements sfas 109 accordingly regulatory asset recognized probable future revenues provided payment deferred tax liabilities effective january 1 2007 adopted fin 48 financial statements recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information conclude morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities current payables included accrued interest payroll taxes except amounts presented net amounts receivable amounts prepaid tax authorities prepayments prior adoption fin 48 established liabilities taxrelated contingencies incurrence liability determined probable amount could reasonably estimated accordance sfas 5 reviewed light changing facts circumstances recognize changes estimated interest payable net underpayments overpayments income taxes interest expense estimated penalties may result settlement uncertain tax positions income consolidated statements income 2008 2007 2006 recognized reductions interest expense 4 million 6 million 1 million respectively penalties december 31 2008 accrued 9 million interest receivable 2 million interest payable penalties december 31 2007 accrued 5 million interest receivable 2 million interest payable penalties deferred investment tax credits amortized service lives properties giving rise credits december 31 2008 consolidated balance sheet included 3 million prepaid state income taxes recorded prepayments 6 million federal state income taxes payable recorded accrued interest payroll taxes 106 million federal state income taxes payable recorded deferred credits liabilities december 31 2007 consolidated balance sheet included 136 million prepaid federal state income taxes recorded prepayments 106 million federal state income taxes payable recorded deferred credits liabilities 33 million receivable dominion tax refunds recorded affiliated receivables cash equivalents current banking arrangements generally require checks funded presented payment december 31 2008 2007 accounts payable included 23 million 31 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows consider cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments use derivative instruments futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations sfas 133 accounting derivative instruments hedging activities requires derivatives except exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accountingnormal purchases normal salesmay elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance manage price risk hold certain derivative instruments designated hedges accounting purposes however extent hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates income statement activity including amounts realized upon settlement derivative contracts presented operating revenue operating expense interest related charges based nature underlying risk previously discussed former derivative income statement classification policy activity presented operations maintenance expense net basis following revision policy fourth quarter 2008 prior year consolidated statements income recast conform 2008 presentation generally recognize revenue expense nonderivative energyrelated contracts gross basis time contract performance settlement termination following reapplication sfas 71 jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities realized gains losses derivative instruments subject regulatory accounting generally recognized related transactions impact earnings derivative instruments designated hedging instruments designate certain derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also exclude certain gains losses hedging instruments measurement hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings discontinue hedge accounting prospectively derivatives cease highly effective hedges following reapplication sfas 71 jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities realized gains losses derivative instruments generally recognized related transactions impact earnings cash flow hedgesa portion hedge strategies represents cash flow hedges variable price risk associated purchase natural gas electricity energyrelated products also use foreign currency forward option contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions hedging variability cash flows changes fair value derivative reported aoci extent effective offsetting changes hedged item reclassify derivative gains losses reported aoci earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions discontinue hedge accounting occurrence forecasted transaction determined longer probable fair value hedgeswe use designated interest rate swaps fair value hedges certain fixedrate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value reclassify derivative gains losses hedged item earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting fair value hedge transactions discontinue hedge accounting hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives sfas 157 investments marketable equity debt securities account classify investments marketable equity debt securities held nuclear decommissioning trusts availableforsale securities investments reported fair value nuclear decommissioning trust funds consolidated balance sheets upon reapplication sfas 71 april 2007 utility generation operations net realized unrealized gains losses including otherthantemporary impairments investments held utility nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation continue report realized gains losses including otherthantemporary impairments jurisdictions subject costbased regulation income unrealized gains component aoci net tax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include  equity method investments ability exercise significant influence control investee investments recorded investments consolidated balance sheets record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions adjustments required equity method  cost method investments ability exercise significant influence investee notes consolidated financial statements continued investments included investments nuclear decommissioning trust funds temporary impairment periodically review investments determine whether decline fair value considered temporary use several criteria evaluate otherthantemporary declines including length time market value lower cost percentage decline compared cost expected fair value security decline fair value security determined temporary security written fair value end reporting period method assessing otherthan temporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since limited ability oversee daytoday management nuclear decommissioning trust fund investments ability hold individual securities trusts anticipated recovery period accordingly consider securities held nuclear decommissioning trusts market values cost bases otherthan temporarily impaired property plant equipment property plant equipment including additions replacements recorded original cost consisting labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements charged expense incurred 2008 2007 2006 capitalized interest costs afudc 21 million 27 million 21 million property plant equipment respectively upon reapplication sfas 71 virginia jurisdiction generation operations april 2007 discontinued capitalizing interest generationrelated construction projects since virginia commission previously allowed current recovery construction financing costs current virginia legislation certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset prior implementation rate adjustment clause capitalized property plant equipment 2008 2007 recorded 18 million 1 million afudc related projects respectively property subject costofservice rate regulation including electric distribution electric transmission utility generation property effective april 2007 undepreciated cost property less salvage value charged accumulated depreciation retirement gains losses recorded sales property cost removal collections utility customers expenditures representing aros recorded regulatory liabilities property subject costofservice rate regulation including utility generation property prior reapplication sfas 71 virginia jurisdiction utility generation operations april 2007 cost removal associated aros charged expense incurred also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives depreciation rates utility property plant equipment follows 1 october 2007 revised depreciation rates generation assets reflect results new depreciation study incorporates property plant equipment accounting policy changes made upon reapplication sfas 71 well updates assumptions change increased annual depreciation expense approximately 54 million 33 million tax nuclear fuel used electric generation amortized estimated service life unitsofproduction basis report amortization nuclear fuel electric fuel energy purchases expense consolidated statements income depreciation amortization consolidated statements cash flows emissions allowances emissions allowances issued epa permit holder allowance emit certain gaseous byproducts fossil fuel combustion including so2 nox allowances may transacted third parties consumed emissions generated allowances allocated acquired generation operations held primarily consumption classified intangible assets consolidated balance sheets carrying amounts based cost acquire allowances issued directly us epa carried zero cost emissions allowances amortized periods emissions generated amortization reflected depreciation amortization expense consolidated statements income report purchases sales allowances investing activities consolidated statements cash flows gains losses resulting sales operations maintenance expense consolidated statements income impairment longlived intangible assets perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount regulatory assets liabilities utility operations subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets amortized expense regulatory liabilities amortized income period authorized regulator asset retirement obligations recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts capitalized costs related tangible longlived assets since relevant market information available estimate fair value using discounted cash flow analyses reapplication sfas 71 virginia jurisdiction generation operations april 2007 report accretion aros associated nuclear decommissioning due passage time adjustment related regulatory liability certain jurisdictions previously reported expense operations maintenance expense consolidated statements income report accretion aros operations maintenance expense consolidated statements income amortization debt issuance costs defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issues note 3 newly adopted accounting standards sfas 157 adopted provisions sfas 157 effective january 1 2008 sfas 157 defines fair value establishes framework measuring fair value expands disclosures related fair value measurements sfas 157 applies broadly financial nonfinancial assets liabilities measured fair value authoritative accounting pronouncements expand application fair value accounting new circumstances generally provisions statement applied prospectively certain situations however require retrospective application beginning year adoption recognition cumulative effect accounting change retrospective application required financial instruments including derivatives certain hybrid instruments limitations initial gains losses eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities sfas 155 accounting certain hybrid financial instruments retrospective application result cumulative effect accounting change retained earnings january 1 2008 february 2008 fasb issued fsp fas 1571 application fasb statement 157 fasb statement 13 accounting pronouncements address fair value measurements purposes lease classification measurement statement 13 excludes leasing transactions scope sfas 157 however exclusion apply fair value measurements assets liabilities recorded result lease transaction measured pursuant pronouncements within scope sfas 157 february 2008 fasb issued fsp fas 1572 effective date fasb statement 157 delays effective date sfas 157 one year january 1 2009 nonfinancial assets liabilities except recognized disclosed fair value financial statements recurring basis least annually company delays effective date sfas 157 primarily intangibles property plant equipment aros october 2008 fasb issued fsp fas 1573 determining fair value financial asset market asset active clarifies application sfas 157 financial assets market active fsp effective beginning third quarter 2008 affirms sfas 157 allows use unobservable inputs determining fair value financial asset relevant observable inputs exist observable inputs require significant adjustment based unobservable data may case example inactive distressed market fsp impact results operations financial condition see note 6 information fair value measurements accordance sfas 157 sfas 159 provisions sfas 159 fair value option financial assets financial liabilities became effective us beginning january 1 2008 sfas 159 provides entity option specified election dates measure certain financial assets liabilities items fair value changes fair value recognized earnings changes occur sfas 159 also establishes presentation disclosure requirements include displaying fair value assets liabilities entity elected fair value option face balance sheet providing management’s reasons electing fair value option eligible item elected fair value option eligible items therefore provisions sfas 159 impacted results operations financial condition fsp fin 391 provisions fsp fin 391 became effective us beginning january 1 2008 fsp fin 391 amends fin 39 permit offsetting amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed notes consolidated financial statements continued counterparty master netting arrangement upon adoption fsp fin 391 revised accounting policy longer offset fair value amounts recognized certain derivative instruments recast prior year consolidated balance sheet order retrospectively apply standard adoption fsp fin 391 resulted 6 million increase current assets current liabilities december 31 2007 fsp fin 391 also requires disclosures related cash collateral recorded margin assets 18 million margin liabilities 4 million december 31 2008 adoption fsp fin 391 impact results operations cash flows fsp fas 1404 fin 46r8 provisions fsp fin fas 1404 fin 46r8 disclosures public entities enterprises transfers financial assets interest variable interests entities became effective us year ended december 31 2008 fsp amends fasb statement 140 accounting transfers servicing financial assets extinguishments liabilities require public entities provide additional disclosures transfers financial assets also amends fasb interpretation 46 revised december 2003 consolidation variable interest entities require public enterprises provide additional disclosures involvement variable interest entities provisions fsp fin fas 1404 fin 46r8 impacted results operations financial condition fin 48 adopted provisions fin 48 january 1 2007 result implementation fin 48 recorded 5 million benefit primarily attributable interest beginning retained earnings cumulative effect change accounting principle january 1 2007 unrecognized tax benefits totaled 225 million majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility eitf 063 effective january 1 2007 eitf issue 063 taxes collected customers remitted governmental authorities presented income statement gross versus net presentation requires certain disclosures entity collects reports revenue tax assessed governmental authority imposed concurrent specific revenueproducing transaction entity seller customers collect sales consumption consumer utility taxes exclude amounts revenue note 4 recently issued accounting standards sfas 141r december 2007 fasb issued sfas 141 revised 2007 business combinations sfas 141r requires acquirer recognize assets acquired liabilities assumed noncontrolling interest acquiree acquisitiondate fair values sfas 141r also requires disclosure information necessary investors users evaluate understand nature financial effect business combination additionally sfas 141r requires acquisitionrelated costs expensed incurred sfas 141r amends sfas 109 require acquirer recognize changes amount deferred tax benefits recognizable due business combination either income continuing operations period combination directly contributed capital depending circumstances sfas 141r amends sfas 109 fin 48 require subsequent prescribed measurement period changes acquisitiondate income tax uncertainties acquiree deferred tax benefits reported income continuing operations directly contributed capital depending circumstances provisions sfas 141r became effective us january 1 2009 sfas 161 march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities sfas 161 requires enhancements disclosures regarding derivative instruments hedging activities accounted sfas 133 enhancements include additional disclosures regarding reasons derivative instruments used instruments related hedged items accounted sfas 133 well impact derivative instruments entity’s results operations financial condition cash flows addition sfas 161 requires disclosure fair values derivative instruments associated gains losses tabular format information derivative features creditrisk related provisions sfas 161 become effective disclosures quarterly report form 10q quarter ended march 31 2009 note 5 income taxes details income tax expense follows statutory us federal income tax rate reconciles effective income tax rates follows result west virginia income tax rate reductions enacted march 2008 phased period 2009 2014 reduced net deferred tax liabilities 6 million deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes net deferred income taxes consist following judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material prior 2007 established liabilities income taxrelated contingencies believed probable liability incurred amount could reasonably estimated subsequently reviewed light changing facts circumstances adoption fin 48 effective january 1 2007 recognize financial statements positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information take expect take tax return position portion related tax benefit recognized financial statements disclose amount unrecognized tax benefit unrecognized tax benefits may impact financial statements increasing taxes payable reducing tax refunds receivable changing deferred taxes also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities reconciliation changes unrecognized tax benefits follows unrecognized tax benefits recognized would affect effective tax rate 21 million 8 million december 31 2008 2007 respectively 5 million january 1 2007 result recognizing tax benefits income tax expense increased 13 million 3 million 2008 2007 respectively majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility uncertainty deductibility amounts limited timing deductibility tax liabilities recognized prior periods would subject offset availability refundable amounts later periods deductions would otherwise taken pending resolution timing uncertainties interest accrued period amounts would become deductible dominion subsidiaries us federal statute limitations expired tax years prior 1999 except reserved right pursue refunds related certain deductions years 1995 1998 2007 us congressional joint committee taxation completed review settlement appellate division internal revenue service irs appeals tax years 1993 1998 october 2007 received tax refund approximately 33 million 1993 1997 due carryback adjustments tax refund 5 million 1998 received tax years 1999 2001 settled reviewed joint committee refund impact earnings reached settlement irs appeals regarding certain adjustments proposed examination tax years 1999 2001 except reserved right pursue refunds related certain deductions settlement submitted joint committee review settlement payment resulting tax liabilities unrecognized tax benefits would reduced approximately 12 million impact earnings addition would entitled refund 41 million representing amounts paid examination appeals process related adjustments disputed protest filed irs appeals refund impact earnings notes consolidated financial statements continued 2007 internal revenue service irs completed examination dominion’s 2002 2003 consolidated returns filed protests certain proposed adjustments irs appeals july 2007 dominion currently engaged settlement negotiations irs appeals regarding adjustments addition irs began audit tax years 2004 2005 november 2007 appeals assessments received tax authorities including amounts related settlement negotiations irs appeals 2002 2003 believe reasonably possible unrecognized tax benefits could decrease 30 million 70 million 2009 decrease would result successful resolution proposed adjustments settlement negotiations payments made tax authorities addition unrecognized tax benefits could reduced 13 million recognize prior period amounts becoming otherwise deductible current period since uncertainty majority unrecognized tax benefits involve timing deductions anticipate impact earnings limited revisions accrual interest tax underpayments overpayments currently working irs prefiling program enter agreement regarding calculation qualified production activities deduction objective program provide taxpayers greater certainty regarding specific issue earlier point time attained normal postfiling examination process able enter agreement irs 2009 eliminates reduces uncertainty deduction reasonably possible unrecognized tax benefits december 31 2008 could decrease 5 million 10 million would reflected 2009 earnings otherwise regard tax years 2004 2008 cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2009 virginia power included dominion’s combined state income tax returns filed virginia 2005 subsequent years remain subject examination also obligated report adjustments resulting irs settlements earlier years state tax authorities addition utilize state net operating losses tax credits generated years statute limitations expired amounts subject examination state tax authorities february 2009 president us signed law american recovery reinvestment act 2009 act includes provisions stimulate economic growth including incentives increased capital investment businesses incentives promote renewable energy currently evaluating act yet determined impact future results operations cash flows financial condition note 6 fair value measurements described note 3 adopted sfas 157 effective january 1 2008 sfas 157 defines fair value price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however sfas 157 permits use midmarket pricing convention midpoint bid ask prices sfas 157 clarifies fair value based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact nonperformance risk liabilities sfas 157 also requires fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments accordance requirements described apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values accordance sfas 157 maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices seek price information external sources including broker quotes industry publications pricing information external sources available believe observable pricing indicative fair value judgment required develop estimates fair value cases must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflects market assumptions options contracts optionlike characteristics observable pricing information available external sources generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels  level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments majority exchangetraded derivatives listed equities treasury securities held nuclear decommissioning trust funds  level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include nonexchange traded derivatives overthecounter commodity forwards swaps interest rate swaps foreign currency forwards options municipal bonds shortterm debt securities held nuclear decommissioning trust funds  level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 consist longdated commodity derivatives ftrs modeled commodity derivatives fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes pjm auctions accurate dayone valuation generally considered representative ultimate settlement values modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets december 31 2008 net balance commodity derivatives categorized level 3 fair value measurements net liability 69 million hypothetical 10 increase commodity prices would decrease net liability 3 million hypothetical 10 decrease commodity prices would increase net liability 3 million sfas 157 requires fair value measurements separately disclosed level within fair value hierarchy requires separate reconciliation fair value measurements categorized level 3 following table presents assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions december 31 2008 following table presents net change assets liabilities measured fair value recurring basis included level 3 fair value category year ended december 31 2008 1 derivative assets liabilities presented net basis gains losses included earnings level 3 fair value category including attributable change unrealized gains losses relating assets still held reporting date classified electric fuel energy purchases expense consolidated statement income year ended december 31 2008 fair value financial instruments substantially financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management december 31 2008 2007 carrying amount cash equivalents customer receivables shortterm debt accounts payable representative fair value shortterm nature instruments financial instruments’ carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues short term maturities variable rates refinanced current market rates reasonable estimate fair value 2 includes securities due within one year amounts represent unamortized discount premium also includes valuation certain fair value hedges associated fixed rate debt 1 million december 31 2008 3 includes issuance expenses 2 million december 31 2008 2007 note 7 hedge accounting activities exposed impact market fluctuations price electricity natural gas energyrelated products well currency exchange interest rate risks business notes consolidated financial statements continued operations use derivative instruments manage exposure risks designate derivative instruments cash flow fair value hedges accounting purposes allowed sfas 133 discussed note 2 jurisdictions subject costbased regulation changes fair value derivatives designated hedges deferred regulatory assets regulatory liabilities related transactions impact earnings years ended december 31 2008 2007 2006 gains losses hedging instruments determined ineffective excluded measurement effectiveness material amounts excluded measurement ineffectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci consolidated balance sheet december 31 2008 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign exchange rates note 8 investments marketable equity debt securities hold marketable equity debt securities cash equivalents nuclear decommissioning trust funds fund future decommissioning costs nuclear plants decommissioning trust funds december 31 2008 2007 summarized unrealized losses included aoci december 31 2008 2007 1 included aoci decommissioning trust regulatory liability discussed note 2 fair values debt securities within nuclear decommissioning trust funds december 31 2008 contractual maturity follows gross realized gains availableforsale securities totaled 45 million 52 million 49 million 2008 2007 2006 respectively gross realized losses totaled 143 million 52 million 33 million 2008 2007 2006 respectively gross realized gains losses 2008 2007 include amounts recorded regulatory liability discussed note 2 determining realized gains losses cost securities determined specific identification basis costmethod investments december 31 2008 carrying value costmethod investments totaled 108 million approximated estimated fair value significant costmethod investments december 31 2007 note 9 property plant equipment major classes property plant equipment respective balances jointlyowned plants proportionate share jointlyowned plants december 31 2008 follows coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest report share operating costs appropriate operating expense electric fuel energy purchases operations maintenance depreciation amortization taxes etc consolidated statements income note 10 intangible assets intangible assets subject amortization estimated useful lives amortization expense intangible assets 28 million 46 million 37 million 2008 2007 2006 respectively 2008 acquired 22 million intangible assets primarily representing software emissions allowances estimated weightedaverage amortization period 655 819 years respectively components intangible assets follows annual amortization expense intangible assets estimated 27 million 2009 29 million 2010 17 million 2011 12 million 2012 6 million 2013 note 11 regulatory assets liabilities regulatory assets liabilities include following 1 discussed virginia fuel expenses note 20 june 2007 virginia commission approved fuel factor increase approximately 219 million effective july 1 2007 balance approximately 443 million deferred subsequently recovered without interest period commencing july 1 2008 ending june 30 2011 beginning july 1 2008 recovery 231 million approximately 697 million prior year underrecovered fuel balance commenced balance recovered subsequent periods provided virginia law 2 discussed derivative instruments note 2 jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers without interest 3 ferc approved recovery startup costs incurred connection joining rto ongoing administrative charges paid pjm drc deferred 97 million startup costs administrative charges 25 million associated carrying costs expect recovery virginia jurisdictional retail customers commence effective date approval virginia commission rate adjustment clause designed recover retail transmission costs authorized 2007 virginia regulation act 4 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 5 current virginia legislation certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset prior implementation rate adjustment clause majority afudc expected recovered april 2012 6 north carolina commission authorized deferral previously incurred costs associated termination certain longterm power purchase agreements nonutility generators related costs amortized original term agreement 7 rates charged customers regulated business include provision cost future activities remove assets expected incurred time retirement 8 primarily reflects regulatory liability established 2007 representing amounts previously collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning utility nuclear generation stations excess amounts recorded pursuant sfas 143 9 includes 20 million reported current liabilities 2008 december 31 2008 approximately 739 million regulatory assets represented past expenditures earn return expenditures consist primarily deferred fuel costs cost terminating certain power purchase agreements note 12 asset retirement obligations aros primarily associated decommissioning nuclear generation facilities also aros related certain electric transmission distribution assets located property hydroelectric generation facilities currently sufficient information estimate reasonable range expected retirement dates assets thus aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed generally occur expected retirement abandonment dates notes consolidated financial statements continued determined operational planning changes aros 2008 follows 1 includes 1 million 2 million reported current liabilities december 31 2007 2008 respectively established trusts dedicated funding future decommissioning nuclear plants december 31 2008 2007 aggregate fair value trusts consisting primarily debt equity securities totaled 11 billion 13 billion respectively note 13 variable interest entities fin 46r addresses consolidation variable interest entities vies entity considered vie fin 46r sufficient equity finance activities without assistance variable interest holders equity investors lack following characteristics controlling financial interest  control voting rights  obligation absorb expected losses  right receive expected residual returns fin 46r requires primary beneficiary vie consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity receives majority vie’s expected losses expected residual returns longterm power capacity contracts four nonutility generators aggregate generation capacity approximately 940 mw contracts contain certain variable pricing mechanisms form partial fuel reimbursement consider variable interests evaluation information provided us entities unable determine whether vies however information provided well knowledge generation facilities virginia enabled us conclude vies would primary beneficiary conclusion based primarily qualitative assessment variable interests compared operations commodity price risks retained equity debt holders remaining terms contracts years entities expected operate contractual relationships expire contracts expire various dates ranging 2015 2021 subject risk loss potential vies remaining purchase commitments totaled 19 billion december 31 2008 paid 205 million 211 million 214 million electric capacity 196 million 160 million 130 million electric energy entities years ended december 31 2008 2007 2006 respectively purchased shared services drs affiliated vie approximately 397 million 344 million 310 million years ended december 31 2008 2007 2006 respectively determined closely associated entity drs therefore primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including us obligation absorb allocated share drs costs note 14 shortterm debt credit agreements use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing level borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations credit facility commitments large consortium banks including lehman september 2008 lehman filed protection chapter 11 federal bankruptcy code united states bankruptcy court southern district new york december 31 2008 lehman’s total commitment credit facilities less six percent aggregate commitment consortium banks believe potential reduction available capacity credit facilities could result lehman’s bankruptcy significant impact liquidity excluding commitments provided lehman shortterm financing supported 28 billion fiveyear joint revolving credit facility dominion dated february 2006 scheduled terminate february 2011 credit facility used working capital support combined commercial paper programs dominion us general corporate purposes credit facility also used support 15 billion letters credit december 31 2008 total outstanding commercial paper supported joint credit facility 297 million borrowings weightedaverage interest rate 592 december 31 2007 total outstanding commercial paper supported joint credit facility 757 million borrowings 257 million weightedaverage interest rate 568 december 31 2008 total outstanding letters credit supported joint credit facility 187 million less 86 million issued behalf december 31 2007 total outstanding letters credit supported joint credit facility 229 million less 8 million issued behalf december 31 2008 capacity available joint credit facility approximately 24 billion addition credit facility commitments 28 billion disclosed also 182 million fiveyear credit facility excluding commitments provided lehman supports certain taxexempt financings note 15 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2008 2 december 15 2008 option holders exercise rights purchase remarket notes result notes redeemed par plus accrued interest recorded 23 million benefit early redemption securities 3 financings relate certain pollution control equipment generating facilities variable rate taxexempt financings supported standalone 182 million fiveyear credit facility excluding commitments provided lehman terminates february 2011 4 may 19 2008 notes redeemed par plus accrued unpaid distributions 5 represents valuation certain fair value hedges associated fixed rate debt 6 includes approximately 1 million fair value hedge valuation 2008 based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2008 follows shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2008 events default covenants junior subordinated notes payable affiliated trust 2002 established subsidiary capital trust virginia power capital trust ii trust finance subsidiary held 100 voting interests trust sold 16 million 7375 trust preferred securities 400 million representing preferred beneficial interests 97 beneficial ownership assets held trust exchange 400 million realized sale trust preferred securities 12 million common securities represent remaining 3 beneficial ownership interest assets held capital trust issued 412 million 2002 7375 junior subordinated notes junior subordinated notes due july 30 2042 junior subordinated notes constituted 100 trust’s assets may 2008 repaid 412 million 7375 unsecured junior subordinated notes redeemed 16 million units 400 million 7375 virginia power capital trust ii preferred securities due july 30 2042 securities redeemed price 25 per preferred security plus accrued unpaid distributions note 16 preferred stock authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares outstanding december 31 2008 2007 upon involuntary liquidation dissolution windingup company share would entitled receive 100 plus accrued dividends cumulative holders outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series preferred stock subject mandatory redemption outstanding december 31 2008 1 7312009 10141 commencing 812009 amounts decline steps thereafter 10000 812013 2 8312009 10140 commencing 912009 amounts decline steps thereafter 10000 912013 3 dividend rate 550 12202007 dividend rate 625 3202011 rate determined according periodic auctions periods established us time auction process note 17 shareholder’s equity common shareholder’s equity december 2008 approved virginia commission issued 11786 shares common stock dominion reflecting conversion 350 million shortterm demand note borrowings dominion equity notes consolidated financial statements continued paidin capital december 2007 recorded contributed capital 220 million reflecting conversion 220 million note payable dominion equity accumulated comprehensive income presented table summary aoci component note 18 dividend restrictions virginia commission may prohibit public service company declaring paying dividend affiliate found detrimental public interest december 31 2008 virginia commission restricted payment dividends certain agreements associated joint credit facility dominion contain restrictions ratio debt total capitalization limitations restrict ability pay dividends dominion december 31 2008 note 19 employee benefit plans participate defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer subject dominion’s funding policy contribute annually amount accordance provisions employment retirement income security act 1974 erisa net periodic pension cost related plan 32 million 37 million 63 million 2008 2007 2006 respectively employee compensation basis determining share total pension costs contribute pension plan 2008 2007 2006 participate plans provide certain retiree health care life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service net periodic benefit cost related plans 33 million 24 million 37 million 2008 2007 2006 respectively employee headcount basis determining share total benefit costs certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly fund postretirement benefit costs voluntary employees’ beneficiary association veba contributions veba 15 million 7 million 24 million 2008 2007 2006 respectively expect contribute 35 million veba 2009 dominion holds investments trusts fund benefit payments employee pension postretirement benefit plans employees participate investmentrelated declines trusts experienced 2008 result future increases periodic cost recognized employee benefit plans included determination amount cash provide dominion share employee benefit plan contributions also participate dominionsponsored employee savings plans cover substantially employees employer matching contributions 14 million 12 million 11 million incurred 2008 2007 2006 respectively note 20 commitments contingencies result issues generated ordinary course business involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money ultimate outcome proceedings cannot predicted time however current proceedings specifically reported herein management anticipate liabilities arising proceedings would material effect financial position liquidity results operations longterm purchase agreements december 31 2008 following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2008 present value total commitment capacity payments 22 billion capacity payments totaled 379 million 410 million 437 million energy payments totaled 372 million 360 million 291 million 2008 2007 2006 respectively lease commitments lease various facilities vehicles equipment primarily operating leases lease agreements expire various dates certain leases renewable contain options purchase leased property payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2008 follows rental expense totaled 39 million 37 million 34 million 2008 2007 2006 respectively majority reflected operations maintenance expense environmental matters subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations superfund sites time may identified prp superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action b conduct remedial investigation action seek reimbursement parties party held jointly severally strictly liable costs parties also bring contribution actions seek reimbursement insurance companies result may responsible costs remedial investigation actions superfund act laws regulations regarding remediation waste believe currently identified sites result significant liabilities nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities 2008 calculation nrc minimum financial assurance amount aggregated nuclear units 15 billion satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc current economic downturn resulted decrease value investments held nuclear decommissioning trusts continue believe amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs surry north anna units particularly combined ratepayer collections contributions decommissioning trusts future collections contributions required reflects longterm investment horizon since units decommissioned decades positive longterm outlook trust fund investment returns continue monitor trusts ensure meet minimum financial assurance requirement may include use parent company guarantees surety bonding financial guarantees recognized nrc nuclear insurance priceanderson act provides public 125 billion liability protection per nuclear incident via obligations required owners nuclear power plants priceanderson act amendment 1988 allows inflationary provision adjust ment every five years purchased 300 million coverage commercial insurance pools remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor us could assessed 118 million four licensed reactors exceed 18 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed 2005 current level property insurance coverage 255 billion north anna surry exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 49 million based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination purchase insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 19 million odec part owner north anna responsible us share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 entered contract doe disposal spent nuclear fuel doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act contract doe january 2004 filed lawsuit us court federal claims doe requesting damages connection failure commence accepting spent nuclear fuel trial occurred may 2008 posttrial briefing argument concluded july 2008 october 15 2008 court issued opinion order company amount approximately 112 million spentfuel related costs june 30 2006 judgment entered court october 28 2008 december 24 2008 government appealed judgment us court appeals federal circuit appeal docketed december 30 2008 briefing appeal expected take place 2009 payment damages occur appeal process resolved cannot predict outcome notes consolidated financial statements continued matter however event recover damages recovery including amounts attributable joint owners expected material impact results operations continue manage spent fuel accepted doe litigation coowners odec clover power station 1989 entered long term coal transportation agreement norfolk southern railway company norfolk southern delivery coal facility agreement specifies base rate adjustments tied published index norfolk southern claimed october 2003 parties agreement employed incorrect reference index since agreement’s inception adjust base transportation rate november 2003 odec filed suit norfolk southern seeking clarify price adjustment provisions transportation agreement trial court ruled norfolk southern’s favor concluding agreement specifies use index ns index norfolk southern claims applied adjust base rate applied going forward september 1 2006 court entered order directing us odec correct invoices december 1 2003 present calculating rates using ns index applied inception agreement tender difference norfolk southern interest rate provided agreement pay future invoices using ns index applied inception agreement april 2008 issues regarding amount norfolk southern’s claimed damages tried trial court issued final order decree court assessed damages approximately 78 million contract period december 1 2003 november 30 2007 imposed prejudgment interest approximately 9 million upheld share would onehalf total judgment approximately 44 million court also ordered company odec calculate base rate adjustments using ns index remaining term agreement interest would assessed difference amounts odec pay norfolk southern amounts court ordered paid believe court’s interpretation transportation agreement ruling issues case legally incorrect july 2008 odec filed petition appeal trial court’s order supreme court virginia posted security suspend execution judgment appeal january 2009 supreme court virginia granted petition appeal liability recorded consolidated financial statements related matter guarantees surety bonds december 31 2008 issued 16 million guarantees primarily support tax exempt debt issued conduits also purchased 109 million surety bonds various purposes including providing workers’ compensation coverage terms surety bonds obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law unable develop estimate maximum potential amount future payments contracts events would obligate us yet occurred event occurred notified occurrence however december 31 2008 believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position status electric regulation virginia 2007 virginia regulation act fuel factor amendments july 1 2007 legislation amending virginia electric utility restructuring act regulation act fuel factor statute became effective significantly changed electricity regulation virginia prior regulation act base rates virginia capped 1999 levels december 31 2010 time virginia convert retail competition electric supply service regulation act ended capped rates two years early december 31 2008 time retail competition would available individual retail customers demand 5 mw nonresidential retail customers obtain virginia commission approval aggregate load reach 5 mw threshold individual retail customers also permitted purchase renewable energy competitive suppliers incumbent electric utility offer 100 renewable energy tariff pursuant regulation act virginia commission entered order january 2009 initiating reviews base rates terms conditions investorowned utilities virginia company must submit filing accompanying schedules april 1 2009 anticipates filing support increase base rates roe rate review lower reported less majority comparable utilities within southeastern us certain limitations described act possible outcomes 2009 rate review according regulation act include rate increase rate decrease refund earnings 50 basis points authorized roe unable predict outcome future rate actions time however unfavorable outcome could adversely affect results operations financial condition cash flows 2009 rate review virginia commission conduct biennial reviews rates terms conditions beginning 2011 2009 rate review roe biennial reviews lower reported less majority comparable utilities within southeastern us certain limitations described act commission shall authorized increase base rates earnings 50 basis points authorized level earnings 50 basis points authorized level earnings shared customers overearning persists two consecutive biennial periods addition earnings sharing rates may also reduced separate base rates regulation act also authorizes standalone rate adjustment clauses recovery costs new generation projects environmental compliance fercapproved transmission costs conservation energy efficiency programs renewables programs act also provided enhanced returns capital expenditures specific new generation projects including limited nuclear generation clean coalcarbon capture compatible generation renewable generation projects regulation act also continues statutory provisions directing us file annual fuel cost recovery cases virginia commission beginning 2007 continuing thereafter discussed virginia fuel expenses virginia fuel expenses amendments virginia fuel cost recovery statute passed 2004 fuel factor provisions frozen july 1 2007 fuel prices increased considerably period resulted fuel expenses significantly excess fuel cost recovery pursuant 2007 amendments fuel cost recovery statute annual fuel rate adjustments deferred fuel accounting underrecoveries fuel costs reinstituted beginning july 1 2007 amendments allow us collect unrecovered fuel expenses incurred prior july 1 2007 fuel factor adjusted mechanism ensures dollar recovery prudently incurred fuel costs april 2007 filed virginia fuel factor application virginia commission application showed need annual increase fuel expense recovery period july 1 2007 june 30 2008 approximately 662 million however requested increase limited 219 million 2007 amendments fuel cost recovery statute limited increase amount resulted residential customer class receiving increase 4 total rates effect june 30 2007 virginia commission approved fuel factor increase virginia jurisdictional customers approximately 219 million effective july 1 2007 balance approximately 443 million deferred subsequent recovery subject virginia commission approval without interest period commencing july 1 2008 ending june 30 2011 may 2008 filed application revise fuel factor virginia commission would resulted annual increase 2232 cents per kwh 4245 cents per kwh effective july 1 2008 revised factor included 231 million prior year underrecovered fuel expense total estimated prior year underrecovered balance 697 million remaining deferred fuel balance expected recovered next two fuel rate years beginning july 1 2009 part application proposed adoption rule would limit fuel factor 3893 cents per kwh current fuel period july 1 2008 june 30 2009 order achieve lower fuel factor increase proposal would delayed recovery prior year underrecovered fuel balance 697 million collected threeyear period beginning july 1 2009 virginia commission approved stipulation recommendation proposed us parties provided following effective july 1 2008 increase fuel tariff 3893 cents per kwh collection current period partial recovery prior year underrecovered fuel balance ii recovery 231 million approximately 697 million prior year underrecovered fuel balance recovered subsequent fuel periods provided virginia law iii fuel tariff 3893 cents per kwh estimated result underrecovery 231 million projected fuel expenses current period iv propose recover return interest form carrying costs balance uncollected fuel expenses described subsection ii including estimated 231 million underrecovery current period expenses described subsection iii provided total amount propose recover interest form carrying costs limited 697 million resulting increase 1000 kwh virginia jurisdictional residential customer’s monthly bill approximately 18 2008 2009 fuel period north carolina regulation 2004 north carolina commission commenced review north carolina base rates subsequently ordered us file general rate case show cause north carolina jurisdictional base rates reduced rate case filed september 2004 march 2005 north carolina commission approved settlement included prospective 12 million annual reduction current base rates fiveyear base rate moratorium effective april 2005 fuel rates still subject annual fuel rate adjustments deferred fuel accounting underrecoveries fuel costs note 21 credit risk maintain provision credit losses based factors surrounding credit risk customers historical trends information believe based credit policies december 31 2008 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance sell electricity provide distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers exposure potential concentrations credit risk results primarily sales wholesale customers gross credit notes consolidated financial statements continued exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2008 gross credit exposure totaled 74 million application collateral credit exposure reduced 58 million amount investment grade counterparties including internally rated represented 79 single counterparty exceeded 24 note 22 relatedparty transactions engage relatedparty transactions primarily affiliates receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions included dominion’s consolidated federal income tax return participate certain dominion benefit plans discussion significant related party transactions follows transactions affiliates transact affiliates certain quantities natural gas commodities ordinary course business also enter certain commodity derivative contracts affiliates use contracts principally comprised commodity swaps options manage commodity price risks associated purchases natural gas designate majority contracts cash flow hedges accounting purposes drs provides accounting legal finance certain administrative technical services us addition provide certain services affiliates including charges facilities equipment usage presented significant transactions drs affiliates september 2008 purchased gasfired turbine affiliate 36 million part expansion project ladysmith unit 5 supply electricity periods peak demand december 2008 merged dnna part continued development efforts associated possible construction third nuclear unit north anna facility merger approved virginia north carolina commissions became effective december 1 2008 result merger recorded assets liabilities 48 million primarily reflecting acquisition esp inprocess col payable affiliate expected settled early 2009 borrowed funds dominion shortterm borrowing arrangements december 31 2008 2007 outstanding borrowings net repayments dominion money pool nonregulated subsidiaries totaled 198 million 114 million respectively shortterm demand note borrowings dominion 219 million december 31 2008 shortterm demand note borrowings december 31 2007 incurred interest charges related borrowings dominion 10 million 27 million 10 million 2008 2007 2006 respectively december 2008 approved virginia commission issued 11786 shares common stock dominion reflecting conversion 350 million shortterm demand note borrowings dominion equity lehman brothers inc lbi lehman subsidiary formerly acted remarketing agent 153 million variable rate taxexempt pollution control bonds due several unsuccessful remarketing auctions variable rate taxexempt pollution control bonds following lehman bankruptcy dominion repurchased 14 million bonds september 2008 successfully remarketed barclays capital inc successor remarketing agent november 2008 153 million variable rate bonds 78 million matured redeemed 2008 variable rate taxexempt financings supported standalone 182 million fiveyear credit facility terminates february 2011 note 23 operating segments organized primarily basis products services sell majority revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among dvp generation segments manage daily operations following segments dvp includes electric transmission distribution customer service operations generation includes generation energy supply operations corporate primarily includes specific items attributable operating segments contribution net income primary operating segments determined based measure profit management believes represents segments’ core earnings result certain specific items attributable segments included profit measures evaluated executive management either assessing segments’ performance allocating resources among segments instead reported corporate segment 2008 corporate segment included 23 million net aftertax expenses attributable generation segment net expenses 2008 primarily related impairment charges 18 million 11 million tax related nonrefundable deposits certain generationrelated vendor contracts 8 million 5 million tax reflecting otherthantemporary declines fair value securities held investments nuclear decommissioning trusts 2007 corporate segment included 166 million net aftertax expenses attributable generation segment net expenses 2007 largely resulted 259 million 158 million tax extraordinary charge connection reapplication sfas 71 virginia jurisdiction generation operations 2006 corporate segment included 12 million net aftertax expenses attributable generation segment net expenses 2006 primarily related 13 million 8 million tax impairment charge fourth quarter resulting change method assessing otherthantemporary declines fair value securities held investments nuclear decommissioning trusts following table presents segment information pertaining operations note 24 quarterly financial data unaudited summary quarterly results operations years ended december 31 2008 2007 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors 2007 results include impact following significant items  second quarter results include 158 million aftertax extraordinary charge due reapplication sfas 71 virginia jurisdiction generation operations  third fourth quarter results reflect reapplication deferral accounting virginia jurisdiction fuel costs beginning july 1 2007 item 9 item 8 financial statements supplementary data index report management’s responsibilities company’s management responsible information representations contained consolidated financial statements sections company’s annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity accounting principles generally accepted united states america financial information form 10k consistent consolidated financial statements management maintains system internal controls designed provide reasonable assurance reasonable cost company’s assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal control therefore cannot provide absolute assurance objectives established internal controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 2003 system internal control adequate accomplish intended objectives consolidated financial statements audited deloitte touche llp independent auditors engaged dominion’s audit committee comprised entirely independent directors deloitte touche llp’s audits conducted accordance auditing standards generally accepted united states america included review company’s accounting systems procedures internal controls extent necessary purpose report board directors also serves company’s audit committee meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters company ensure properly discharging responsibilities management recognizes responsibility fostering strong ethical climate company’s affairs conducted according highest standards personal corporate conduct responsibility characterized reflected company’s code ethics addresses potential conflicts interest compliance domestic foreign laws confidentiality proprietary information full disclosure public information virginia electric power company jay l johnson jay l johnson president chief executive officer paul koonce paul koonce chief executive officerenergy mark f mcgettrick mark f mcgettrick president chief executive officergeneration g scott hetzer steven rogers g scott hetzer senior vice president treasurer principal financial officer steven rogers vice president principal accounting officer independent auditors’ report board directors virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries december 31 2003 2002 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2003 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2003 2002 results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements company changed methods accounting adopt new accounting standards asset retirement obligations contracts involved energy trading derivative contracts held trading purposes derivative contracts price adjustment feature consolidation variable interest entities guarantees 2003 derivative contracts hedging activities 2001 deloitte touche llp richmond virginia february 26 2004 virginia electric power company consolidated statements income accompanying notes integral part consolidated financial statements virginia electric power company consolidated balance sheets 1 debt securities issued virginia electric power company constitute 100 trust’s assets trust longer subject consolidation effective december 31 2003 accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity comprehensive income accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part consolidated financial statements virginia electric power company notes consolidated financial statements note 1 nature operations virginia electric power company virginia public service company whollyowned subsidiary dominion resources inc dominion company regulated public utility generates transmits distributes electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity approximately 22 million retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 virginia’s total land area accounts 80 population company trading relationships beyond geographic limits retail service territory buys sells wholesale electricity natural gas energy commodities within document term “company” refers entirety virginia electric power company including virginia north carolina operations subsidiaries result changes management reporting structure 2003 nature composition company’s primary operating segments changed electric transmission operations formerly delivery segment included energy segment electric generation operations formerly energy segment presented separate segment generation segment company manages daily operations three primary operating segments generation energy delivery addition company reports corporate functions segment generation segment includes company’s electric generation operations energy segment includes electric transmission operations energy trading hedging arbitrage activities delivery segment includes electric distribution system customer service operations energy segment’s electric transmission operations delivery segment subject costofservice rate regulation statement financial accounting standards sfas 71 accounting effects certain types regulation note 2 significant accounting policies general company makes certain estimates assumptions preparing consolidated financial statements accordance accounting principles generally accepted united states america generally accepted accounting principles estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses periods presented actual results may differ estimates consolidated financial statements represent company’s accounts elimination intercompany transactions certain amounts 2002 2001 consolidated financial statements footnotes reclassified conform 2003 presentation operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers company’s customer accounts receivable december 31 2003 2002 included 234 million 231 million respectively accrued unbilled revenue based estimated amounts electric energy delivered yet billed utility customers company estimates unbilled utility revenue based historical usage applicable customer rates weather factors total daily electric generation supplied adjusting estimated losses energy transmission primary types sales service activities reported operating revenue include regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services subject costofservice rate regulation nonregulated electric sales consist primarily sales electricity marketbased rates electric trading revenue nonregulated gas sales consist primarily sales natural gas marketbased rates brokered gas sales gas trading revenue consists primarily miscellaneous service revenue electric distribution operations sales coal brokered oil miscellaneous revenue see derivative instruments discussion accounting changes effective january 1 2003 october 1 2003 impacted recognition classification changes fair value including settlements contracts held energy trading purposes electric fuel purchased energydeferred costs permitted regulatory authorities differences actual electric fuel purchased energy expenses levels recovery expenses current rates deferred matched recoveries future periods approximately 95 fuel costs subject deferral accounting income taxes company files consolidated federal income tax return participates intercompany tax allocation agreement dominion subsidiaries company’s current income taxes based taxable income determined separate company basis however public utility holding company act 1935 act intercompany tax allocation agreement company’s cash notes consolidated financial statements continued payments dominion reduced portion income tax benefits realized dominion result filing consolidated returns permitted regulatory authorities treatment temporary differences differ requirements sfas 109 accounting income taxes accordingly regulatory asset recognized probable future revenue provided payment deferred tax liabilities deferred investment tax credits amortized service lives property giving rise credits stockbased compensation employees company may receive stockbased awards stock options restricted stock granted dominionsponsored stock plans company measures compensation cost stockbased awards issued employees accordance accounting principles board opinion 25 accounting stock issued employees related interpretations compensation expense measured based intrinsic value difference fair market value dominion common stock exercise price underlying award date price number shares recipient entitled receive known generally grant date compensation expense recognized straightline basis stated vesting period award compensation expense associated awards material 2003 2002 2001 pro forma impact net income company measured compensation expense based fair value options date grant would material 2003 2002 2001 cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 2003 2002 company’s accounts payable included net effect checks outstanding yet presented payment 54 million 39 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand cash banks temporary investments purchased remaining maturity three months less derivative instruments company uses derivative instruments futures swaps forwards options manage commodity currency exchange financial market risks business operations company also manages portfolio commodity contracts held trading purposes part strategy market energy manage related risks derivatives qualifying normal purchase normal sales exception reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative energy trading assets derivative contracts representing unrealized losses options sold reported derivative energy trading liabilities derivatives designated hedging instruments changes fair value recorded earnings valuation methods fair value based actively quoted market prices available absence actively quoted market prices company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available company must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis options contracts optionlike characteristics pricing information available external sources company generally uses modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value option models used company special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics company estimates fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different assumptions could material effect contract’s estimated fair value derivative instruments designated hedging instruments company designates derivative instruments held purposes trading fair value cash flow hedges accounting purposes derivatives designated hedges relationship hedging instrument hedged item formally documented well risk management objective strategy using hedging instrument company assesses whether hedge relationship derivative hedged item highly effective offsetting changes fair value cash flows inception hedge ongoing basis change fair value derivative effective offsetting changes fair value hedged item recognized currently earnings also case options designated hedging instruments management may elect exclude changes time value measurement hedge effectiveness thus requiring changes recorded notes consolidated financial statements continued currently earnings company discontinues hedge accounting prospectively derivatives ceased highly effective hedges cash flow hedgesa portion company’s hedge strategies represents cash flow hedges variable price risk associated purchase sale natural gas company also uses foreign currency forward contracts hedge variability foreign exchange rates interest rate swaps hedge variable interest rates longterm debt cash flow hedge transactions company hedging variability cash flows changes fair value derivative reported accumulated comprehensive income earnings affected hedged item fair value hedgesthe company also engages fair value hedges using interest rate swaps manage exposure fixed interest rates certain longterm debt fair value hedge transactions changes fair value derivative generally offset currently earnings changes hedged item’s fair value statement income presentationgains losses derivatives designated hedges recognized included operating revenue operating expenses interest related charges consolidated statements income specific line item classification determined based nature risk underlying individual hedge strategies portion gains losses hedging instruments determined ineffective gains losses attributable changes time value options excluded measurement effectiveness included operations maintenance expense derivative instruments held trading purposes part strategy market energy manage related risks company manages portfolio commoditybased derivative instruments held trading purposes primarily natural gas electricity company uses established policies procedures manage risks associated price fluctuations energy commodities uses various derivative instruments reduce risk creating offsetting market positions certain derivative instruments held trading purposes designated hedges accounting purposes however extent company hold offsetting positions derivatives management believes instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates statement income presentation n derivatives held trading purposes changes fair value including amounts realized upon settlement presented revenue net basis nonregulated electric sales nonregulated gas sales revenue n financiallysettled derivativesnot held trading purposes designated hedging instruments unrealized changes fair value settlements presented operations maintenance expense net basis n physicallysettled derivativesnot held trading purposes designated hedging instruments effective october 1 2003 statement income related amounts physically settled derivative sales contracts presented revenue statement income related amounts physically settled derivative purchase contracts reported expense nine months ended september 30 2003 unrealized changes fair value physically settled derivative contracts presented operations maintenance expense net basis nonderivative energyrelated contracts longer subject fair value accounting effective january 1 2003 company recognizes revenue expense gross basis time contract performance settlement termination prior 2003 energy trading contracts including nonderivative contracts recorded fair value changes fair value reported revenue net basis nuclear decommissioning trust funds company analyzes securities classified availableforsale determine whether decline fair value considered otherthantemporary company uses several criteria evaluate otherthantemporary declines including length time market value lower cost percentage decline compared average cost expected fair value security market value security less cost greater nine months decline value greater 50 average cost security written expected recovery value one criteria met analysis performed evaluate expected recovery value based third party price targets third party price quotes security’s average cost one criteria met decline considered otherthantemporary security written expected recovery value property plant equipment property plant equipment including additions replacements recorded original cost including labor materials direct costs capitalized interest costs repairs maintenance including minor additions replacements charged expense incurred 2003 2002 2001 notes consolidated financial statements continued company capitalized interest costs 18 million 17 million 20 million respectively electric distribution transmission property subject costofservice utility rate regulation cost property less salvage charged accumulated depreciation retirement permitted regulatory authorities provisions future cost removal expenditures reflected utility customers’ rates accumulated provision future cost removal reported regulatory liability generationrelated property cost removal associated asset retirement obligations charged expense incurred company records gains losses upon retirement generationrelated property based upon difference proceeds received property’s undepreciated basis retirement date depreciation property plant equipment computed straightline method based projected service lives company’s depreciation rates property plant equipment 2003 2002 2001 follows amortization nuclear fuel used electric generation provided unitofproduction basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs 2002 company extended estimated useful lives fossil fuel power stations electric transmission distribution property based depreciation studies indicated longer lives appropriate 2001 company increased estimate useful lives nuclear property 20 years connection license extensions received nuclear regulatory commission nrc changes reduced depreciation expense follows impairment longlived intangible assets company performs evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable assets written fair value sum expected future undiscounted cash flows less carrying amounts regulatory assets liabilities utility operations subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ methods generally applied nonregulated companies economic effects practices prescribed regulatory authorities ratemaking purposes must considered application generally accepted accounting principles asset retirement obligations beginning 2003 company recognizes asset retirement obligations fair value incurred capitalizing amounts costs related tangible longlived assets due absence relevant market information fair value estimated using discounted cash flow analyses company reports accretion liabilities due passage time operating expense addition beginning 2003 company classifies investments held decommissioning trusts availableforsale recognizes realized unrealized gains losses income comprehensive income appropriate nuclear decommissioning2002 2001 accordance accounting policy recognized regulatory authorities jurisdiction electric utility operations company recognized expense future cost decommissioning amounts equal amounts collected ratepayers earnings trust investments dedicated funding decommissioning nuclear plants trust investments reported fair value accumulated provision decommissioning reported liability net realized unrealized earnings trust investments well offsetting expense increase accumulated provision decommissioning recorded component income amortization debt issuance costs company defers amortizes debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issues notes consolidated financial statements continued note 3 newly adopted accounting standards sfas 143 effective january 1 2003 company adopted sfas 143 accounting asset retirement obligations provides accounting requirements recognition measurement liabilities associated retirement tangible longlived assets effect adopting sfas 143 2003 compared estimate net income reflecting continuation former accounting policies increase net income 160 million increase comprised 139 million aftertax gain representing cumulative effect change accounting principle increase income cumulative effect change accounting principle 21 million eitf 023 january 1 2003 company adopted emerging issues task force eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities rescinded eitf issue 9810 accounting contracts involved energy trading risk management activities adopting eitf 023 resulted discontinuance fair value accounting nonderivative contracts held trading purposes contracts recognized revenue expense time contract performance settlement termination eitf 9810 rescission effective nonderivative energy trading contracts initiated october 25 2002 nonderivative energy trading contracts initiated prior october 25 2002 company recognized aftertax loss 55 million cumulative effect change accounting principle january 1 2003 eitf 0311 october 1 2003 company adopted eitf issue 0311 reporting realized gains losses derivative instruments subject fasb statement 133 “held trading purposes” defined issue 023 eitf 0311 addresses classification income statement related amounts derivative contracts income statement amounts related periods prior october 1 2003 presented originally reported sfas 133 implementation issue c20 connection request reconsider interpretation sfas 133 financial accounting standards board fasb issued statement 133 implementation issue c20 interpretation meaning ‘not clearly closely related’ paragraph 10b regarding contracts price adjustment feature issue c20 establishes criteria determining whether contract’s pricing terms contain broad market indices eg consumer price index could qualify normal purchase sale therefore subject fair value accounting company several contracts qualify normal purchase sales contracts issue c20 guidance however adoption issue c20 required contracts initially recorded fair value october 1 2003 recognition aftertax charge 101 million representing cumulative effect change accounting principle normal purchase sales contracts changes fair value recognized sfas company adopted sfas 149 amendment statement 133 derivative instruments hedging activities sfas 149 reflects decisions made fasb derivatives implementation group connection issues raised application sfas 133 generally changes resulting sfas 149 apply contracts entered modified june 30 2003 hedging relationships designated june 30 2003 initial adoption sfas 149 material impact company’s results operations financial position fin 46r december 31 2003 company adopted fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r interests special purpose entities fin 46r addresses consolidation variable interest entities vies entities controllable voting interests vie’s equity investors bear residual economic risks rewards fin 46r company consolidated special purpose lessor entity company constructed financed leased power generation project result consolidated balance sheet december 31 2003 reflected additional 364 million net property plant equipment deferred charges 370 million related debt cumulative effect adopting fin 46r company’s interest special purpose entity aftertax charge 4 million representing depreciation amortization expense associated consolidated assets annual depreciation amortization expense asset expected approximately 10 million 2002 company established virginia power capital trust ii sold trust preferred securities third party investors company received proceeds sale trust preferred securities exchange junior subordinated notes issued company held trust upon adoption fin 46r company reports junior sub notes consolidated financial statements continued ordinated notes held trust longterm debt rather trust preferred securities consolidated balance sheet december 31 2003 company required adopt fin 46r interests vies considered special purpose entities later march 31 2004 company still evaluating impact adopting fin 46r interests may future results operations financial condition fin 45 november 2002 fasb issued interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness othersan interpretation fasb statements 5 57 107 fin 45 fin 45 issuers certain types guarantees must recognize liability based fair value guarantee issued even likelihood making payments remote addition fin 45 requires increased disclosures specific types guarantees fin 45’s initial recognition requirements apply guarantees issued modified december 31 2002 company anticipate material impact future results operations financial condition result recording newly issued modified guarantees fair value 2002 2001 sfas 133 company adopted sfas 133 accounting derivative instruments hedging activities january 1 2001 recorded aftertax charge accumulated comprehensive income 14 million net taxes 9 million pro forma information reflecting adoption new standards disclosure requirements associated adoption fin 46r sfas 143 require disclosure pro forma net income 2002 2001 company applied provisions standards january 1 2001 company applied standards 2002 2001 net income would 778 million 464 million respectively standards adopted 2003 require pro forma information excluded amounts sfas 143 also requires pro forma presentation asset retirement obligations company applied provisions sfas 143 january 1 2001 amounts follows note 4 operating revenue company’s operating revenue consists following note 5 restructuring activities 2001 fully integrating consolidated natural gas company cng dominion’s existing organization operations including company management initiated focused review dominion’s combined operations result company recognized following restructuring costs related liability 2001 1 dominion services inc subsidiary service company 1935 act provides certain services dominion’s operating subsidiaries accordingly charges allocated billed among operating subsidiaries accordance predefined service agreements 2 includes charges abandonment leased office space related costs company dominion services change liability severancerelated costs 2003 2002 presented 1 december 31 2003 less million severancerelated costs accrued paid notes consolidated financial statements continued note 6 income taxes details income tax expense follows statutory us federal income rate reconciles effective income tax rates follows company’s effective income tax rate decreased 2002 due net benefit related permanent differences reduction percentages state income taxes book income decrease book depreciation regulated assets deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes company’s net deferred income taxes consist following 1 2003 2002 total net deferred income tax liabilities include 54 million 49 million respectively current deferred tax assets included current assets consolidated balance sheets note 7 hedge accounting activities company exposed impact market fluctuations price natural gas electricity energyrelated products marketed purchased well currency exchange financial market risks business operations company experienced less 1 million ineffectiveness 2003 2001 related hedges hedge ineffectiveness 2002 following table presents selected information related cash flow hedges included accumulated comprehensive income consolidated balance sheet december 31 2003 actual amounts reclassified earnings 2004 vary expected amounts presented result changes market prices interest rates foreign exchange rates effect amounts reclassified accumulated comprehensive income earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies notes consolidated financial statements continued note 8 nuclear decommissioning trust funds company holds marketable debt equity securities nuclear decommissioning trust funds investments classified availableforsale described prior adopting sfas 143 company record unrealized gains losses accumulated comprehensive income rather earnings offset provision future decommissioning costs company’s decommissioning trust funds december 31 2003 summarized 1 securities unrealized loss position greater 1 year fair value debt securities december 31 2003 contractual maturity follows 2003 proceeds sale availableforsale securities totaled 256 million gross realized gains totaled 25 million gross realized losses totaled 13 million determining realized gains losses cost securities determined specific identification basis decommissioning trust investments2002 2001 prior adopting sfas 143 company recognized expense future cost decommissioning nuclear plants amounts equal amounts collected ratepayers earnings trust investments dedicated funding decommissioning plants investments held trusts reported fair value realized unrealized earnings trust investments well offsetting expense increase accumulated provision decommissioning recorded component income december 31 2002 balance investments held trusts 838 million company recognized net realized gains interest income 11 million 2002 32 million 2001 recognized net unrealized losses 67 million 2002 61 million 2001 note 9 property plant equipment property plant equipment including nuclear fuel consists following jointlyowned utility plants company’s proportionate share jointlyowned utility plants december 31 2003 follows coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest company reports share operating costs appropriate operating expense fuel operations maintenance depreciation amortization taxes etc consolidated statements income notes consolidated financial statements continued note 10 intangible assets company’s intangible assets subject amortization expense intangible assets 25 million 24 million 19 million 2003 2002 2001 respectively material acquisitions intangible assets 2003 2002 intangible assets included assets consolidated balance sheets components intangible assets december 31 2003 2002 follows annual amortization expense intangible assets estimated 26 million 2004 22 million 2005 20 million 2006 16 million 2007 9 million 2008 note 11 regulatory assets liabilities regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process regulatory liabilities represent probable future reductions revenue associated amounts credited customers ratemaking process amounts collected customers yet expended company’s regulatory assets liabilities december 31 2003 2002 included following income taxes recoverable future rates resulted recognition additional deferred income taxes previously recorded past ratemaking practices cost decommissioning department energy’s doe uranium enrichment facilities represents unamortized portion company’s required contributions fund decommissioning decontaminating doe’s uranium enrichment facilities contributions began 1992 continue 15year period escalation inflation costs currently recovered fuel rates incurred costs underlying regulatory assets may represent past expenditures company’s rate regulated operations may represent recognition liabilities ultimately settled future time december 31 2003 approximately 335 million company’s regulatory assets represented past expenditures earn return deferred fuel accounting provides difference 1 reasonably incurred actual cost fuels used electric generation energy purchases 2 recovery costs included current rates deferred matched future revenue deferred fuel costs historically recovered within two years however connection settlement 2003 virginia fuel rate proceeding company agreed recover 307 million previously incurred costs june 30 2007 without return unrecovered balances rates charged customers company’s regulated business include provision cost future activities remove assets expected incurred time retirement company’s regulatory liability represents excess accumulated provision nuclear decommissioning accrued prior accounting policy decommissioning based amounts collected company’s north carolina jurisdictional customers fund future decommissioning activities amounts recognized sfas 143 notes consolidated financial statements continued note 12 asset retirement obligations company’s asset retirement obligations primarily associated decommissioning nuclear generation facilities asset retirement obligations recognized upon adoption sfas 143 changes company’s asset retirement obligations 2003 follow company established trusts dedicated funding future decommissioning nuclear plants december 31 2003 aggregate fair value trusts consisting primarily debt equity securities totaled 10 billion december 31 2002 company recognized accumulated provision nuclear decommissioning activities 838 million amount recognized prior accounting policies reported asset retirement obligation consolidated balance sheet december 31 2002 note 13 shortterm debt credit agreements may 2003 2002 dominion cng company entered two joint credit facilities allow aggregate borrowings 2 billion facilities include 125 billion 364day revolving credit facility terminates may 2004 750 million threeyear revolving credit facility terminates may 2005 company expects renew 364day revolving credit facility prior maturity may 2004 joint credit facilities used working capital support combined commercial paper programs dominion cng company general corporate purposes threeyear facility also used support 200 million letters credit december 31 2003 total outstanding commercial paper supported joint credit facilities 144 billion company’s borrowings 717 million weighted average interest rate 117 december 31 2002 total outstanding commercial paper supported previous credit agreements 12 billion company’s borrowings 443 million weighted average interest rate 167 december 31 2003 total outstanding letters credit supported threeyear facility 85 million 62 million issued behalf unregulated subsidiary company 23 million issued behalf dominion subsidiaries december 31 2002 total outstanding letters credit supported threeyear facility 106 million issued behalf dominion subsidiaries note 14 longterm debt longterm debt consists following 1 represents weightedaverage coupon rates debt outstanding december 31 2003 2 substantially company’s property subject lien mortgage securing mortgage bonds 3 december 15 2008 225 million 410 callable puttable enhanced securitiessm due 2038 subject redemption par plus accrued interest unless holders related options exercise rights purchase remarket notes 4 certain pollution control equipment company’s generating facilities pledged support financings variable rate taxexempt financings supported standalone 200 million threeyear credit facility terminates may 2006 5 new debt reflected company’s consolidated balance sheet result fin 46r 6 represents changes fair value certain fixed rate longterm debt associated fair value hedging relationships based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2003 follows notes consolidated financial statements continued company’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2003 events default company’s covenants note 15 company obligated mandatorily redeemable preferred securities subsidiary trust 2002 virginia power capital trust ii trust finance subsidiary company holds 100 voting interests sold 16 million 7375 trust preferred securities 400 million representing preferred beneficial interests 97 beneficial ownership assets held trust exchange 400 million realized sale trust preferred securities 12 million common securities represent remaining 3 beneficial ownership interest assets held trust company issued 412 million 2002 7375 junior subordinated notes junior subordinated notes due july 30 2042 junior subordinated notes constitute 100 trust’s assets trust must redeem trust preferred securities junior subordinated notes repaid redeemed prior maturity distribution payments trust preferred securities considered fully unconditionally guaranteed company related agreements taken consideration guarantee agreement provides guarantee distribution payments trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon company’s payment amounts due junior subordinated notes payment junior subordinated notes deferred company may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period company may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes previous accounting guidance company consolidated trust preparation consolidated financial statements accordance fin 46r company consolidate trust december 31 2003 instead reported consolidated balance sheet junior subordinated notes issued company held trust longterm debt note 16 preferred stock company authorized issue 10 million shares preferred stock 100 liquidation preference upon involuntary liquidation dissolution windingup company share entitled receive 100 per share plus accrued dividends cumulative holders outstanding preferred stock company entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock 2002 company purchased redeemed par shares variable rate preferred stock october 1988 series june 1989 series september 1992a series september 1992b series 250 million redemption price 100 per share dividend rates series variable set every 49 days via auction process combined weighted average rates series outstanding 2002 2001 including fees brokerdealer agreements 400 432 respectively 2002 company issued 1250 units consisting 1000 shares per unit cumulative preferred stock 125 million preferred stock dividend rate 550 end initial dividend period december 20 2007 dividend rate subsequent periods determined according periodic auctions preferred stock liquidation preference 100 per share plus accumulated unpaid dividends except initial dividend period noncall period preferred stock redeemable whole part dividend payment date option company may also redeem preferred stock whole part certain changes made federal tax law reduce dividends received percentage presented series preferred stock subject mandatory redemption outstanding december 31 2003 1 73104 10318 commencing 8104 amounts decline steps thereafter 10000 2 83104 10315 commencing 9104 amounts decline steps thereafter 10000 notes consolidated financial statements continued note 17 shareholder’s equity common stock exchange reduction amounts payable dominion company recognized 21 million additional paidin capital 2003 issued 150 million common stock dominion 2002 accumulated comprehensive income presented table summary accumulated comprehensive income component note 18 dividend restrictions 1935 act related regulations issued sec impose restrictions transfer receipt funds registered holding company like dominion subsidiaries including company restrictions include general prohibition loans advances made subsidiaries benefit registered holding company 1935 act registered holding companies subsidiaries may pay dividends retained earnings unless sec specifically authorizes payments capital accounts virginia state corporation commission virginia commission may prohibit public service company declaring paying dividend affiliate found public interest december 31 2003 virginia commission restricted payment dividends company certain agreements associated company’s joint credit facilities dominion cng contain restrictions ratio debt total capitalization limitations restrict company’s ability pay dividends dominion receive dividends subsidiaries december 31 2003 see note 15 description potential restrictions dividend payments company connection deferral distribution payments trust preferred securities note 19 employee benefit plans company participates defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer company subject dominion’s funding policy contribute annually amount accordance provisions employment retirement income security act 1974 company’s net periodic pension cost 23 million 7 million 7 million 2003 2002 2001 respectively company’s contributions pension plan 108 million 37 million 7 million 2003 2002 2001 respectively company participates plans provide certain retiree health care life insurance benefits multiple dominion subsidiaries annual premiums based several factors age retirement date years service company’s net periodic benefit cost 44 million 34 million 35 million 2003 2002 2001 respectively certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly company funds postretirement benefit costs voluntary employees’ beneficiary associations company’s contributions health care life insurance plans 31 million 17 million 10 million 2003 2002 2001 respectively company also participates employee savings plans cover substantially employees employer matching contributions totaled 10 million years 2003 2002 2001 notes consolidated financial statements continued note 20 commitments contingencies result issues generated ordinary course business company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money management believes final disposition proceedings material effect financial position liquidity results operations longterm purchase contracts presented summary company’s commitments purchase capacity fixed price power purchase contracts december 31 2003 1 reflects company’s minimum commitments purchase capacity utilities qualifying facilities independent power producers contracts electric generation december 31 2003 present value total commitment 42 billion capacity payments contracts totaled 611 million 661 million 668 million 2003 2002 2001 respectively 2003 company paid 154 million purchase nonutility generating facility termination two longterm power purchase contracts company recorded generating facility estimated fair value 49 million recorded aftertax charge 65 million termination longterm power purchase contracts 2001 company completed purchase three generating facilities termination seven longterm power purchase contracts nonutility generators company paid 207 million generating facilities termination contracts recorded aftertax charge 136 million allocation purchase price assigned assets liabilities acquired based upon estimated fair values date acquisition lease commitments company leases various facilities vehicles equipment operating capital leases future minimum lease payments noncancellable operating capital leases initial remaining lease terms excess one year december 31 2003 follows rental expense included operations maintenance expense totaled 30 million 30 million 25 million 2003 2002 2001 respectively beginning 2004 approximately 13 million recognized annually interest expense associated debt obligation newly consolidated vie resulting adoption fin 46r environmental matters company subject costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia state corporation commission period ending june 30 2007 excess level currently included virginia jurisdictional rates company’s results operations decrease date company may seek recovery customers utility rates environmental costs related transmission distribution operations superfund sites time company may identified potentially responsible party superfund site environmental protection agency epa state either allow party conduct pay remedial investigation feasibility study remedial action b conduct remedial investigation action seek reimbursement parties party held jointly severally strictly liable costs parties also bring contribution actions seek reimbursement insurance companies result company may responsible costs remedial investigation actions superfund act laws regulations regarding remediation waste company believe currently identified sites result significant liabilities 1987 epa identified company number entities potentially responsible parties prps two superfund sites located kentucky pennsylvania october 6 2003 epa issued certificate completion remediation kentucky site future costs kentucky site limited minor operations maintenance expenditures remediation design ongoing pennsylvania site total remediation costs expected range 13 million 25 million based allocation formulas volume waste shipped site company accrued reserve 2 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay share costs company generally seeks recover costs asso notes consolidated financial statements continued ciated environmental remediation third party insurers december 31 2003 pending possible claims recognized asset offset obligations epa matters relation notice violation received company 2000 epa related proceedings company us department justice epa states virginia west virginia connecticut new jersey new york agreed settlement april 2003 form proposed consent decree virginia federal district court entered final consent decree october 2003 resolving underlying actions settlement company paid 5 million civil penalty agreed fund 14 million environmental projects committed improve air quality consent decree estimated involve expenditures 12 billion company already incurred certain capital expenditures environmental improvements coalfired stations virginia west virginia committed additional measures current financial plans capital budget satisfy requirements consent decree december 31 2003 company recognized provision funding environmental projects substantially recorded 2000 nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities company’s 2003 nrc minimum financial assurance amount aggregated nuclear units 13 billion satisfied combination surety bonds funds collected deposited trusts company replaced surety bonds dominion guarantee effective march 31 2003 nuclear insurance priceanderson act provides public 109 billion protection per nuclear incident via obligations required owners nuclear power plants priceanderson act amendment 1988 allows inflationary provision adjustment every five years company purchased 300 million coverage commercial insurance pools remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor united states company could assessed 101 million four licensed reactors exceed 10 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed three timesin 1967 1975 1998 priceanderson act expired august 31 2002 operating nuclear reactors continue covered law congress currently holding hearings reauthorize legislation expiration priceanderson act impact existing nuclear license holders company’s current level property insurance coverage 255 billion north anna surry exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc company’s nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 44 million based severity incident board directors company’s nuclear insurer discretion lower eliminate maximum retrospective premium assessment company financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program company subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 19 million north anna power station jointly owned discussed note 9 coowner responsible share nuclear decommissioning obligation insurance premiums including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 company entered contract doe disposal spent nuclear fuel doe failed begin accepting spent nuclear fuel january 31 1998 date provided nuclear waste policy act company’s contract doe january 2004 dominion company filed lawsuits united states court federal claims doe connection failure commence accepting spent nuclear fuel company continue safely manage spent fuel accepted doe notes consolidated financial statements continued litigation company dominion telecom inc dominion telecom defendants class action lawsuit pending us district court richmond virginia plaintiffs claim company dominion telecom strung fiberoptic cable across land along electric transmission corridor without paying compensation plaintiffs seeking damages trespass “unjust enrichment” well punitive damages defendants outcome proceeding including estimate potential loss cannot predicted time letters credit surety bonds december 31 2003 company purchased 67 million surety bonds 57 million associated financial assurance requirements imposed nrc respect decommissioning company’s nuclear units terms surety bonds company obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business company may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law company unable develop estimate maximum potential amount future payments contracts events would obligate company yet occurred event occurred company notified occurrence however december 31 2003 management believes future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position stranded costs 1999 virginia enacted virginia electric utility restructuring act virginia restructuring act established detailed plan restructure virginia’s electric utility industry virginia restructuring act generation portion company’s virginia jurisdictional operations longer subject costbased regulation legislation’s deregulation generation event required discontinuance sfas 71 company’s generation operations 1999 company’s base rates excluding fuel costs certain allowable adjustments remain capped july 2007 unless terminated sooner otherwise modified consistent virginia restructuring act virginia restructuring act company may request termination capped rates time january 1 2004 virginia commission may grant company’s request terminate capped rates finds competitive generation services market exists company’s service area company believes capped electric retail rates applicable wires charges provided virginia restructuring act provide opportunity recover portion potentially stranded costs depending market prices electricity factors stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market even capped rate environment company remains exposed numerous risks including among others exposure potentially stranded costs future environmental compliance requirements changes tax laws inflation increased capital costs december 31 2003 company’s exposure potentially stranded costs included longterm power purchase contracts could ultimately determined market generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements note 21 fair value financial instruments substantially company’s financial instruments recorded fair value exception instruments described reported based historical cost fair values determined using available market information valuation methodologies considered appropriate management financial instruments’ carrying amounts fair values december 31 2003 2002 follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues shortterm maturities variable rates repriced current market rates reasonable estimate fair value 2 fair value based market quotations notes consolidated financial statements continued note 22 credit risk credit risk financial loss company counterparties fail perform contractual obligations order minimize overall credit risk dominion subsidiaries including company maintain credit policies including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction amounts reported margin deposit liabilities represent funds held company resulted various trading counterparties exceeding agreed upon credit limits established company amounts reported margin deposit assets represent funds held deposit various trading counterparties resulted company exceeding agreedupon credit limits established counterparties december 31 2003 2002 company margin deposit assets 41 million 52 million respectively margin deposit liabilities 1 million 22 million respectively company maintains provision credit losses based factors surrounding credit risk customers historical trends information management believes based company’s credit policies december 31 2003 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance company sells electricity provides distribution transmission services diverse group customers including residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers addition company enters contracts various companies energy industry purchases sales energyrelated commodities including natural gas electricity energy trading hedging arbitrage activities transactions principally occur northeast midwest midatlantic regions united states however management believe geographic concentration contributes significantly company’s overall exposure credit risk company’s exposure credit risk concentrated primarily within energy trading activities company transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices december 31 2003 gross credit exposure related transactions totaled 528 million reflecting unrealized gains contracts carried fair value plus outstanding receivables net payables netting agreements exist prior application collateral application collateral company’s credit exposure reduced 527 million amount investment grade counterparties represent 91 single counterparty exceeded 15 note 23 related party transactions company engages related party transactions primarily dominion subsidiaries company’s accounts receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions company included dominion’s consolidated federal income tax return participates certain dominion benefit plans significant related party transactions disclosed transactions dominion subsidiaries company unregulated subsidiary transacts dominion affiliates certain quantities natural gas commodities market prices ordinary course business unregulated subsidiary company involved facilitating dominion’s enterprise risk management strategy connection strategy company’s unregulated subsidiary enters certain commodity derivative contracts dominion affiliates contracts principally comprised commodity swaps used dominion affiliates manage commodity price risks associated purchases sales natural gas part dominion’s enterprise risk management strategy company’s unregulated subsidiary generally manages risk exposures entering offsetting derivative instruments nonaffiliates company reports affiliated nonaffiliated derivative instruments fair value related changes included earnings affiliated commodity transactions presented company’s consolidated balance sheets include derivative energy trading assets 86 million 60 million dominion affiliates december 31 2003 notes consolidated financial statements continued 2002 respectively derivative energy trading liabilities 65 million 81 million dominion affiliates december 31 2003 2002 respectively dominion services provides accounting legal administrative services company provides certain services affiliates including charges facilities equipment usage cost services provided company amount billed services provided company follow payments received company connection another dominion subsidiary’s lease fiber optic equipment related fiber optic support maintenance services 2003 2002 2001 8 million 3 million 4 million respectively receiving regulatory approval 2003 company assigned energy contracts another dominion subsidiary connection dominion’s plan transfer certain wholesale power marketing activities occur outside company’s service territory exchange transfer contracts company received 13 million representing net fair value contracts transferred contracts involve delivery electric energy physical power purchases sales 17 million megawatthours 19 million megawatthours respectively 2003 also years 2004 2006 also 2003 company assigned sales contract another dominion subsidiary involving delivery approximately 6 million megawatthours wholesale electric energy 2003 declining approximately 5 million megawatthours annually 2004 2006 declining 4000 megawatthours 2008 company leasing power generation facility possum point station another dominion subsidiary result adopting fin 46r company required consolidate special purpose lessor entity company financed leased power generation facility result consolidated balance sheet december 31 2003 reflected additional 364 million net property plant equipment deferred charges 370 million related debt reflected affiliated notes payable transactions dominion company leases principal office building dominion agreement approved virginia commission expires 2006 agreement accounted capital lease capitalized cost property lease net accumulated amortization approximately 10 million 12 million december 31 2003 2002 respectively rental payments lease 3 million years ended december 31 2003 2002 2001 exchange reduction amounts payable dominion company recognized 21 million additional paidin capital 2003 issued 150 million common stock dominion 2002 company subsidiaries made certain borrowings dominion december 31 2003 2002 net outstanding borrowings shortterm demand note totaled 154 million 100 million respectively 2003 company also borrowed dominion pursuant longterm note december 31 2003 net outstanding borrowings note totaled 220 million interest charges incurred company 2003 2002 material transactions related parties unregulated subsidiary company sole discretion provided december 31 2003 2002 8 million 31 million cash collateral third parties behalf several natural gas supply customers financial support services unregulated subsidiary receives fees security interest customers’ assets arrangements terminate various dates beginning 2005 2007 subject periodic renewal thereafter unless terminated either party upon adoption fin 46r interests special purpose entities december 31 2003 company ceased consolidating virginia power capital trust ii see company obligated mandatorily redeemable preferred securities subsidiary trust note 15 information note 24 operating segments company organized primarily basis products services sold united states result changes management reporting structure 2003 nature composition company’s primary operating segments changed electric transmission operations formerly delivery segment included energy segment electric generation operations formerly energy segment presented separate segment generation segment information prior years recast conform new segment structure company manages operations based three operating segments notes consolidated financial statements continued generation includes company’s portfolio electric generating facilities power purchase contracts energy includes company’s electric transmission operations energy trading hedging arbitrage activities delivery includes company’s electric distribution systems customer service operations energy segment’s electric transmission operations delivery segment continue subject requirements sfas 71 majority company’s revenue provided bundled rate tariffs generally revenue allocated among three segments management reporting based prior costofservice studies addition company also reports corporate functions segment contribution net income company’s primary operating segments determined based measure profit executive management believes representative segments’ “core” earnings result certain specific items attributable segments included profit measures evaluated executive management assessing segment’s performance allocating resources among segments specific items reported corporate segment include n 2003 incremental restoration expenses associated hurricane isabel n 2003 charge restructuring certain electric sales contracts n 2003 cumulative effect changes accounting principles n 2003 2001 costs terminating certain longterm power purchase contracts n 2003 2001 severance costs workforce reductions restructuring costs intersegment sales transfers based underlying contractual arrangements agreements may result intersegment profit loss following table presents segment information pertaining company’s operations notes consolidated financial statements continued note 25 quarterly financial data unaudited summary quarterly results operations years ended december 31 2003 2002 follows amounts reflect adjustments consisting normal recurring accruals necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors item 9 item 8 financial statements supplementary data page number dominion energy inc report independent registered public accounting firm consolidated statements income years ended december 31 2020 2019 2018 consolidated statements comprehensive income years ended december 31 2020 2019 2018 consolidated balance sheets december 31 2020 2019 consolidated statements equity december 31 2020 2019 2018 years ended consolidated statements cash flows years ended december 31 2020 2019 2018 virginia electric power company report independent registered public accounting firm consolidated statements income years ended december 31 2020 2019 2018 consolidated statements comprehensive income years ended december 31 2020 2019 2018 consolidated balance sheets december 31 2020 2019 consolidated statements common shareholder’s equity december 31 2020 2019 2018 years ended consolidated statements cash flows years ended december 31 2020 2019 2018 combined notes consolidated financial statements report independent registered public accounting firm shareholders board directors dominion energy inc opinion consolidated financial statements audited accompanying consolidated balance sheets dominion energy inc subsidiaries dominion energy december 31 2020 2019 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2020 related notes collectively referred consolidated financial statements opinion consolidated financial statements present fairly material respects financial position dominion energy december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob dominion energys internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 25 2021 expressed unqualified opinion dominion energys internal control financial reporting basis opinion consolidated financial statements responsibility dominion energys management responsibility express opinion dominion energys consolidated financial statements based audits public accounting firm registered pcaob required independent respect dominion energy accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matters communicated matters arising currentperiod audit financial statements communicated required communicated audit committee 1 relate accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate regulatory assets liabilities impact rate regulation consolidated financial statements refer notes 2 12 13 consolidated financial statements critical audit matter description dominion energy regulated electric gas subsidiaries subject rate regulation certain state public utility commissions federal energy regulatory commission “ferc” collectively “relevant commissions” jurisdiction respect rates electric utility natural gas distribution transmission companies management determined rateregulated subsidiaries meet requirements accounting principles generally accepted united states america apply specialized rules account effects costbased rate regulation accounting economics rate regulation impacts multiple financial statement line items disclosures property plant equipment net regulatory assets regulatory liabilities operating revenues operations maintenance expense depreciation depletion amortization expense impairment assets charges collectively “financial statement impacts rate regulation” revenue provided dominion energy’s electric transmission distribution generation operations gas transmission distribution operations based primarily rates approved relevant commissions virginia electric power company’s “virginia power” retail base rates terms conditions generation distribution services customers virginia reviewed virginia state corporation commission “virginia commission” proceeding involves determination virginia power’s actual earned return equity “roe” historic test period determination virginia power’s authorized roe prospectively certain circumstances virginia power may required refund portion earnings customers connection evaluation virginia power’s earnings fouryear test period ended december 31 2020 virginia power recorded charge 130 million year ended december 31 2020 benefits expects provide customers use customer credit reinvestment offset accordance virginia grid transformation security act 2018 “gtsa” evaluation included consideration regulatory treatment charge 754 million 561 million aftertax recorded first quarter 2020 associated virginia power’s commitment retire certain coal oilfired generating units end useful lives virginia power determined appropriate consider charge recovered component virginia power’s base rates gtsa determination required management judgment probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred dominion energy evaluates whether recovery regulatory assets future rates probable well whether regulatory liability due customers probable makes various assumptions analyses generally based orders issued regulatory commissions legislation judicial actions past experience discussions applicable regulatory authorities legal counsel forecasted earnings considerations around likelihood impacts events unusual weather conditions extreme weather events natural disasters unplanned outages facilities identified impact rate regulation critical audit matter due significant judgments made management support assertions financial statement impacts rate regulation management judgments include assessing likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers given management’s accounting judgments based assumptions outcome future decisions relevant commissions auditing judgments required specialized knowledge accounting rate regulation rate setting process due inherent complexities critical audit matter addressed audit procedures related assessment whether recovery regulatory assets future rates regulatory liability due customers probable included following among others • tested effectiveness management’s controls evaluation likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers also tested effectiveness management’s controls initial recognition amounts regulatory assets liabilities monitoring evaluation regulatory legislative developments may impact assessment whether recovery regulatory assets future rates regulatory liability due customers probable • evaluated dominion energy’s disclosures related financial statement impacts rate regulation • read evaluated orders issued relevant commissions well relevant regulatory statutes interpretations procedural memorandums filings made interveners existing laws publicly available information assess whether external information properly considered management concluding upon financial statement impacts rate regulation • assessed regulatory treatment significant nonrecurring charges including 754 million charge recorded virginia power first quarter 2020 connection early retirement decision impacting certain coal oilfired generating units considering existing precedent treatment charges relevant legislation regulatory orders • considered likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers based precedents established relevant commissions’ previous orders dominion energy’s past experience relevant commissions • regulatory matters process inspected associated documents testimony filed relevant commissions evidence might contradict management’s assertions • read analyzed minutes boards directors dominion energy dominion energy’s rateregulated subsidiaries discussions changes legal regulatory business factors could impact management’s conclusions respect financial statement impacts rate regulation impairment nonwhollyowned nonregulated solar facilities refer note 10 consolidated financial statements critical audit matter description dominion energy performs evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets finite lives may recoverable longlived asset written fair value sum expected future undiscounted cash flows less carrying amount third quarter 2020 dominion energy performed strategic review longterm intentions contracted nonregulated solar generation assets partnerships outside core electric service territories consideration impact virginia clean economy act dominion energy’s decision sell substantially gas transmission storage operations based evaluation dominion energy’s interests longlived assets recoverability probability weighted approach dominion energy determined assets impaired result dominion energy recorded charge 665 million 293 million aftertax attributable dominion energy 267 million attributable noncontrolling interest impairment assets charges consolidated statements income year ended december 31 2020 adjust property plant equipment estimated fair value 14 billion fair value estimated using income approach valuation considered level 3 fair value measurement due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risks inherent future cash flows market prices identified impairment contracted nonregulated solar generation assets held partnerships critical audit matter due high degree auditor judgment increased level effort including need involve fair value specialists performing audit procedures evaluate 1 timing management’s identification triggering event requiring recoverability test 2 reasonableness probabilities assigned management scenarios utilized within recoverability model 3 estimates underlying future cash flows scenarios utilized 4 selection discount rate deriving fair value assets critical audit matter addressed audit procedures related impairment solar generation assets held partnerships included following among others • tested effectiveness management’s controls impairment evaluation including identification triggering events requiring recoverability tests addressing appropriateness key assumptions used recoverability test including addressing probabilities assigned scenarios utilized addressing key assumptions utilized estimation fair value assets including selection discount rate • evaluated whether timing identification triggering event appropriate well reasonableness probabilities management assigned scenarios utilized recoverability test reading analyzing minutes boards directors dominion energy discussions changes legal regulatory business factors could impact management’s conclusions respect probabilities assigned scenarios utilized making inquiries executive management obtaining considering timing content business unit presentations concerning management’s future plans respect solar partnerships • evaluated reasonableness fair value model testing mathematical accuracy model evaluating reasonableness forecasted cash flows comparing cash flow projections current executed contracts historical revenues gross margins industry trends assistance fair value specialists evaluating reasonableness discount rate utilized model developing range independent estimates comparing discount rate selected management • evaluated dominion energy’s disclosures related financial statement impacts impairment earnings loss equity method investees presentation loss atlantic coast pipeline discontinued operations refer note 9 consolidated financial statements critical audit matter description dominion energy holds 53 noncontrolling interest atlantic coast pipeline llc “atlantic coast pipeline” since formation september 2014 focused construction approximately 600mile natural gas pipeline atlantic coast pipeline determined pipeline probable abandonment june 2020 fully impaired related asset construction resulted equity method loss dominion energy 23 billion connection dominion energy’s decision sell substantially gas transmission storage operations determined strategic shift dominion energy reflected results equity method investment atlantic coast pipeline discontinued operations consolidated statements income auditing conclusion equity method earnings loss associated dominion energy’s investment atlantic coast pipeline appropriately presented discontinued operations involved significant judgment applying accounting standards equity method investee considered abandoned critical audit matter addressed audit procedures related assessment whether equity method loss associated dominion energy’s investment atlantic coast pipeline appropriately presented discontinued operations included following among others • tested effectiveness controls management’s technical accounting assessment presentation equity method earnings loss atlantic coast pipeline • assistance professionals firm expertise discontinued operations evaluated management’s conclusions regarding presentation equity method earnings loss atlantic coast pipeline considering applicable generally accepted accounting standards • evaluated dominion energy’s disclosures related presentation equity method earnings loss atlantic coast pipeline discontinued operations deloitte touche llp richmond virginia february 25 2021 served dominion energy’s auditor since 1988 dominion energy inc consolidated statements income 1 see note 9 amounts attributable related parties 2 includes income tax expense benefit 204 million 142 million 58 million years ended december 31 2020 2019 2018 respectively accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements comprehensive income accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated balance sheets 1 see note 9 amounts attributable related parties accompanying notes integral part dominion energy’s consolidated financial statements 1 see note 9 amounts attributable related parties 2 18 billion shares authorized 806 million shares 838 million shares outstanding december 31 2020 2019 respectively accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements equity accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements cash flows see note 2 disclosure supplemental cash flow information accompanying notes integral part dominion energy’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors shareholder virginia electric power company opinion consolidated financial statements audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion energy inc subsidiaries virginia power december 31 2020 2019 related consolidated statements income comprehensive income common shareholders equity cash flows three years period ended december 31 2020 related notes collectively referred consolidated financial statements opinion consolidated financial statements present fairly material respects financial position virginia power december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility virginia powers management responsibility express opinion virginia powers consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect virginia power accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud virginia power required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matter critical audit matter communicated matter arising currentperiod audit financial statements communicated required communicated board directors 1 relates accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates regulatory assets liabilities impact rate regulation consolidated financial statements refer notes 2 12 13 consolidated financial statements critical audit matter description virginia power subject utility rate regulation certain state public utility commissions federal energy regulatory commission “ferc” collectively “relevant commissions” jurisdiction respect rates electric utility companies territories virginia power serves management determined virginia power meets requirements accounting principles generally accepted united states america apply specialized rules account effects costbased rate regulation accounting economics rate regulation impacts multiple financial statement line items disclosures property plant equipment net regulatory assets regulatory liabilities operating revenues operations maintenance expense depreciation amortization expense impairment assets charges collectively “financial statement impacts rate regulation” revenue provided virginia power’s electric transmission distribution generation operations based rates approved relevant commissions virginia power’s retail base rates terms conditions generation distribution services customers virginia reviewed virginia state corporation commission “virginia commission” proceeding involves determination virginia power’s actual earned return equity “roe” historic test period determination virginia power’s authorized roe prospectively certain circumstances virginia power may required refund portion earnings customers connection evaluation virginia power’s earnings fouryear test period ended december 31 2020 virginia power recorded charge 130 million year ended december 31 2020 benefits expects provide customers use customer credit reinvestment offset accordance virginia grid transformation security act 2018 “gtsa” evaluation included consideration regulatory treatment charge 754 million 561 million aftertax recorded first quarter 2020 associated virginia power’s commitment retire certain coal oilfired generating units end useful lives virginia power determined appropriate consider charge recovered component virginia power’s base rates gtsa determination required management judgment probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred virginia power evaluates whether recovery regulatory assets future rates probable well whether regulatory liability due customers probable makes various assumptions analyses generally based orders issued regulatory commissions legislation judicial actions past experience discussions applicable regulatory authorities legal counsel forecasted earnings considerations around likelihood impacts events unusual weather conditions extreme weather events natural disasters unplanned outages facilities identified impact rate regulation critical audit matter due significant judgments made management support assertions financial statement impacts rate regulation management judgments include assessing likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers given management’s accounting judgments based assumptions outcome future decisions commission auditing judgments required specialized knowledge accounting rate regulation rate setting process due inherent complexities critical audit matter addressed audit procedures related assessment whether recovery regulatory assets future rates regulatory liability due customers probable included following among others • tested effectiveness management’s controls evaluation likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers also tested effectiveness management’s controls initial recognition amounts regulatory assets liabilities monitoring evaluation regulatory legislative developments may impact assessment whether recovery regulatory assets future rates regulatory liability due customers probable • evaluated virginia power’s disclosures related financial statement impacts rate regulation • read evaluated orders issued relevant commissions well relevant regulatory statutes interpretations procedural memorandums filings made interveners existing laws publicly available information assess whether external information properly considered management concluding upon financial statement impacts rate regulation • assessed regulatory treatment significant nonrecurring charges including 754 million charge recorded virginia power first quarter 2020 connection early retirement decision impacting certain coal oilfired generating units considering existing precedent treatment charges relevant legislation regulatory orders • considered likelihood 1 recovery regulatory assets future rates 2 whether regulatory liability due customers based precedents established relevant commissions’ previous orders virginia power’s past experience relevant commissions • regulatory matters process inspected associated documents testimony filed relevant commissions evidence might contradict management’s assertions • read analyzed minutes board directors dominion energy inc board directors virginia power discussions changes legal regulatory business factors could impact management’s conclusions respect financial statement impacts rate regulation deloitte touche llp richmond virginia february 25 2021 served virginia powers auditor since 1988 virginia electric power company consolidated statements income 1 see note 25 amounts attributable affiliates accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 see note 25 amounts attributable affiliates accompanying notes integral part virginia power’s consolidated financial statements 1 see note 25 amounts attributable affiliates 2 500000 shares authorized 274723 shares outstanding december 31 2020 2019 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows see note 2 disclosure supplemental cash flow information accompanying notes integral part virginia power’s consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion energy headquartered richmond virginia one nation’s largest producers distributors energy dominion energy’s operations conducted various subsidiaries including virginia power dominion energy’s operations also include desc regulated gas distribution operations primarily eastern rocky mountain regions us nonregulated electric generation following completion gts transaction november 2020 noncontrolling interest cove point see note 3 description sale substantially dominion energy’s gas transmission storage operations bhe gts transaction completed november 2020 proposed qpipe transaction dominion energy’s remaining regulated gas transmission storage services rocky mountain region us beginning september 2020 dominion energy manages daily operations four primary operating segments dominion energy virginia gas distribution dominion energy south carolina contracted assets dominion energy also reports corporate segment includes corporate service company functions including unallocated debt well nonregulated retail energy marketing operations including dominion energy’s noncontrolling interest wrangler corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing operating segments’ performance allocating resources addition corporate includes net impact discontinued operations consisting dominion energy’s gas transmission storage operations discussed note 3 equity investment atlantic coast pipeline discussed note 9 virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s stock owned dominion energy virginia power manages daily operations one primary operating segment dominion energy virginia also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources see note 26 discussion companies’ operating segments note 2 significant accounting policies general companies make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates companies’ consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries nonwhollyowned entities controlling financial interest certain partnership structures income allocated based liquidation value underlying contractual arrangements december 31 2020 dominion energy owns 50 voting interests four brothers three cedars controlling financial interest entities right control operations august 2018 nrg’s ownership interest four brothers three cedars transferred gip’s ownership interest four brothers three cedars terra nova renewable partners’ 33 interest certain dominion energy nonregulated solar projects brookfield’s 25 interest cove point effective december 2019 november 2020 nondominion energy held interest dominion energy midstream january 2019 reflected noncontrolling interest dominion energy’s consolidated financial statements terra nova renewable partners future option buy portion dominion energy’s remaining 67 ownership certain nonregulated projects upon occurrence certain events including proposed sale dominion energy interest companies report certain contracts instruments investments fair value see note 6 information fair value measurements companies consider acquisitions dispositions substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets acquisition disposition asset rather business see notes 3 10 information transactions dominion energy maintains pension postretirement benefit plans virginia power participates certain plans see note 22 information plans certain amounts companies’ 2019 2018 consolidated financial statements notes reclassified conform 2020 presentation comparative purposes however reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion energy inclusive virginia power applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers companies collect sales consumption consumer utility taxes however amounts excluded revenue dominion energy’s customer receivables december 31 2020 2019 included 11 billion 829 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2020 2019 included 740 million 512 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers see note 25 amounts attributable related parties primary types sales service activities reported operating revenue dominion energy follows revenue contracts customers • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated hedging activity • regulated gas sales consist primarily stateregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties associated hedging activity • regulated gas transportation storage sales consist stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services sales transportation services offsystem customers • regulated revenue consists primarily miscellaneous service revenue electric gas distribution operations sales excess electric capacity commodities • nonregulated revenue consists primarily sales commodities related nonregulated extraction activities miscellaneous products nonregulated revenue also includes sales energyrelated products services dominion energy’s retail energy marketing operations sales virginia power customers nonjurisdictional solar generation facilities service concession arrangements revenue • revenue consists primarily alternative revenue programs gains losses derivative instruments subject hedge accounting lease revenues primary types sales service activities reported operating revenue virginia power follows revenue contracts customers • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • regulated revenue consists primarily sales excess capacity commodities miscellaneous service revenue electric distribution operations • nonregulated revenue consists primarily sales customers nonjurisdictional solar generation facilities revenue renting space certain electric transmission poles distribution towers service concession arrangements revenue • revenue consists primarily alternative revenue programs gains losses derivative instruments subject hedge accounting lease revenues companies record refunds customers required state commissions reduction regulated electric sales regulated gas sales applicable companies’ revenue accounted alternative revenue program guidance primarily consists equity return underrecovery certain riders alternative revenue programs compensate companies certain projects initiatives revenues arising programs presented separately revenue arising contracts customers categories revenues electric gas sales recognized time customers companies consume gas electricity delivered fixed fees recognized ratably life contract standready performance obligation satisfied variable usage fees recognized dominion energy right consideration customer amount corresponds directly value customer performance obligation completed date sales products services typically transfer control recognized revenue upon delivery product service customer able direct use obtain substantially benefits product time product delivered contract customer states final terms sale including description quantity price product service purchased payment sales services varies contract type typically due within month billing operating revenue gas transmission storage operations sold bhe part gts transaction qpipe transaction primarily consists fercregulated sales transmission storage services lng terminalling services sales extracted products associated hedging activities ngl activities including gathering processing sales production condensate well services performed atlantic coast pipeline revenue included discontinued operations dominion energy’s consolidated statements income transportation storage contracts associated operations sold bhe part gts transaction qpipe transaction primarily standready service contracts include fixed reservation variable usage fees lng terminalling services included discontinued operations also standready service contracts primarily consisting fixed fees offset service credits associated startup phase liquefaction facility ngls received natural gas processing recorded discontinued operations fair value service revenue recognized time revenue continues recognized subsequent sale ngls customers upon delivery credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction companies maintain provision credit losses based factors surrounding credit risk customers historical trends information effective january 2020 expected credit losses estimated recorded based historical experience current conditions reasonable supportable forecasts affect collectability financial assets held amortized cost well expected credit losses commitments respect financial guarantees electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences companies’ actual electric fuel purchased energy expenses dominion energy’s purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve virginia utility customers december 31 2020 approximately 85 subject virginia power’s deferred fuel accounting substantially remaining amount subject recovery similar mechanisms cost fuel used electric generation energy purchases serve south carolina utility customers december 31 2020 approximately 96 subject desc’s deferred fuel accounting virtually east ohio questar gas hope desc psnc’s natural gas purchases either subject deferral accounting recovered customer accounting period sale income taxes consolidated federal income tax return filed dominion energy subsidiaries including virginia power addition applicable combined income tax returns dominion energy subsidiaries filed various states otherwise separate state income tax returns filed virginia power participates intercompany tax sharing agreements dominion energy subsidiaries current income taxes based taxable income loss credits determined separate company basis agreements subsidiary incurs tax loss earns credit recognition current income tax benefits limited refunds prior year taxes obtained carryback net operating loss credit extent tax loss credit absorbed taxable income dominion energy consolidated group members otherwise net operating loss credit carried forward recognized deferred tax asset realized accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes accordingly deferred taxes recognized future consequences different treatments used reporting transactions financial accounting income tax returns companies establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities companies recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets companies recognize interest underpayments overpayments income taxes interest expense income respectively penalties also recognized income december 31 2020 virginia power income taxrelated affiliated payable 19 million comprised 17 million federal income taxes 2 million state income taxes due dominion energy affiliated balances expected paid dominion energy december 31 2019 virginia power income taxrelated affiliated payable 35 million comprised 15 million federal income taxes 20 million state income taxes due dominion energy virginia power’s net affiliated balances paid dominion energy investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash restricted cash equivalents cash restricted cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less current banking arrangements generally require checks funded presented payment following table illustrates checks outstanding yet presented payment recorded accounts payable companies restricted cash equivalents companies hold restricted cash equivalent balances primarily consist amounts held litigation settlements customer deposits future debt payments sbl holdco dominion solar projects iii inc’s term loan agreements eagle solar’s senior note agreement following table provides reconciliation total cash restricted cash equivalents reported within companies’ consolidated balance sheets corresponding amounts reported within companies’ consolidated statements cash flows years ended december 31 2020 2019 2018 1 december 31 2020 december 31 2019 december 31 2018 december 31 2017 dominion energy 7 million 31 million 110 million 21 million cash equivalents included current assets held sale respectively 2 december 31 2020 december 31 2019 december 31 2018 december 31 2017 dominion energy 3 million 12 million 89 million 39 million restricted cash included current assets held sale respectively 3 restricted cash equivalent balances presented within current assets companies’ consolidated balance sheets supplemental cash flow information following table provides supplemental disclosure cash flow information related dominion energy 1 see new accounting standards section noncash investing financing activities related adoption new accounting standard leasing arrangements 2 see note 3 noncash investing financing activities related scana combination 3 see note 5 noncash activities related sale noncontrolling interest cove point 4 see note 9 noncash investing activities related acquisition noncontrolling interest wrangler 5 see notes 1819 20 noncash financing activities related acquisition public interest dominion energy midstream remarketing rsns issuance stock purchase contracts associated 2019 equity units contribution stock dominion energy’s qualified defined benefit pension plan derivative restructuring issuance common stock associated settlement litigation see note 23 noncash investing activities related property plant equipment conveyed satisfy litigation 6 includes 46 million finance leases 127 million operating leases december 31 2020 113 million finance leases 44 million operating leases december 31 2019 following table provides supplemental disclosure cash flow information related virginia power 1 see new accounting standards section noncash investing financing activities related adoption new accounting standard leasing arrangements 2 see note 18 noncash financing activities related derivative restructuring 3 includes 32 million finance leases december 31 2020 20 million finance leases 35 million operating leases december 31 2019 distributions equity method investees dominion energy holds investments accounted equity method accounting classifies distributions equity method investees either cash flows operating activities cash flows investing activities consolidated statements cash flows according nature distribution distributions received classified basis nature activity investee generated distribution either return investment classified cash flows operating activities return investment classified cash flows investing activities information available dominion energy derivative instruments companies exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well interest rate risk business operations companies use derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate risks business operations derivatives except exception applies required reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance see note 6 information fair value measurements associated valuation methods derivatives companies offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion energy margin assets 19 million 42 million associated cash collateral december 31 2020 2019 respectively dominion energy margin liabilities 5 million 2 million associated cash collateral december 31 2020 2019 respectively virginia power margin assets 1 million less 1 million associated cash collateral december 31 2020 2019 respectively virginia power margin liabilities associated cash collateral december 31 2020 2019 see note 7 information derivatives manage price risk companies hold derivative instruments designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges discontinued operations based nature underlying risk changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments accordance accounting guidance pertaining derivatives hedge accounting companies designate portion derivative instruments either cash flow fair value hedges accounting purposes derivative instruments accounted cash flow hedges fair value hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority companies’ hedge strategies represents cash flow hedges variable price risk primarily associated purchase natural gas companies also use interest rate swaps hedge exposure variable interest rates longterm debt transactions companies hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable fair value hedgesdominion energy also designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value hedge accounting discontinued hedged item longer qualifies hedge accounting property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2020 2019 2018 dominion energy capitalized interest costs afudc property plant equipment 103 million 78 million 109 million respectively 2020 2019 2018 virginia power capitalized afudc property plant equipment 60 million 34 million 56 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2020 2019 2018 virginia power recorded 11 million 11 million 4 million afudc related projects respectively property subject costofservice rate regulation including companies’ electric distribution electric transmission generation property dominion energy’s natural gas distribution property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable abandoned recorded regulatory asset amounts expected collected future rates 2020 2019 companies following charges primarily recorded impairment assets charges consolidated statements income reflected corporate segment related early retirements • march 2020 virginia power committed retire certain coal oilfired generating units end useful lives based economic factors including limited market power prices vcea units retired meet capacity obligations pjm 2023 result virginia power recorded charge 751 million 559 million aftertax charge considered component virginia power’s base rates deemed recovered gtsa subject review discussed note 13 also 2020 virginia power recorded charges 54 million 40 million aftertax associated dismantling certain electric generation facilities • january 2019 virginia power committed plan retire certain automated metering reading infrastructure associated electric operations end estimated useful life replace equipment current ami technology result virginia power recorded charge 160 million 119 million aftertax charge considered component virginia power’s base rates deemed recovered gtsa subject review discussed note 13 • march 2019 virginia power committed retire certain electric generating units end useful lives completed retirement certain units six facilities representing 1292 mw electric generating capacity previously placed cold reserve additional unit possum point power station retired meeting capacity obligation pjm december 2020 result virginia power recorded charge 346 million 257 million aftertax charge considered component virginia power’s base rates deemed recovered gtsa subject review discussed note 13 • may 2019 virginia power abandoned coal rail project mt storm generating facility result virginia power recorded charge 62 million 46 million aftertax • september 2019 companies abandoned certain property plant equipment end useful life result dominion energy recorded charge 26 million 19 million aftertax virginia power recorded charge 17 million 12 million aftertax property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives companies’ average composite depreciation rates utility property plant equipment follows 1 excludes rates depreciation reported discontinued operations 2020 virginia power updated depreciation rates nuclear plants reflect lower depreciation rates result expected approval license extensions nrc year ended december 31 2020 adjustment resulted decrease 31 million 23 million aftertax depreciation expense virginia power’s consolidated statements income increase dominion energy’s eps 003 per share 2018 virginia power revised depreciation rates regulated nuclear plants comply virginia commission requirements year ended december 31 2018 adjustment resulted decrease 60 million 44 million aftertax depreciation expense virginia power’s consolidated statements income increase dominion energy’s eps 007 per share change resulted annual decrease depreciation expense 30 million 23 million aftertax virginia power’s nonjurisdictional property plant equipment depreciated using straightline method estimated useful life 30 years capitalized costs development wells leaseholds amortized fieldbyfield basis using unitofproduction method estimated proved developed total proved gas oil reserves rate 197 180 per mcfe 2020 2019 respectively dominion energy’s nonutility property plant equipment depreciated using straightline method following estimated useful lives depreciation amortization related virginia power’s nonutility property plant equipment dominion energy’s exploration production properties immaterial years ended december 31 2020 2019 2018 nuclear fuel used electric generation amortized estimated service life unitsofproduction basis companies report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets companies perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairment longlived assets regulatory assets liabilities accounting companies’ regulated electric gas operations differs accounting nonregulated operations companies required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred companies evaluate whether recovery regulatory assets future rates probable well whether regulatory liability due customers probable make various assumptions analyses generally based • orders issued regulatory commissions legislation judicial actions • past experience • discussions applicable regulatory authorities legal counsel • forecasted earnings • considerations around likelihood impacts events unusual weather conditions extreme weather events natural disasters unplanned outages facilities generally regulatory assets liabilities amortized income period authorized regulator recovery regulatory asset determined less probable written period assessment made regulatory liability considered probable recorded period assessment made reversed earnings longer probable see notes 12 13 consolidated financial statements additional information leases companies lease certain assets including vehicles real estate office equipment operational assets operating finance leases companies’ operating leases rent expense recognized straightline basis term lease agreement subject regulatory framework rent expense associated operating leases shortterm leases variable leases primarily recorded operations maintenance expense companies’ consolidated statements income rent expense associated finance leases results separate presentation interest expense lease liability amortization expense related rightofuse asset companies’ consolidated statements income certain companies’ leases include one options renew renewal terms extend lease one 70 years exercise renewal options solely companies’ discretion included lease term option reasonably certain exercised rightofuse asset corresponding lease liability leases original lease terms one year less included consolidated balance sheets unless leases contain renewal options companies reasonably certain exercised additionally certain companies’ leases contain escalation clauses whereby payments adjusted consumer price indices contain fixed dollar percentage increases companies also leases variable payments based upon usage revenues associated leased assets determination discount rate utilized significant impact calculation present value lease liability included companies’ consolidated balance sheets companies’ fleet leased vehicles discount rate equal prevailing borrowing rate earned lessor companies’ remaining leased assets discount rate implicit lease generally unable determined lessee perspective companies use internallydeveloped incremental borrowing rates discount rate calculation present value lease liability incremental borrowing rates determined based analysis companies’ publicly available unsecured borrowing rates adjusted collateral discount various lengths time closely correspond companies’ lease maturities addition dominion energy acts lessor certain power purchase agreements counterparty counterparties purchase substantially output certain solar facilities leases considered operating nature leasing arrangements rental revenue associated accounts receivable recorded monthly output solar facility determined depreciation solar facilities computed straightline basis estimated useful life 30 years asset retirement obligations companies recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed legal obligation exists amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses quarterly companies assess aros determine circumstances indicate estimates amounts timing future cash flows associated retirement activities changed aros adjusted significant changes amounts timing future cash flows identified dominion energy reports accretion aros depreciation asset retirement costs associated natural gas pipelines adjustment related regulatory assets liabilities revenue recoverable customers aros companies report accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory asset liability certain jurisdictions additionally companies report accretion aros depreciation asset retirement costs associated certain rider prospective rider projects adjustment regulatory asset certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense respectively consolidated statements income debt issuance costs companies defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others deferred debt issuance costs recorded reduction longterm debt consolidated balance sheets amortization issuance costs reported interest expense unamortized costs associated redemptions debt securities prior stated maturity dates generally recognized recorded interest expense immediately permitted regulatory authorities gains losses resulting refinancing redemption debt allocable utility operations subject costbased rate regulation deferred amortized investments debt equity securities readily determinable fair values dominion energy accounts classifies investments debt securities trading availableforsale securities virginia power classifies investments debt securities availableforsale securities • debt securities classified trading securities include securities held dominion energy rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income • debt securities classified availableforsale securities include debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including creditrelated impairments investments held nuclear decommissioning trusts deferred regulatory asset liability applicable certain jurisdictions subject costbased regulation availableforsale debt securities including held dominion energy’s nonregulated generation nuclear decommissioning trusts net realized gains losses including creditrelated impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses debt securities cost basis security based specific identification method equity securities readily determinable fair values include securities held dominion energy rabbi trusts associated certain deferred compensation plans securities held companies nuclear decommissioning trusts companies record equity securities readily determinable fair value permitted estimate fair value using nav equivalent fair value nuclear decommissioning trust funds investments consolidated balance sheets however companies may elect measurement alternative equity securities without readily determinable fair value measurement alternative equity securities reported cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer companies qualitatively assess equity securities reported using measurement alternative determine whether investment impaired ongoing basis net realized unrealized gains losses equity securities held nuclear decommissioning trusts deferred regulatory asset liability applicable certain jurisdictions subject costbased regulation equity securities including held dominion energy’s nonregulated generation nuclear decommissioning trusts rabbi trusts net realized unrealized gains losses included income consolidated statements income equity securities without readily determinable fair values companies account illiquid privately held securities without readily determinable fair values either equity method cost method equity securities without readily determinable fair values include • equity method investments companies ability exercise significant influence control investee dominion energy’s investments included investments equity method affiliates consolidated balance sheets except liability atlantic coast pipeline investments classified held sale dominion energy records equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method • cost method investments companies ability exercise significant influence investee companies’ investments included investments nuclear decommissioning trust funds cost method investments reported cost less impairment plus minus changes resulting observable price changes orderly transactions identical similar investments issuer otherthantemporary impairment companies periodically review equity method investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary investment written fair value end reporting period credit impairment effective january 2020 companies periodically review availableforsale debt securities determine whether decline fair value considered credit related decline fair value availableforsale debt security determined credit related creditrelated impairment recorded allowance included nuclear decommissioning trust funds companies’ consolidated balance sheets end reporting period allowance credit losses subject reversal subsequent evaluations using information obtained nuclear decommissioning trust fixedincome investment managers companies record earnings defer applicable certain jurisdictions subject costbased regulation unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss companies record credit loss earnings defer applicable certain jurisdictions subject costbased regulation remaining noncredit portion unrealized loss recorded aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory valued using weightedaverage cost method except east ohio gas distribution operations valued using lifo method lifo method current stored gas inventory valued 2 million 19 million december 31 2020 december 31 2019 respectively based average price gas purchased 2020 2019 cost replacing current portion stored gas inventory exceeded amount stated lifo basis 52 million 60 million respectively gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion energy values imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion energy parties reported current assets imbalances dominion energy owes parties reported current liabilities consolidated balance sheets goodwill dominion energy evaluates goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount new accounting standards debt conversion options contracts entity’s equity august 2020 fasb issued revised accounting guidance debt conversion options contracts entity’s equity revised guidance eliminates ability assert cash settlement exclude potential shares diluted eps calculation contract may settled stock cash effective date interim annual reporting periods beginning january 1 2022 may adopted modified retrospective fully retrospective method transition upon adoption dominion energy apply ifconverted method calculate diluted eps connection potentially dilutive instruments components instruments may settled stock cash series preferred stock revenue recognition may 2014 fasb issued revised accounting guidance revenue recognition contracts customers companies adopted revised accounting guidance interim annual reporting periods beginning january 1 2018 using modified retrospective method upon adoption standard dominion energy recorded cumulativeeffect change accounting principle 3 million retained earnings establish contract asset related changes timing revenue recognition three existing contracts customers deti financial instruments january 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure financial instruments guidance became effective companies’ interim annual reporting periods beginning january 1 2018 companies adopted standard using modified retrospective method upon adoption guidance equity securities held january 1 2018 companies recorded cumulativeeffect change accounting principle reclassify net unrealized gains aoci retained earnings recognize equity securities previously categorized cost method investments fair value using nav nuclear decommissioning trust funds consolidated balance sheets cumulativeeffect adjustment retained earnings dominion energy virginia power reclassified approximately 11 billion 734 million aftertax 119 million 73 million aftertax respectively net unrealized gains aoci retained earnings companies also recorded approximately 36 million 22 million aftertax net unrealized gains equity securities previously classified cost method investments 3 million recorded retained earnings 33 million recorded regulatory liabilities net unrealized gains subject costbased regulation result adopting revised accounting guidance dominion energy recorded unrealized losses equity securities net regulatory deferrals 190 million 142 million aftertax income consolidated statements income year ended december 31 2018 resulting 022 loss per share year ended december 31 2018 virginia power recorded unrealized losses equity securities net regulatory deferrals 24 million 18 million aftertax income consolidated statements income year ended december 31 2018 leases february 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure leasing arrangements update requires liability corresponding rightofuse asset recorded balance sheet leases including leases classified operating leases also refining definition lease addition lessees required disclose key information amount timing uncertainty cash flows arising leasing arrangements lessor accounting remains largely unchanged guidance became effective companies’ interim annual reporting periods beginning january 1 2019 companies adopted revised accounting guidance using modified retrospective approach requires lessees lessors recognize measure leases date adoption approach companies utilized transition practical expedient maintain historical presentation periods january 1 2019 companies also applied practical expedients required reassessment whether existing contracts contain leases reassessment lease classification existing leases reassessment existing expired land easements previously accounted leases connection adoption revised accounting guidance dominion energy virginia power recorded 504 million 209 million respectively offsetting rightofuse assets liabilities operating leases effect adoption date result gts qpipe transactions 43 million rightofuse assets liabilities operating leases recorded associated discontinued operations see note 15 additional information derecognition partial sales nonfinancial assets february 2017 fasb issued revised accounting guidance clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets guidance became effective companies’ interim annual reporting periods beginning january 1 2018 companies adopted standard using modified retrospective method upon adoption standard dominion energy recorded cumulativeeffect change accounting principle reclassify 127 million noncontrolling interests common stock related sale noncontrolling interest certain nonregulated solar projects completed december 2015 january 2016 tax reform february 2018 fasb issued revised accounting guidance provide clarification application 2017 tax reform act balances recorded within aoci revised guidance provides stranded amounts within aoci impacts 2017 tax reform act reclassified retained earnings companies adopted guidance interim annual reporting periods beginning january 1 2018 prospective basis connection adoption guidance dominion energy reclassified benefit 289 million aoci retained earnings virginia power reclassified benefit 3 million aoci retained earnings amounts reclassified reflect reduction federal income tax rate federal benefit state income taxes components companies’ aoci note 3 acquisitions dispositions dominion energy disposition gas transmission storage operations bhe july 2020 dominion energy entered agreement bhe total value approximately 10 billion comprised approximately 40 billion cash consideration subject customary closing adjustments plus assumption longterm debt sell substantially gas transmission storage operations including processing assets well noncontrolling partnership interests iroquois jax lng white river hub controlling interest cove point consisting 100 general partner interest 25 total limited partner interests agreement provides dominion energy retains assets obligations pension postretirement employee benefit plans associated operations included transaction relating services provided closing october 2020 pursuant provision agreement bhe dominion energy elected exclude dominion energy questar pipeline certain affiliated entities transaction approval hartscottrodino act obtained midseptember 2020 concurrently october 2020 dominion energy bhe entered separate agreement dominion energy sell dominion energy questar pipeline certain affiliated entities bhe cash consideration 13 billion assumption related longterm debt november 2020 dominion energy completed gts transaction received cash proceeds 27 billion transaction structured asset sale tax purposes dominion energy retained 50 noncontrolling interest cove point accounted equity method investment upon closing gts transaction dominion energy ability exercise significant influence control cove point retained 50 noncontrolling interest cove point recognized initial fair value 28 billion date close estimated using income approach market approach valuation considered level 3 fair value measurement due use significant judgment unobservable inputs including projected timing amount future cash flows discount rate reflecting risks inherent future cash flows market prices upon closing gts transaction dominion energy recognized gain 127 million net 14 billion writeoff goodwill 222 million closing adjustment paid bhe december 2020 associated tax expense 336 million presented net income loss discontinued operations including noncontrolling interest dominion energy’s consolidated statements income connection closing gts transaction dominion energy bhe entered transition services agreement dominion energy continue provide specified administrative services support operations disposed business 24 months closing addition bhe provide certain administrative services dominion energy dominion energy recorded revenue 4 million associated transition service agreement operating revenue consolidated statements income year ended december 31 2020 also november 2020 bhe provided 13 billion deposit dominion energy qpipe transaction dominion energy required repay substantially deposit issue bhe equivalent value shares dominion energy common stock dominion energy’s option qpipe transaction close december 30 2021 dominion energy may solicit accept offers alternative buyers material portion qpipe transaction march 31 2021 either party may terminate qpipe transaction closing occurred june 30 2021 hartscottrodino act approval obtained june 30 2021 upon bhe’s request dominion energy seek alternative buyer material portion qpipe transaction qpipe transaction structured asset sale tax purposes expected close early 2021 contingent clearance approval hartscottrodino act customary closing regulatory conditions based recorded balances december 31 2020 dominion energy expects recognize pretax gain approximately 450 million 320 million tax upon closing including writeoff 191 million goodwill excluding effects closing adjustments operations included gts transaction qpipe transaction presented heldforsale discontinued operations effective july 2020 result previously reported amounts recast reflect presentation depreciation amortization ceased applicable assets cove point previously consolidated within dominion energy’s financial statements balances associated cove point prior closing gts transaction presented within heldforsale discontinued operations see note 9 information regarding dominion energy’s equity method investment cove point following table represents selected information regarding results operations reported within discontinued operations dominion energy’s consolidated statements income 1 operations associated gts transaction november 1 2020 settlement date 2 gts transaction includes charge 482 million 359 million aftertax recorded second quarter 2020 associated probable abandonment significant portion supply header project well establishment 75 million aro result cancellation atlantic coast pipeline project also includes charges 219 million 165 million aftertax associated impairment certain gathering processing assets 127 million 92 million aftertax associated disallowance fercregulated plant 37 million 28 million aftertax writeoff associated eastern market access project recorded 2018 3 gts transaction includes gains sales assets recorded 2018 totaling 115 million 83 million aftertax associated conveyance marcellus shale utica point pleasant shale acreage underneath natural gas storage fields 4 gts transaction includes loss 237 million 178 million aftertax recorded third quarter 2020 associated cash flow hedges debtrelated items determined probable occurring carrying amounts major classes assets liabilities relating disposal groups reported held sale dominion energy’s consolidated balance sheets follows 1 amounts december 31 2020 classified current dominion energy’s consolidated balance sheets 2 includes cash equivalents 20 million december 31 2019 within gts transaction 7 million 11 million december 31 2020 december 31 2019 respectively within qpipe transaction 3 comprised equity method investments iroquois jax lng within gts transaction white river hub within qpipe transaction 4 includes goodwill 14 billion december 31 2019 within gts transaction 191 million december 31 2020 december 31 2019 within qpipe transaction 5 includes current portions longterm debt 699 million december 31 2019 within gts transaction capital expenditures significant noncash items relating disposal groups included following 1 operations associated gts transaction november 1 2020 settlement date october 2020 dominion energy settled various derivatives related included gts transaction payment 165 million acquisition scana january 2019 dominion energy issued 956 million shares dominion energy common stock valued 68 billion representing 06690 share dominion energy common stock share scana common stock connection completion scana combination scana regulated subsidiaries primarily engaged generation transmission distribution electricity central southern southwestern portions south carolina distribution natural gas north carolina south carolina addition closing scana combination scana marketed natural gas retail customers southeast us following completion scana combination scana operates whollyowned subsidiary dominion energy addition scana’s debt totaled 69 billion closing scana combination expanded dominion energy’s portfolio regulated electric generation transmission distribution regulated natural gas distribution infrastructure operations merger conditions refunds customers condition scana merger approval order desc provide refunds restitution 20 billion 20 years capital support dominion energy september october 2017 desc received proceeds totaling 11 billion full satisfaction share settlement agreement among desc santee cooper toshiba corporation connection westinghouse wectec whollyowned subsidiaries toshiba corporation responsible engineering construction nnd project filing bankruptcy purchase price allocation includes previously established regulatory liability desc totaling 11 billion 67 million considered current associated monetization bankruptcy settlement toshiba corporation accordance terms scana merger approval order regulatory liability net amounts may required satisfy liens nnd project property totaling 10 billion refunded desc electric service customers 20year period ending 2039 additionally first quarter 2019 desc recorded reduction operating revenue corresponding regulatory liability 10 billion 137 million considered current representing refund amounts previously collected retail electric customers desc nnd project credited estimated 11year period effective february 2019 result dominion energy’s consolidated statements income year ended december 31 2019 includes 756 million aftertax charge reflected corporate segment nnd project condition scana merger approval order desc committed excluding rate recovery 24 billion costs related nnd project 180 million costs associated purchase columbia energy center power station regulatory assets included scana’s historical balance sheet december 31 2018 reflected disallowances remaining regulatory asset associated nnd project 28 billion 138 million considered current collected 20year period including return investment january 2019 desc filed capital cost rider accordance terms scana merger approval order rates effective february 2019 desc’s retail electric customers south carolina commission approved filing january 2019 terms conditions • desc agreed file application general rate case south carolina commission requested effective date earlier january 2021 see note 13 information status desc’s ongoing base rate case • psnc file application general rate case north carolina commission earlier april 2021 • dominion energy committed increasing scana’s historical level corporate contributions charities 1 million per year five years beginning 2019 • dominion energy maintain desc psnc’s headquarters cayce south carolina gastonia north carolina respectively • dominion energy seek minimize reductions local employment allowing des employees supporting shared common services functions activities located cayce south carolina makes economic practical sense purchase price allocation scana’s assets acquired liabilities assumed measured estimated fair value closing included dominion energy south carolina gas distribution operating segments majority operations acquired subject rate setting authority ferc north south carolina commissions therefore accounted pursuant asc 980 regulated operations fair values scana’s assets liabilities subject ratesetting cost recovery provisions provide revenues derived costs including return investment assets liabilities included rate base fair values assets liabilities equal carrying values accordingly neither assets liabilities acquired unaudited pro forma financial information reflect adjustments related amounts fair value scana’s assets acquired liabilities assumed subject ratesetting provisions discussed fair values scana’s investments accounted equity method determined using income approach market approach valuation scana’s longterm debt considered level 2 fair value measurement valuations considered level 3 fair value measurements due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risk inherent future market prices excess purchase price estimated fair values assets acquired liabilities assumed reflected goodwill reflects value associated enhancing dominion energy’s portfolio regulated operations growing southeast region us goodwill recognized deductible income tax purposes deferred taxes recorded related goodwill table shows allocation purchase price assets acquired liabilities assumed closing reflects certain adjustments related income taxes discussed note 5 preliminary valuation recognized measurement period 1 includes 389 million cash restricted cash equivalents 115 million considered restricted 2 includes 31 million equity method investments fair value adjustment equity method investments considered equity method goodwill amortized 3 includes 105 million certain property plant equipment associated nnd project dominion energy committed forgo recovery accordance scana merger approval order result dominion energy’s consolidated statements income year ended december 31 2019 include charge 105 million 79 million aftertax included impairment assets charges reflected corporate segment 4 nonregulated property plant equipment excluding land depreciated straightline basis remaining useful lives property primarily ranging 5 78 years 5 includes 258 million certain income taxrelated regulatory assets associated nnd project dominion energy committed forgo recovery accordance scana merger approval order see note 5 additional information 6 intangible assets estimated weightedaverage amortization period approximately five years 7 includes 40 million outstanding letters credit advances repaid january 2019 well 173 million outstanding commercial paper various credit facilities credit facilities terminated 2019 8 includes 379 million pension postretirement benefit liability 9 includes stockbased compensation awards fair value 21 million results operations unaudited pro forma information impact scana combination dominion energy’s operating revenue increase 33 billion 31 billion years ended december 31 2020 2019 respectively consolidated statements income impact scana combination dominion energy’s net income attributable dominion energy increase 277 million decrease 11 billion years ended december 31 2020 2019 respectively consolidated statements income dominion energy incurred merger integrationrelated costs 97 million year ended december 31 2020 recorded operations maintenance expense consolidated statements income dominion energy incurred merger integrationrelated costs 646 million year ended december 31 2019 amount year ended december 31 2019 includes 427 million charge related voluntary retirement program see note 22 additional information remaining merger integrationrelated costs 210 million recorded operations maintenance expense 9 million recorded interest related charges consolidated statements income year ended december 31 2019 year ended december 31 2018 dominion energy incurred merger integrationrelated costs 27 million recorded primarily operations maintenance expense consolidated statements income costs consist professional fees charitable contribution commitment described employeerelated expenses certain financing costs miscellaneous costs following unaudited pro forma financial information reflects consolidated results operations dominion energy assuming scana combination taken place january 1 2018 unaudited pro forma financial information presented illustrative purposes necessarily indicative consolidated results operations would achieved future consolidated results operations combined company 1 amounts include adjustments nonrecurring costs directly related scana combination sale interest cove point october 2019 dominion energy signed agreement sell 25 noncontrolling limited partnership interests cove point brookfield december 2019 sale completed dominion energy received cash consideration 21 billion subject working capital adjustments sale accounted dominion energy following guidance change parent company’s ownership interest consolidated subsidiary dominion energy controlled cove point sale noncontrolling interest changes dominion energy’s ownership interest cove point accounted equity transaction gain loss recognized note 4 operating revenue companies’ operating revenue consists following 1 see notes 9 25 amounts attributable related parties affiliates 2 amounts include sales considered goods transferred point time years ended december 31 2020 2019 2018 amounts included 22 million 37 million 19 million respectively dominion energy primarily consisting sales commodities related nonregulated extraction activities miscellaneous products additionally amounts include sales renewable energy credits years ended december 31 2020 2019 2018 sales 20 million 24 million 17 million respectively dominion energy 11 million 17 million 11 million respectively virginia power 3 amounts include alternative revenue 119 million 82 million year ended december 31 2020 dominion energy virginia power 66 million 52 million year ended december 31 2019 dominion energy virginia power respectively 15 million year ended december 31 2018 dominion energy virginia power 4 amounts include revenue associated services provided entities presented discontinued operations 4 million year ended december 31 2020 6 million years ended december 31 2019 2018 table discloses aggregate amount transaction price allocated fixedprice performance obligations unsatisfied partially unsatisfied end reporting period dominion energy expects recognize revenue revenues relate contracts containing fixed prices dominion energy earn associated revenue time stands ready perform services provided disclosure include revenue related performance obligations part contract original durations one year less addition disclosure include expected consideration related performance obligations dominion energy elects recognize revenue amount right invoice 1 includes 1 million virginia power 2021 contract liabilities represent entity’s obligation transfer goods services customer entity received consideration amount due customer december 31 2020 2019 dominion energy’s contract liability balances 130 million 102 million respectively december 31 2020 2019 virginia power’s contract liability balances 36 million 24 million respectively companies’ contract liabilities recorded current liabilities deferred credits liabilities consolidated balance sheets companies’ recognize revenue fulfill obligations provide service customers years ended december 31 2020 2019 dominion energy recognized revenue 97 million 85 million beginning contract liability balance years ended december 31 2020 2019 virginia power recognized revenue 24 million 22 million respectively beginning contract liability balance note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws associated regulations involves uncertainty since tax authorities may interpret laws differently companies routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material companies accounted effects 2017 tax reform act although additional changes could occur guidance issued finalized described march 2020 cares act enacted includes several significant business tax provisions modify temporarily suspend certain provisions 2017 tax reform act cares act provisions intended improve cash flow liquidity among things providing temporary fiveyear carryback certain net operating losses accelerating refund previously generated corporate alternative minimum tax credits temporarily increased business interest limitation 50 adjusted taxable income certain businesses dominion energy utilized income tax provisions cares act accelerate recognition certain tax attributes provide material benefit july 2020 us department treasury issued final regulations providing guidance limitation deduction business interest expenses 2017 tax reform act modified cares act consolidated groups dominion energy regulated nonregulated operations rules may result temporary disallowance portion dominion energy’s interest deductions future although interest disallowed indefinite carryforward period december 2020 federal legislation enacted among things provides twoyear extension beginning construction deadline delays phasedown solar energy investment tax credit well extending deadlines phasedown rules certain renewable tax credits legislation provides offshore wind facilities eligible investment tax credit construction facilities begins 2026 phaseout addition us department treasury irs issued guidance offshore wind extended continuity construction safe harbor 10 years significantly enhances ability projects qualify renewable energy tax credits indicated note 2 certain companies’ operations including accounting income taxes subject regulatory accounting treatment regulated operations many changes deferred taxes 2017 tax reform act represent amounts probable collection return customers recorded either increase regulatory asset liability see note 13 information current year developments continuing operations details income tax expense continuing operations including noncontrolling interests follows 2020 dominion energy’s current income taxes reflect benefit continuing operations current income tax expense associated gas transmission storage operations including taxes gain reflected discontinued operations dominion energy’s income tax expense reflects utilization investment tax credit carryforwards offset portion federal tax gain sale addition 18 million income tax benefit reflected common shareholders’ equity associated state deferred taxes assets liabilities retained connection gts transaction 2019 dominion energy gas restructuring caused changes tax status certain subsidiaries impacts changes tax status decreased deferred income tax expense continuing operations 48 million dominion energy addition dominion energy recognized taxable gain resulting sale 25 noncontrolling interest cove point direct tax effects transactions included provision current income taxes 362 million offsetting benefit deferred income taxes 147 million charged common shareholders’ equity utilization 208 million federal tax credit carryforwards offsetting portion federal tax liability transaction also charged common shareholders’ equity total taxes recorded common shareholders’ equity resulting transaction 215 million discontinued operations income tax expense benefit reflected discontinued operations 204 million 142 million 58 million years ended december 31 2020 2019 2018 respectively 2020 income tax expense reflects charge 81 million writeoff taxrelated regulatory assets associated atlantic coast pipeline project absence 236 million benefit nondeductible goodwill written connection gts transaction continuing operations continuing operations including noncontrolling interests statutory us federal income tax rate reconciles companies’ effective income tax rate follows companies’ rateregulated entities deferred taxes reverse weighted average rate used originate deferred tax liability cases 35 companies recorded estimate excess deferred income tax amortization 2020 changes estimates amounts probable collection return customers reversal excess deferred income taxes impact effective tax rate rates charged customers see note 13 current year developments dominion energy’s 2020 effective tax rate reflects income tax benefit 45 million associated remeasurement consolidated state deferred taxes classification gas transmission storage operations held sale addition dominion energy’s effective tax rate reflects income tax expense 55 million attributable noncontrolling interest primarily associated impairment nonwhollyowned nonregulated solar facilities held partnerships discussed note 10 connection scana combination dominion energy committed forgo limit recovery certain income taxrelated regulatory assets associated nnd project dominion energy’s effective tax rate reflects deferred income tax expense 194 million satisfaction commitment dominion energy’s effective tax rate also reflects changes consolidated state income taxes resulting scana combination 2018 companies applied provisions proposed regulations addressing availability federal bonus depreciation period beginning september 27 2017 december 31 2017 application changes increased dominion energy’s 2017 net operating loss carryforward benefit recognized 21 rate result dominion energy’s effective tax rate reflects 23 million increase deferred income tax expense associated remeasurement deferred tax asset effects changes virginia power immaterial amounts adjustments represent companies’ best estimate based available information could subject change based additional guidance yet finalized regulations addition changes estimates amounts probable return collection customers increased deferred income tax expense virginia power 23 million increased regulatory liabilities 31 million dominion energy similar changes estimates decreased income tax expense 5 million reflected income tax expense continuing operations consolidated statements income regulatory liabilities 8 million reflected noncurrent liabilities discontinued operations 2019 consolidated balance sheets addition dominion energy effective tax rates reflects impacts state legislative change enacted second quarter 2018 retroactive january 1 2018 associated discontinued operations companies’ deferred income taxes consist following december 31 2020 dominion energy following deductible loss credit carryforwards december 31 2020 virginia power following deductible loss credit carryforwards reconciliation changes companies’ unrecognized tax benefits follows 1 acquired unrecognized tax benefits reflect 106 million plus increases prior period positions 76 million decreases prior period positions 53 million recorded purchase accounting certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion energy subsidiaries unrecognized tax benefits 140 million 141 million 37 million december 31 2020 2019 2018 respectively dominion energy change unrecognized tax benefits decreased income tax expense 6 million 2020 increased income tax expense 3 million 6 million 2019 2018 respectively continuing operations discontinued operations change unrecognized tax benefits increased income tax expense 5 million 2020 decreased income tax expense less 1 million 2019 2018 virginia power unrecognized tax benefits less 1 million december 31 2019 2 million december 31 2018 virginia power change unrecognized tax benefits decreased income tax expense 2 million 2019 2018 dominion energy participates irs compliance assurance process provides opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions agreed irs 2018 dominion energy submitted carryback claims specified liability losses involving prior tax years irs concluded examination claims 2020 material adjustments irs completed audit tax years 2018 statute limitations yet expired years 2016 although dominion energy received final letter indicating changes taxable income tax year 2019 material adjustments expected irs examination tax year 2020 ongoing reasonably possible settlement negotiations expiration statutes limitations could result decrease unrecognized tax benefits 2021 69 million dominion energy changes occur revisions accrual interest tax underpayments overpayments earnings could increase 7 million dominion energy otherwise regard 2020 prior years companies cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2021 major states dominion energy operates earliest tax year remaining open examination follows 1 considered major state entities presented discontinued operations 2 considered major state virginia power’s operations companies also obligated report adjustments resulting irs settlements state tax authorities addition dominion energy utilizes operating losses tax credits generated years statute limitations expired amounts generally subject examination note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact companies’ nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion energy applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments including held nuclear decommissioning dominion energy’s rabbi pension postretirement benefit plan trusts accordance requirements discussed virginia power applies fair value measurements certain assets liabilities including commodity interest rate derivative instruments investments including held nuclear decommissioning trust accordance requirements discussed companies apply credit adjustments derivative fair values accordance requirements described inputs assumptions fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including industry publications lesser extent broker quotes evaluating pricing information provided designated contract market settlement pricing services brokers companies consider ability transact quoted price ie quotes based active market inactive market extent pricing models used pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty sources options contracts optionlike characteristics observable pricing information available external sources companies generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value companies use option models special circumstances including limited spread approximation model swing option model contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity derivative contracts • forward commodity prices • transaction prices • price volatility • price correlation • volumes • commodity location • interest rates • credit quality counterparties companies • credit enhancements • time value interest rate derivative contracts • interest rate curves • credit quality counterparties companies • notional value • credit enhancements • time value foreign currency derivative contracts • foreign currency forward exchange rates • interest rates • credit quality counterparties companies • notional value • credit enhancements • time value investments • quoted securities prices indices • securities trading information including volume restrictions • maturity • interest rates • credit quality levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels • level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments certain exchangetraded derivatives exchangelisted equities us international equity securities mutual funds certain treasury securities held nuclear decommissioning trust funds companies benefit plan trust funds rabbi trust funds dominion energy • level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include commodity forwards swaps interest rate swaps cash equivalents corporate debt instruments government securities fixed income investments held nuclear decommissioning trust funds companies foreign currency swaps benefit plan trust funds rabbi trust funds dominion energy • level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 companies consist longdated commodity derivatives ftrs certain natural gas options modeled commodity derivatives fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability alternative investments consisting investments partnerships joint ventures alternative investments held nuclear decommissioning benefit plan trust funds generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date alternative investments recorded nav classified fair value hierarchy transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations companies enter certain physical financial forwards futures options swaps considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures contracts option model used value level 3 physical options discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices original sales prices volumes level 3 fair value measurements certain forward market prices implied price volatilities considered unobservable following table presents dominion energy’s quantitative information level 3 fair value measurements december 31 2020 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows nonrecurring fair value measurements dominion energy see note 9 information regarding nonrecurring fair value measurements associated dominion energy’s retained noncontrolling interest cove point charges related fowler ridge dominion energy’s sale interest blue racer dominion energy’s retained noncontrolling interest businesses assets contributed wrangler see note 10 information regarding impairment charge recorded associated nonwhollyowned nonregulated solar facilities partnerships recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion energy’s pension postretirement benefit plans presented note 22 dominion energy following table presents dominion energy’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trusts rabbi trusts excludes 340 million 274 million assets december 31 2020 2019 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change dominion energy’s assets liabilities measured fair value recurring basis included level 3 fair value category unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2020 2019 2018 virginia power following table presents virginia power’s quantitative information level 3 fair value measurements december 31 2020 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trusts excludes 167 million 159 million assets december 31 2020 2019 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2020 2019 2018 fair value financial instruments substantially companies’ financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash restricted cash equivalents customer receivables affiliated receivables shortterm debt affiliated current borrowings payables affiliates accounts payable representative fair value shortterm nature instruments companies’ financial instruments recorded fair value carrying amounts estimated fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issuances shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes current portions included securities due within one year amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments december 31 2020 december 31 2019 includes valuation certain fair value hedges associated dominion energy’s fixed rate debt 3 million 4 million respectively 3 includes amounts classified held sale see note 3 4 carrying amount includes current portions included securities due within one year amounts represent unamortized debt issuance costs discount premium note 7 derivatives hedge accounting activities see note 2 companies’ accounting policies objectives strategies using derivative instruments see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross companies’ consolidated balance sheets dominion energy virginia power’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit cases forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized companies’ consolidated balance sheets letters credit forms securities well certain longterm debt included tables subject offset master netting similar arrangements would reduce net exposure see note 18 information regarding longterm debt form restructured derivatives subject offset master netting similar agreements see note 24 information regarding creditrelated contingent features companies derivative instruments dominion energy balance sheet presentation tables present dominion energy’s derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid 1 excludes 1 million 2 million derivative assets december 31 2020 2019 respectively subject master netting similar arrangements 1 excludes 1 million 5 million derivative liabilities december 31 2020 2019 respectively subject master netting similar arrangements volumes following table presents volume dominion energy’s derivative activity december 31 2020 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 maturity determined based final settlement period aoci following table presents selected information related gains losses cash flow hedges included aoci dominion energy’s consolidated balance sheets december 31 2020 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates connection gts transaction certain cash flow hedges debtrelated items became probable occurring see note 3 information fair value hedges derivative instruments designated qualify fair value hedge gain loss derivative instrument well offsetting loss gain hedged item attributable hedged risk recognized current earnings presented line item gains losses derivatives fair value hedge relationships immaterial years ended december 31 2020 2019 2018 following table presents amounts recorded balance sheet related cumulative basis adjustments fair value hedges 1 includes 1153 million 397 million related discontinued hedging relationships december 31 2020 december 31 2019 respectively 2 includes 3 million 3 million hedging adjustments discontinued hedging relationships december 31 2020 december 31 2019 respectively fair value gains losses derivative instruments following tables present fair values dominion energy’s derivatives presented consolidated balance sheets 1 current derivative assets include 63 million 61 million current assets dominion energy’s consolidated balance sheets december 31 2020 2019 respectively remainder recorded current assets held sale dominion energy’s consolidated balance sheets 2 noncurrent derivative assets include 330 million 16 million deferred charges assets dominion energy’s consolidated balance sheets december 31 2020 2019 respectively remainder recorded noncurrent assets held sale dominion energy’s consolidated balance sheets 3 current derivative liabilities include 412 million 394 million current liabilities dominion energy’s consolidated balance sheets december 31 2020 2019 respectively remainder recorded current liabilities held sale dominion energy’s consolidated balance sheets 4 noncurrent derivative liabilities include 71 million 329 million deferred credits liabilities dominion energy’s consolidated balance sheets december 31 2020 2019 respectively remainder recorded noncurrent liabilities held sale dominion energy’s consolidated balance sheets following tables present gains losses dominion energy’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion energy’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income 3 amounts recorded dominion energy’s consolidated statements income classified discontinued operations 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income virginia power balance sheet presentation tables present virginia power’s derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid 1 excludes 3 million 3 million derivative assets december 31 2020 2019 respectively subject master netting similar arrangements 1 excludes 22 million 44 million derivative liabilities december 31 2020 2019 respectively subject master netting similar arrangements volumes following table presents volume virginia power’s derivative activity december 31 2020 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 maturity determined based final settlement period aoci following table presents selected information related losses cash flow hedges included aoci virginia power’s consolidated balance sheets december 31 2020 amounts reclassified aoci earnings generally offset recognition hedged transactions eg interest payments earnings thereby achieving realization interest rates contemplated underlying risk management strategies vary expected amounts presented result changes interest rates fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets virginia power’s consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases note 8 earnings per share following table presents calculation dominion energy’s basic diluted eps 1 dilutive securities 2018 consist primarily forward sale agreements effective april 2018 december 2018 see note 20 information 2019 equity units 2016 equity units dominion energy midstream convertible preferred units qpipe transaction deposit potentially dilutive instruments see notes 3 18 19 20 additional information forward stock purchase contracts included within 2019 equity units excluded calculation diluted eps continuing operations years ended december 31 2020 2019 dilutive stock price threshold met years ended december 31 2020 2019 series preferred stock included within 2019 equity units excluded calculation dilutive eps continuing operations fair value adjustment reflected within net income continuing operations attributable dominion energy calculation diluted eps continuing operations based upon expectation conversion settled cash rather issuance dominion energy common stock impact settling deposit associated qpipe transaction shares excluded calculation year ended december 31 2020 based upon expectation dominion energy would settle cash rather issuance dominion energy common stock 2016 equity units potentially dilutive securities excluded calculation diluted eps continuing operations years ended december 31 2019 2018 dilutive stock price threshold met dominion energy midstream convertible preferred units potentially dilutive securities effect calculation diluted eps continuing operations year ended december 31 2018 calculating diluted eps continuing operations connection dominion energy midstream convertible preferred units dominion energy applied ifconverted method note 9 investments dominion energy equity debt securities rabbi trust securities equity fixed income securities cash equivalents dominion energy’s rabbi trusts classified trading totaled 134 million 120 million december 31 2020 2019 respectively decommissioning trust securities dominion energy holds equity fixed income securities insurance contracts cash equivalents nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion energy’s decommissioning trust funds summarized 1 unrealized gains losses equity securities included income nuclear decommissioning trust regulatory liability discussed note 2 unrealized gains losses fixed income securities included aoci nuclear decommissioning trust regulatory liability discussed note 2 effective january 2020 changes allowance credit losses included income 3 includes pending purchases securities 49 million 1 million december 31 2020 2019 respectively 4 fair value securities unrealized loss position 293 million 298 million december 31 2020 2019 respectively portion unrealized gains losses relates equity securities held within dominion energy’s nuclear decommissioning trusts summarized 1 included income nuclear decommissioning trust regulatory liability discussed note 2 fair value dominion energy’s fixed income securities readily determinable fair values held nuclear decommissioning trust funds december 31 2020 contractual maturity follows presented selected information regarding dominion energy’s equity fixed income securities readily determinable fair values held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 virginia power virginia power holds equity fixed income securities cash equivalents nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 unrealized gains losses equity securities included income nuclear decommissioning trust regulatory liability discussed note 2 unrealized gains losses fixed income securities included aoci nuclear decommissioning trust regulatory liability discussed note 2 effective january 2020 changes allowance credit losses included income 3 includes pending purchases securities 10 million december 31 2020 4 fair value securities unrealized loss position 142 million 185 million december 31 2020 2019 respectively portion unrealized gains losses relates equity securities held within virginia power’s nuclear decommissioning trusts summarized 1 included income nuclear decommissioning trust regulatory liability discussed note 2 fair value virginia power’s fixed income securities readily determinable fair values held nuclear decommissioning trust funds december 31 2020 contractual maturity follows presented selected information regarding virginia power’s equity fixed income securities readily determinable fair values held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 equity method investments dominion energy accounts equity method accounting follows 1 dominion energy 59 million unfunded commitment made align rng end 2022 2 effective november 2020 following completion gts transaction dominion energy began accounting 50 noncontrolling interest cove point equity method investment see discussion note 3 additional information 3 dominion energy owned 53 48 atlantic coast pipeline december 31 2020 2019 respectively see discussion additional information 4 dominion energy sold 50 noncontrolling interest fowler ridge september 2020 see discussion additional information 5 dominion energy’s consolidated balance sheet december 31 2020 includes 11 billion liability associated investment atlantic coast pipeline see discussion additional information dominion energy recorded equity earnings investments 40 million 8 million 76 million 2020 2019 2018 respectively income consolidated statements income addition dominion energy recorded equity earnings losses 23 billion 117 million 67 million 2020 2019 2018 respectively discontinued operations related investment atlantic coast pipeline dominion energy received distributions investments 102 million 38 million 111 million 2020 2019 2018 respectively december 31 2020 2019 net difference carrying amount dominion energy’s investments share underlying equity net assets 213 million 35 million respectively december 31 2020 differences comprised 27 million equity method goodwill amortized 227 million basis difference dominion energy’s investment cove point amortized useful lives underlying assets net 41 million basis difference primarily attributable unfunded commitment made align rng december 31 2019 differences comprised 11 million equity method goodwill amortized net 46 million basis difference dominion energy’s investments fowler ridge atlantic coast pipeline unfunded commitment made align rng cove point prior january 2019 dominion energy owned common equity interest cove point except preferred equity interest held dominion energy midstream entitled first 50 million annual cash distributions made cove point dominion energy owned controlling financial interest consolidated discussed note 20 dominion energy acquired outstanding partnership interests dominion energy midstream owned dominion energy january 2019 december 2019 dominion energy closed agreement sell 25 noncontrolling limited partnership interests cove point november 2020 conjunction gts transaction dominion energy sold 100 general partner interest 25 total limited partner interest cove point dominion energy retained 50 noncontrolling limited partnership interest cove point accounted equity method investment dominion energy ability exercise significant influence control cove point see note 3 information regarding sales interests cove point income taxes recorded cove point 2020 2019 2018 511 million 471 million 292 million respectively periods prior closing gts transaction earnings attributable dominion energy presented discontinued operations subsequent closing gts transaction december 31 2020 earnings attributable dominion energy 40 million presented within income consolidated statements income dominion energy recorded distributions cove point 70 million contributions cove point date disposal december 31 2020 activity relating dominion energy’s noncontrolling interest cove point recorded within contracted assets see note 3 information regarding gts transaction atlantic coast pipeline september 2014 dominion energy along duke energy southern announced formation atlantic coast pipeline purpose constructing approximately 600mile natural gas pipeline running west virginia north carolina subsidiaries affiliates dominion energy duke energy southern planned customers pipeline 20year contracts march 2020 dominion energy completed acquisition southern 5 membership interest atlantic coast pipeline 100 ownership interest pivotal lng inc 184 million aggregate subject certain purchase price adjustments pivotal lng inc includes 50 noncontrolling interest jax lng following completion acquisition dominion energy owns 53 noncontrolling membership interest atlantic coast pipeline duke energy owning remaining interest atlantic coast pipeline continues reflected equity method investment power direct activities significant atlantic coast pipeline shared duke energy result dominion energy ability exercise significant influence control investee atlantic coast pipeline project subject challenges federal courts including among others challenges atlantic coast pipeline project’s biological opinion incidental take statement permits providing right way crossings certain federal lands army corps engineers 404 permit air permit compressor station buckingham virginia ferc order approving cpcn challenges alleged noncompliance part federal state permitting authorities adverse ecological consequences atlantic coast pipeline project permitted proceed since december 2018 notable developments challenges included stay december 2018 issued us court appeals fourth circuit court’s july 2019 vacatur biological opinion incidental take statement stay subsequent vacatur halted project construction activity us court appeals fourth circuit decisions vacating permits cross certain federal forests air permit compressor station buckingham virginia us court appeals fourth circuit’s remand army corps engineers atlantic coast pipeline’s huntington district 404 verification us court appeals fourth circuit’s remand national park service atlantic coast pipeline’s blue ridge parkway rightofway june 2019 solicitor general us atlantic coast pipeline filed petitions requesting supreme court us hear case regarding appalachian trail crossing june 2020 supreme court us ruled favor atlantic coast pipeline reversing lower court’s decision remanding case back us court appeals fourth circuit project also faced new serious challenges uncertainty related nwp 12 specifically decision us district court district montana april 2020 vacating nwp 12 issued army corps engineers including among things gas pipelines followed us court appeals ninth circuit ruling may 2020 denying stay decision july 2020 supreme court us issued order allowing new oil gas pipeline projects use nwp 12 process pending appeal us court appeals ninth circuit however decrease uncertainty associated eventual ruling montana district court decision viewed likely prompt similar challenges federal circuit courts related permits issued nwp 12 including atlantic coast pipeline project july 2020 result continued permitting delays growing legal uncertainties need incur significant capital expenditures maintain project timing uncertainties could resolved dominion energy duke energy announced cancellation atlantic coast pipeline project result determination probable abandonment atlantic coast pipeline project june 2020 dominion energy recorded equity method earnings losses 23 billion 18 billion aftertax year ended december 31 2020 117 million 118 million aftertax year ended december 31 2019 67 million 67 million aftertax year ended december 31 2018 connection dominion energy’s decision sell substantially gas transmission storage operations dominion energy reflected results equity method investment atlantic coast pipeline discontinued operations consolidated statements income result share equity losses exceeding investment dominion energy’s consolidated balance sheets december 31 2020 includes liability 11 billion reflects dominion energy’s obligations atlantic coast pipeline related credit facility aros ‌ october 2017 dominion energy entered guarantee agreement support portion atlantic coast pipeline’s obligation 34 billion revolving credit facility stated maturity date october 2021 atlantic coast pipeline informed dominion energy intends terminate repay outstanding balance revolving credit facility first quarter 2021 december 31 2020 atlantic coast pipeline borrowed 18 billion revolving credit facility july 2020 capacity revolving credit facility reduced 34 billion 19 billion dominion energy’s consolidated balance sheets include liability 6 million 14 million associated guarantee agreement december 31 2020 2019 respectively 11 billion liability december 31 2020 discussed includes 48 million adjustment related guarantee agreement reflected within equity cumulative effect change accounting principle upon adoption new credit loss standard january 2020 dominion energy recorded contributions 107 million 186 million 414 million 2020 2019 2018 respectively atlantic coast pipeline december 31 2019 dominion energy 7 million contributions payable atlantic coast pipeline included within current liabilities consolidated balance sheets dominion energy expects incur additional losses atlantic coast pipeline completes winddown activities dominion energy unable precisely estimate amounts incurred atlantic coast pipeline portion amounts attributable dominion energy expected material dominion energy’s results operations financial position statement cash flows deti provided services atlantic coast pipeline totaled 49 million 103 million 203 million 2020 prior closing gts transaction 2019 2018 respectively included discontinued operations dominion energy’s consolidated statements income amounts receivable related services 7 million december 31 2019 composed entirely accrued unbilled revenue included current assets held sale dominion energy’s consolidated balance sheets activity relating atlantic coast pipeline recorded within corporate segment blue racer december 2018 dominion energy sold 50 limited partnership interest blue racer upfront cash consideration 105 billion additional consideration 150 million subject increase interest costs effective march 2019 payable upon purchaser’s availability cash additional consideration recorded fair value 150 million date sale following discounted cash flow model included within receivables consolidated balance sheets december 31 2018 valuation considered level 3 fair value measurement due use judgment unobservable inputs including projected timing amount future cash flows discount rate reflecting risks inherent future cash flows result sale dominion energy recognized gain 546 million 390 million aftertax included income consolidated statements income year ended december 31 2018 addition purchaser agreed pay additional consideration contingent upon achievement certain financial performance milestones blue racer 2019 2021 pursuant purchase agreement aggregate exceed 300 million represents gain contingency result dominion energy recognize additional gain unless consideration realizable blue racer achieve 2019 2020 financial performance milestones set forth sale agreement first quarter 2019 dominion energy received 151 million additional consideration including applicable interest connection sale activity relating blue racer recorded within corporate segment fowler ridge september 2020 dominion energy sold 50 noncontrolling partnership interest fowler ridge bp terminated affiliate’s longterm power capacity renewable energy credit contract fowler ridge net payment dominion energy 150 million 150 million payment allocated contract termination sale based relative fair value using income approach fair value determinations payment allocations considered level 3 fair value measurements due use significant judgmental unobservable inputs including amount future cash flows discount rate reflecting risks inherent future cash flows market prices dominion energy recognized loss 221 million 165 million aftertax contract termination included impairment assets charges consolidated statements income year ended december 31 2020 reflected corporate segment activity relating fowler ridge unless otherwise specified recorded within contracted assets wrangler september 2019 dominion energy entered agreement form wrangler partnership interstate gas supply inc wrangler operate nonregulated natural gas retail energy marketing business dominion energy contributing nonregulated retail energy marketing operations interstate gas supply inc contributing cash dominion energy 20 noncontrolling ownership interest wrangler accounted equity method investment dominion energy ability exercise significant influence control investee initial contribution consisting semi closed december 2019 dominion energy received 301 million cash proceeds 20 noncontrolling ownership interest wrangler initial fair value 75 million estimated using market approach valuation considered level 2 fair value measurement given based agreedupon sales price connection transaction dominion energy recorded gain 147 million net 73 million writeoff goodwill presented gains sales assets associated tax expense 82 million consolidated statements income year ended december 31 2019 second contribution consisting certain nonregulated natural gas retail energy contracts closed november 2020 dominion energy received 74 million cash proceeds retained 20 noncontrolling ownership interest ownership interest wrangler contracts valued 13 million using market approach valuation considered level 2 fair value measurement given based agreedupon sales price connection transaction dominion energy recorded gain 64 million presented gains sales assets associated tax expense 19 million consolidated statements income year ended december 31 2020 dominion energy’s consolidated balance sheets december 31 2019 included 41 million presented current assets held sale 2021 terms agreement dominion energy expects contribute remaining nonregulated natural gas retail energy marketing operations wrangler result contribution dominion energy receive additional cash consideration based upon future financial performance future contribution occurs dominion energy expects retain 20 noncontrolling ownership interest wrangler december 31 2020 63 million assets 15 million liabilities associated remaining nonregulated retail energy marketing operations contributed wrangler december 2021 classified held sale included current assets held sale current liabilities held sale dominion energy’s consolidated balance sheets respectively related disposal group primarily comprised customer receivables goodwill inventories account payables activity relating wrangler recorded within corporate segment catalyst old river hydroelectric limited partnership september 2018 dominion energy completed sale 25 limited partnership interest catalyst old river hydroelectric limited partnership received proceeds 91 million sale resulted gain 87 million 63 million aftertax included income dominion energy’s consolidated statements income reflected corporate segment note 10 property plant equipment major classes property plant equipment respective balances companies follows jointlyowned power stations companies proportionate share jointlyowned power stations december 31 2020 follows 1 units jointly owned virginia power 2 unit jointly owned dominion energy coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest companies report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income sale certain retail energy marketing assets october 2017 dominion energy entered agreement sell certain assets associated nonregulated retail energy marketing operations first phase agreement closed december 2017 dominion energy closed second phase agreement october 2018 63 million resulted recognition 65 million 49 million aftertax benefit included gains sales assets dominion energy’s consolidated statements income pursuant agreement dominion energy entered commission agreement buyer upon first closing december 2017 buyer pay commission connection right use dominion energy’s brand marketing materials services tenyear term sale certain nonregulated generation facilities december 2018 dominion energy completed sale fairless manchester total consideration 12 billion subject customary closing adjustments dominion energy recognized gain 210 million 198 million aftertax included gains sales assets dominion energy’s consolidated statements income aftertax gain reflects dominion energy’s assessment morelikelythannot conclusion utilization state tax incentives reduce income tax expense associated sale facilities acquisition solar projects following table presents acquisitions virginia power solar projects virginia power claimed expects claim federal investment tax credits projects 1 includes acquisition costs following table presents acquisitions dominion energy solar projects dominion energy claimed expects claim federal investment tax credits projects 1 includes acquisition costs 2 december 2020 january 2021 97 mw 53 mw project commenced commercial operations respectively addition facilities discussed dominion energy also entered various agreements install solar facilities primarily schools virginia inservice dates 2020 2021 february 2021 dominion energy anticipates total projected cost approximately 61 million agreements associated aggregate generation capacity 30 mw dominion energy claimed expects claim federal investment tax credits projects acquisition gathering processing assets march 2020 wexpro closed agreement natural gas gathering systems operator purchase existing natural gas gathering systems including pipelines compressors dehydration equipment total consideration 38 million facilities gather natural gas colorado utah wyoming nonwhollyowned nonregulated solar facilities third quarter 2020 dominion energy performed strategic review longterm intentions contracted nonregulated solar generation assets partnerships outside core electric service territories consideration impact vcea dominion energy’s decision sell substantially gas transmission storage operations based evaluation dominion energy’s interests longlived assets recoverability probability weighted approach dominion energy determined assets impaired result evaluation dominion energy recorded charge 665 million 293 million aftertax attributable dominion energy 267 million attributable noncontrolling interest impairment assets charges consolidated statements income reflected corporate segment year ended december 31 2020 adjust property plant equipment estimated fair value 14 billion fair value estimated using income approach valuation considered level 3 fair value measurement due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risks inherent future cash flows market prices note 11 goodwill intangible assets goodwill september 2020 dominion energy updated operating segments following july 2020 agreement sell gas transmission storage operations bhe see note 3 information goodwill recast held sale associated gts transaction qpipe transaction addition goodwill associated dominion energy’s nonregulated retail energy marketing operations reassigned corporate segment using relative fair value allocation approach historical information recast herein changes dominion energy’s carrying amount segment allocation goodwill presented 1 goodwill amounts contain accumulated impairment losses 2 see note 3 information scana combination result december 2019 segment realignment acquired goodwill reassigned using relative fair value approach 3 see note 9 additional information including amounts reclassified held sale december 31 2020 intangible assets companies’ intangible assets subject amortization estimated useful lives dominion energy’s amortization expense intangible assets 69 million 95 million 72 million 2020 2019 2018 respectively 2020 dominion energy acquired 152 million intangible assets primarily representing software rightofuse assets estimated weightedaverage amortization period approximately 11 years amortization expense virginia power’s intangible assets 28 million 30 million 31 million 2020 2019 2018 respectively 2020 virginia power acquired 95 million intangible assets primarily representing software estimated weightedaverage amortization period 11 years components intangible assets follows annual amortization expense intangible assets estimated follows note 12 regulatory assets liabilities regulatory assets liabilities include following 1 reflects deferred fuel expenses virginia north carolina south carolina jurisdictions dominion energy’s electric generation operations 2 primarily reflects amounts expected collected owed gas customers dominion energy’s service territories associated current prospective rider projects including cep pir pipeline integrity management see note 13 information 3 reflects unrecovered overrecovered gas costs regulated gas operations recovered refunded filings applicable regulatory authority 4 reflects deferrals virginia power’s electric transmission ferc formula rate deferral costs associated certain current prospective rider projects net excess deferred income taxes 2017 tax reform act virginia power see note 13 information 5 result actions virginia commission first quarter 2019 regarding ratemaking treatment excess deferred taxes adoption 2017 tax reform act existing riders virginia power recorded 29 million 22 million aftertax charge operating revenue consolidated statements income amounts probable returned customers primarily 2019 2020 6 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 7 reflects expenditures desc associated nnd project pursuant scana merger approval order recovered desc electric service customers 20year period ending 2039 see note 3 information 8 reflects amounts recovered retail rates virginia payments virginia power make pjm tenyear period ending 2028 terms ferc settlement agreement may 2018 resolving pjm cost allocation matter‌ 9 represents unrecognized pension postretirement employee benefit costs expected recovered refunded future rates generally expected remaining service period plan participants certain dominion energys rateregulated subsidiaries 10 first quarter 2019 virginia power recorded charge 17 million 13 million aftertax impairment assets charges reflected corporate segment writeoff balance regulatory asset longer seeking recovery 11 second quarter 2020 virginia power recorded charge 16 million 15 million aftertax impairment assets charges reflected corporate segment write balance regulatory asset longer seeking recovery 12 reflects interest rate hedges recoverable refundable customers certain instruments settled related payments amortized interest expense life related debt weightedaverage useful life approximately 27 years december 31 2020 13 represents deferred depreciation accretion expense related legal obligations associated future retirement generation transmission distribution properties aros primarily relate desc’s electric generating facilities including summer expected recovered related property lives periods decommissioning may range approximately 105 years 14 costs reacquisition debt deferred amortized interest expense wouldbe remaining life reacquired debt reacquired debt costs weightedaverage life approximately 26 years december 31 2020 15 primarily reflects legislation enacted virginia march 2019 requires ccr unit located certain virginia power stations closed removing ccrs approved landfill recycling beneficial reuse subject approval virginia commission amounts expected collected period 15 18 years commencing earlier 2021 virginia power entitled collect carrying costs expenditures made see note 14 additional information result march 2020 planned early retirement certain facilities amounts recoverable riders reclassified property plant equipment 16 rates charged customers dominion energy’s regulated businesses include provision cost future activities remove assets expected incurred time retirement 17 reflects amounts previously collected retail electric customers desc nnd project credited estimated 11year period effective february 2019 connection scana merger approval order see notes 3 13 information 18 represents reserve benefits expected provided use ccro accordance gtsa jurisdictional retail electric customers virginia connection 2021 triennial review see note 13 additional information 19 balance refundable customers related decrease revenue requirements recovery income taxes companies’ regulated electric generation electric natural gas distribution operations see notes 3 13 information 20 amounts recorded pass effect reduced income taxes 2017 tax reform act customers future periods primarily reverse weighted average tax rate used build reserves remaining book life property net amounts recovered future rates pay income taxes become payable rate revenue provided recover afudc equity 21 reflects amounts refunded desc electric service customers 20year period ending 2039 associated monetization bankruptcy settlement agreement see note 3 information 22 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon applicable future decommissioning dominion energy’s utility nuclear generation stations excess related aros 23 reflects regulatory liability collection postretirement benefit costs allowed rates excess expense incurred 1 reflects deferred fuel expenses virginia north carolina jurisdictions virginia power’s generation operations 2 reflects deferrals virginia power’s electric transmission ferc formula rate deferral costs associated certain current prospective rider projects net excess deferred income taxes 2017 tax reform act see note 13 information 3 result actions virginia commission first quarter 2019 regarding ratemaking treatment excess deferred taxes adoption 2017 tax reform act existing riders virginia power recorded 29 million 22 million aftertax charge operating revenue consolidated statements income amounts probable returned customers primarily 2019 2020 4 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 5 reflects amounts recovered retail rates virginia payments virginia power make pjm tenyear period ending 2028 terms ferc settlement agreement may 2018 resolving pjm cost allocation matter 6 first quarter 2019 virginia power recorded charge 17 million 13 million aftertax impairment assets charges reflected corporate segment writeoff balance regulatory asset longer seeking recovery 7 second quarter 2020 virginia power recorded charge 16 million 15 million aftertax impairment assets charges reflected corporate segment write balance regulatory asset longer seeking recovery 8 reflects interest rate hedges recoverable refundable customers certain instruments settled related payments amortized interest expense life related debt weightedaverage useful life approximately 25 years december 31 2020 9 primarily reflects legislation enacted virginia march 2019 requires ccr unit located certain virginia power stations closed removing ccr approved landfill recycling beneficial reuse subject approval virginia commission amounts expected collected period 15 18 years commencing earlier 2021 virginia power entitled collect carrying costs expenditures made see note 14 additional information result march 2020 planned early retirement certain facilities amounts recoverable riders reclassified property plant equipment 10 rates charged customers virginia powers regulated businesses include provision cost future activities remove assets expected incurred time retirement 11 represents reserve benefits expected provided use ccro accordance gtsa jurisdictional retail electric customers virginia connection 2021 triennial review see note 13 additional information 12 amounts recorded pass effect reduced income taxes 2017 tax reform act customers future periods reverse weighted average tax rate used build reserves remaining book life property net amounts recovered future rates pay income taxes become payable rate revenue provided recover afudc equity 13 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aros december 31 2020 dominion energy virginia power regulatory assets include 45 billion 32 billion respectively expect earn return applicable recovery period exception certain items discussed majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business companies involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders andor involve significant factual issues need resolved possible companies estimate range possible loss regulatory matters companies cannot estimate statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties may represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect companies’ financial position liquidity results operations fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities virginia power purchases market based rate authority sells electricity pjm wholesale market wholesale purchasers virginia north carolina desc sells electricity wholesale purchasers balancing authority area electric cost based tariff wholesale purchasers outside balancing authority area market based rate authority dominion energy’s nonregulated generators sell electricity pjm caiso isone wholesale markets wholesale purchasers states virginia north carolina indiana connecticut tennessee georgia california ohio south carolina utah dominion energy’s marketbased sales tariffs authorized ferc pursuant ferc authority sell qualified facility addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary fercgas july 2017 ferc audit staff communicated deti substantially completed audit deti’s compliance accounting reporting requirements ferc’s uniform system accounts provided description matters preliminary recommendations november 2017 ferc audit staff issued audit report potential result adjustments could material dominion energy’s results operations december 2017 deti provided response audit report 2018 deti recognized charge 129 million 94 million aftertax recorded within discontinued operations dominion energy’s consolidated statements income disallowance plant originally established beginning 2012 resolution one matter ferc november 2020 dominion energy completed sale deti part gts transaction 2017 tax reform act subsequent enactment 2017 tax reform act companies’ state regulators issued orders requesting public utilities evaluate total tax impact entity’s cost service accrue regulatory liability attributable benefits reduction corporate income tax rate certain orders requested public utilities submit response state regulatory commissions detailing total tax impact utility’s cost service companies began reserve impacts costofservice reduction regulatory liabilities january 2018 continue rates reset pursuant state regulators’ approvals companies recorded reasonable estimate net income taxes refundable future rates jurisdictions operate september 2018 virginia commission issued order directing virginia power submit filing quantifying impacts 2017 tax reform act march 2019 virginia commission issued order approving annual revenue reduction approximately 183 million effective april 2019 ordered virginia power implement onetime customer credit july 1 2019 second quarter 2019 virginia power refunded customers 132 million august 2018 virginia power filed ferc waive protocols begin reflecting projected tax reform benefits approximately 100 million transmission formula rate prior normal formula rate process ferc granted waiver amounts began reflected customer billings november 2018 reflecting adjustment effective january 1 2018 october 2018 north carolina commission issued order requesting companies file reduce base rates expeditiously march 2019 north carolina commission issued order approving virginia power’s proposed annual base rate revenue decrease approximately 14 million effective early 2019 onetime bill credit 2018 tax savings collected provisionally customers second quarter 2019 virginia power refunded customers 13 million march 2019 questar gas filed utah wyoming commissions impact excess deferred income taxes resulting 2017 tax reform act questar gas proposed return 2018 amortization excess deferred income taxes customers incorporate remaining excess deferred income tax impact next general rate cases jurisdiction utah commission issued order effective march 2020 approving questar gas’ proposal refund january 2019 february 2020 amortization excess deferred income taxes 12 months beginning june 2020 additionally new base rates went effect utah march 1 2020 include prospective impacts sharing excess deferred income taxes customers april 2020 request wyoming commission matter considered conjunction base rate case filed november 2019 june 2020 wyoming commission approved proposal share benefits deferred income taxes period january 2018 august 2020 customers one year period beginning september 2020 addition new base rates went effect wyoming september 2020 include prospective impacts sharing excess deferred income taxes customers october 2018 ohio commission issued order requiring rateregulated utilities file application reflecting impact 2017 tax reform act current rates january 1 2019 december 2018 east ohio filed application proposing approach establishing rates charges return tax reform benefits customers december 2019 ohio commission issued order approving customer credits approximately 600 million shared customers primarily remaining book life property excess deferred income taxes relate addition east ohio reduce rates approximately 19 million per year account 2017 tax reform act’s impact equity return component rates charged customers tax savings credit passes reduction federal income tax rate 2017 tax reform act customers accordance settlement agreement approved ohio commission became effective first billing cycle april 2020 connection scana merger approval order south carolina commission approved desc’s provision approximately 100 million bill credits related 2017 tax reform act’s impact retail electric customer rates period beginning january 2018 january 2019 credits included bills rendered first billing cycle february 2019 addition south carolina commission approved tax rider whereby effects reduction corporate income tax rate resulting 2017 tax reform act benefit retail electric customers tax rider reduced base rates customers 63 million 2019 66 million 2020 unamortized excess deferred income taxes remained end 2020 considered future rate proceedings october 2018 south carolina commission issued order approving adjustment desc’s natural gas rate schedules terms natural gas rate stabilization act reflect reduction federal corporate tax rate arising 2017 tax reform act approved natural gas rate schedules also included tax reform rate rider refund certain income tax amounts previously collected customers lower rates representing 20 million decreased revenue requirement became effective bills rendered first billing cycle november 2018 december 2018 north carolina commission issued order approving psnc’s proposed adjustments customer rates representing 13 million decreased revenue requirement reflect reduction federal corporate tax rate arising 2017 tax reform act lower rates became effective service rendered january 1 2019 amounts collected customer rates 2018 amounts arising excess deferred income taxes recorded regulatory liabilities must considered psnc’s next general rate case proceeding three years whichever sooner reduction federal corporate tax rate impact psnc’s various rate riders addressed future proceedings related riders regulatory matters virginia regulation act regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs underground distribution lines environmental compliance conservation energy efficiency programs renewable energy programs nuclear license renewals also contains statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows november 2019 virginia commission approved 92 general roe virginia power’s nontransmission rate adjustment clauses purposes determining virginia power’s base rate earnings 2021 triennial review 2020 virginia power recorded charge 130 million 97 million aftertax impairment assets charges consolidated statements income reflected corporate segment benefits expected provided use ccro accordance gtsa charge reflects benefits expected provided jurisdictional customers result 2021 triennial review well impact certain nonjurisdictional customers follow virginia power’s jurisdictional customer rate methodology grid transformation security act 2018 march 2018 gtsa reinstated base rate reviews commencing 2021 triennial review occur one year earlier regulation act legislation enacted february 2015 triennial review proceedings earnings 70 basis points utility’s authorized roe might refunded customers served basis reduction future rates may reduced virginia commissionapproved investment amounts qualifying solar wind generation facilities electric distribution grid transformation projects virginia power elects include ccro legislation declares electric distribution grid transformation projects public interest provides costs projects may recovered rate adjustment clause subject ccro costs subject ccro may recovered base rates service life projects may included base rates future triennial review proceedings triennial review virginia commission determines utility’s earnings 70 basis points authorized roe base rates subject reduction prospectively customer refunds would due unless total ccro elected utility equals exceeds amount earnings excess 70 basis points 2021 review rate reduction limited 50 million legislation also includes provisions requiring virginia power provide current customers onetime rate credits totaling 200 million reduce base rates reflect reductions income tax expense resulting 2017 tax reform act result virginia power incurred 215 million 160 million aftertax charge reflected corporate segment 2018 connection legislation including impact certain nonjurisdictional customers follow virginia power’s jurisdictional customer rate methodology july 2018 january 2019 virginia power credited 138 million 77 million respectively current customers’ bills addition virginia power reduced base rates annual basis 125 million effective july 2018 reflect estimated effect 2017 tax reform act march 2019 virginia commission directed annual revenue reduction 183 million rates generation distribution services pursuant gtsa effective april 2019 january 2019 virginia commission issued order approving capital spending first three years virginia power’s tenyear plan totaling 68 million electric distribution grid transformation projects authorized gtsa cyber physical security related telecommunications infrastructure phase ia virginia commission declined approve certain proposed components first three years plan proposed spending found reasonable prudent based record proceeding september 2019 virginia power filed revised plan included six components smart meters ii customer information platform iii grid improvement projects iv telecommunications infrastructure v cyber security vi smart charging electric vehicle infrastructure pilot program phase ib phase ib total proposed capital investment 2019 2021 503 million proposed operations maintenance investment 78 million march 2020 virginia commission issued order approving 212 million costs related new customer information platform targeted grid hardening corridor improvements electric vehicle smart charging infrastructure pilot program cyber security stakeholder engagement customer education denied costs associated ami selfhealing grid certain grid hardening projects alleging virginia power prove reasonableness prudency costs april 2020 virginia power filed petition reconsideration virginia commission’s order requested clarification certain matters including smart charging infrastructure pilot program additionally virginia power requested clarification certain matters relating ami timeofuse rate smart charging electric vehicle infrastructure pilot program subsequently april 2020 virginia commission denied full virginia power’s petition reconsideration however stated march 2020 order contained necessary approvals smart charging electric vehicle infrastructure pilot program virginia power intends file revised plan 2021 utility disconnection moratorium legislation november 2020 legislation enacted virginia relating moratorium utility disconnections covid19 pandemic resulted virginia power forgiving virginia jurisdictional retail electric customer balances 30 days past due september 30 2020 result virginia power recorded charge 127 million 94 million aftertax impairment assets charges reflected corporate segment purposes virginia power’s 2021 triennial review charge excluded virginia power’s cost service purposes determining test period earnings determining future rates extent virginia commission determines total earnings test period virginia power’s authorized earnings band forgiven balance amounts offset excess earnings determination customer bill credits utilization ccro part 2021 triennial review virginia 2020 legislation april 2020 governor virginia signed law vcea along related legislation forms comprehensive framework affecting virginia power’s operations vcea replaces virginia’s voluntary renewable energy portfolio standard virginia power mandatory program setting annual renewable energy portfolio standard requirements based percentage total electric energy sold virginia power excluding existing nuclear generation certain new carbonfree resources reaching 100 end 2045 vcea includes related requirements concerning deployment wind solar energy storage resources well provides certain measures increase netmetering including allocation lowincome customers incentivizes energy efficiency programs directs virginia participate carbon trading program legislation affects several portions virginia power’s operations key provisions gtsa remain effect including triennial review structure timing use ccro 50 million cap revenue reductions first triennial review proceeding key provisions vcea related legislation passed include following • fossil fuel electric generation legislation mandates chesterfield power station units 5 6 yorktown power station unit 3 retired end 2024 altavista southampton hopewell retired end 2028 virginia power’s remaining fossil fuel units retired end 2045 unless retirement generating units compromise grid reliability security legislation also imposes temporary moratorium cpcns fossil fuel generation unless resources needed grid reliability addition virginia commission shall determine amortization period recovery appropriate costs due early retirement electric generation facilities could result reversal previous retirement costs deemed recovered review period ending 2020 discussed note 2 virginia power recorded charges early retirement certain coal oilfired generating units first quarters 2020 2019 virginia power also revised depreciable lives altavista southampton hopewell mandated retirement end 2028 material impact virginia power’s results operations cash flows given existing regulatory framework • renewable generation legislation provides detailed renewable energy portfolio standard achieve 100 zerocarbon generation end 2045 excluding existing nuclear generation certain new carbonfree resources components include requirements petition virginia commission approval construct acquire new generating capacity reach 161 gw installed solar onshore wind end 2035 includes specific requirements utilityscale solar 30 gw end 2024 150 gw end 2035 11 gw smallscale solar end 2035 legislation deems 27 gw energy storage including 800 mw one project may include pumped storage facility end 2035 public interest legislation also deems construction purchase offshore wind facility constructed virginia coast capacity 52 gw 2035 public interest provides certain presumptions facilitating cost recovery costs facility constructed utility capacity 25 30 gw presumed reasonably prudently incurred virginia commission finds project meets competitive procurement requirements projected cost facility exceed specified industry benchmark utility commences construction end 2023 plan facility service end 2027 projects meet requirements subject approval virginia commission • energy efficiency legislation includes energy efficiency target 5 energy savings measured 2019 baseline verifiable energy efficiency programs end 2025 future targets set virginia commission virginia power opportunity offset lost revenues margins program spend certain targets achieved also seek recovery lost revenues associated energy efficiency programs reductions found caused virginia power earn 50 basis points fair rate return rates generation distribution services • carbon trading program legislation directs virginia power participate marketbased carbon trading program consistent rggi 2050 costs carbon trading program recoverable environmental rider • lowincome customers legislation includes establishment percentage income payment program administered virginia department housing community development virginia department social services fund program virginia power remit amounts collected customers universal service fee established set virginia commission program affect virginia power’s results operations financial position cash flows december 2020 virginia commission issued final order confirming revenue requirement 93 million related program implementation details effective date program established future legislation prior collection fees customers virginia power expects incur significant costs including capital expenditures comply legislative requirements discussed legislation allows cost recovery existing modified regulatory framework rate adjustment clauses rates generation distribution services virginia power’s fuel factor approved virginia commission costs allocated north carolina jurisdiction recovered subject approval north carolina commission accordance existing regulatory framework virginia fuel expenses february 2020 virginia power filed annual fuel factor virginia commission recover estimated 12 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2020 projected overrecovery approximately 81 million prior year balance june 30 2020 virginia power requested new fuel factor rate implemented interim basis two months early beginning may 1 2020 march 2020 virginia commission approved interim rates virginia power’s proposed fuel rate represents fuel revenue decrease approximately 393 million applied projected kilowatthour sales rate year beginning may 1 2020 june 2020 virginia commission approved revised fuel rate based updated projected overrecovery 103 million prior year balance june 30 2020 solar facility projects may 2020 july 2020 virginia power entered closed separate agreements acquire grassfield solar norge solar sycamore solar projects expected cost approximately 170 million aggregate constructed including initial acquisition cost facilities expected generate 82 mw combined placed service 2021 2022 october 2020 virginia power filed application virginia commission cpcns construct operate projects part efforts meet renewable generation development requirements vcea matter pending december 2020 virginia power entered closed separate agreements acquire fountain creek solar otter creek solar projects expected cost approximately 280 million aggregate constructed including initial acquisition cost facilities expected generate 140 mw combined placed service end 2023 virginia power expects file virginia commission cpcns construct operate projects well rider recover costs associated recovery certain renewable generation facilities virginia end 2021 riders discussion significant riders associated various virginia power projects • virginia commission previously approved rider t1 concerning transmission rates may 2020 virginia power proposed 1 billion total revenue requirement consisting 474 million transmission component virginia power’s base rates 529 million rider t1 rate year beginning september 1 2020 total revenue requirement represents 73 million increase versus revenues produced rate year current rates july 2020 virginia commission approved filing • virginia commission previously approved rider u conjunction cost recovery move certain electric distribution facilities underground authorized virginia legislation june 2020 virginia power proposed 80 million total revenue requirement consisting 44 million previously approved phases 36 million phase five costs rider u rate year beginning april 1 2021 total revenue requirement represents 28 million increase previous year matter pending • virginia commission previously approved riders c1a c2a c3a connection cost recovery dsm programs december 2019 virginia power filed petition approve additional 10 new energy efficiency programs one new demand response dsm program five years subject future extension 186 million cost cap proposed total 60 million revenue requirement rate year beginning september 1 2020 total revenue requirement represents 11 million increase previous year july 2020 virginia commission approved filing december 2020 virginia power filed petition approve additional 10 new energy efficiency programs one new demand response dsm program five years subject future extension 162 million cost cap proposed total 78 million revenue requirement rate year beginning september 1 2021 total revenue requirement represents 18 million increase previous year virginia power also requested approval establish new rider c4a connection cost recovery dsm programs matter pending • october 2020 virginia power applied approval rider ce associated grassfield solar norge solar sycamore solar described virginia power proposed 11 million revenue requirement rate year beginning june 1 2021 matter pending • pursuant virginia legislation virginia power recover costs associated participating marketbased carbon trading program consistent rggi december 2020 virginia power filed approval rider rggi proposed 167 million revenue requirement rate year beginning august 1 2021 matter pending • pursuant vcea virginia power recover costs compliance mandatory renewable portfolio standard program december 2020 virginia power filed approval rider rps proposed 13 million revenue requirement rate year beginning august 1 2021 matter pending • additional significant riders associated various virginia power projects follows electric transmission projects november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton february 2019 transmission line project placed service march 2019 us court appeals dc circuit issued order vacating permit us army corps engineers issued july 2017 ordered us army corps engineers full environmental impact study project april 2019 virginia power us army corps engineers filed petitions rehearing us court appeals dc circuit asking permit us army corps engineers remain effect environmental impact study performed may 2019 us court appeals dc circuit denied request rehearing ordered us district court dc circuit consider issue ruling whether permit vacated us army corps engineers’ preparation environmental impact statement november 2019 us district court dc circuit issued order allowing permit remain effect environmental impact statement prepared november 2020 us army corps engineers issued draft environmental impact statement noting better alternative matter pending december 2019 virginia power filed application virginia commission cpcn construct new evergreen mills switching station add approximately one mile overhead 230 kv double circuit transmission lines existing brambletonyardley ridge line brambletonpoland road line loudoun county virginia estimated cost approximately 30 million may 2020 virginia commission issued order approving part denying part petition virginia commission approved virginia power’s request construct new evergreen mills switching station new 230 kv double circuit transmission line existing brambletonyardley ridge line total estimated cost 25 million additional significant virginia power electric transmission projects approved applied follows north carolina regulation north carolina base rate case march 2019 virginia power filed base rate case schedules north carolina commission virginia power proposed nonfuel base rate increase 27 million effective november 1 2019 interim basis subject refund permanent rates ordered north carolina commission effective january 1 2020 base rate increase proposed recover significant investments generation transmission distribution infrastructure benefit north carolina customers virginia power presented earned return 752 based upon fullyadjusted test period compared authorized 990 return proposed 1075 roe september 2019 virginia power revised filing reduce nonfuel base rate increase 24 million january 2020 north carolina commission approved 975 roe disallowed certain costs associated coal ash remediation chesterfield power station february 2020 north carolina commission issued final order relating base rates july 2020 virginia power filed notice appeal exceptions supreme court north carolina arguing north carolina commission committed reversible error certain issues relating ratemaking treatment certain coal ash remediation costs matter pending north carolina fuel filing august 2020 virginia power submitted annual filing north carolina commission adjust fuel component electric rates january 2021 north carolina commission approved total 16 million decrease fuel component electric rates rate year beginning february 1 2021 pipeline integrity safety program north carolina commission authorized psnc use tracker mechanism recover incurred capital investment associated costs complying federal standards pipeline integrity safety requirements current base rates september 2020 north carolina commission approved psnc’s request increase integrity management annual revenue requirement 31 million increase 3 million previous filing effective september 2020 february 2021 north carolina commission approved psnc’s request increase integrity management annual revenue requirement 33 million increase 2 million previous filing effective march 2021 south carolina regulation south carolina electric base rate case august 2020 desc filed retail electric base rate case schedules south carolina commission desc proposed nonfuel base rate increase 178 million 775 based adjusted test year data effective first billing cycle march 2021 base rate increase proposed recover significant investment assets operating resources required serve expanding customer base maintain safety reliability efficiency desc’s system meet increasingly stringent reliability security environmental requirements benefit south carolina customers desc presented earned roe 590 based upon fullyadjusted test period proposed rates would provide earned roe equal current authorized earned roe 1025 established previous rate case 2012 january 2021 south carolina commission approved proposal made south carolina office regulatory staff agreed desc intervenors stay base rate case due current economic conditions allow parties time negotiate settlement final order issued later august 2021 connection order desc south carolina office regulatory staff parties record provide monthly updates south carolina commission progress towards reaching negotiated settlement matter pending dsm programs desc approval dsm rider recovers expenditures related dsm programs january 2020 desc filed application south carolina commission seeking approval recover 40 million costs net lost revenues associated programs along incentive invest programs april 2020 south carolina commission approved filing january 2021 desc filed application south carolina commission seeking approval recover 48 million costs net lost revenues associated programs along incentive invest programs matter pending natural gas rates june 2020 desc filed south carolina commission monitoring report 12month period ended march 31 2020 total revenue requirement 409 million represents 9 million overall annual increase natural gas rates terms natural gas rate stabilization act effective first billing cycle november 2020 october 2020 south carolina commission approved total revenue requirement 406 million effective first billing cycle november 2020 represents 6 million overall annual increase desc’s natural gas rates additionally south carolina commission authorized allowed roe 990 reduction prior roe 1025 south carolina commission also approved agreement south carolina office regulatory staff desc file next retail natural gas general rate proceeding later april 2023 cost fuel desc’s retail electric rates include cost fuel component approved south carolina commission may adjusted periodically reflect changes price fuel purchased desc february 2020 desc filed proposal south carolina commission decrease total fuel cost component retail electric rates desc’s proposed decrease would reduce annual base fuel component recoveries approximately 44 million projected return customers existing overcollected balance recovering desc’s current base fuel costs 12month period beginning first billing cycle may 2020 addition desc proposed increase variable environmental distributed energy resource components april 2020 south carolina commission approved filing february 2021 desc filed south carolina commission proposal increase total fuel cost component retail electric rates desc’s proposed adjustment would increase annual base fuel component recoveries approximately 36 million designed recover desc’s current base fuel costs net existing overcollected balance 12month period beginning first billing cycle may 2021 addition desc proposed decrease variable environmental component increase distributed energy resource component matter pending electric transmission projects 2020 desc began several electric transmission projects connection two new nuclear plants development southern transmission projects required place prior plants beginning operations maintain reliability desc anticipates projects go service phases costing approximately 75 million aggregate february 2020 desc filed application south carolina commission requesting approval construct operate 28 miles 230 kv transmission lines aiken county south carolina estimated cost approximately 30 million june 2020 south carolina commission approved filing ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 25 pipeline system september 2016 ohio commission approved stipulation filed jointly east ohio staff ohio commission continue pir program associated cost recovery another fiveyear term calendar years 2017 2021 permit east ohio increase annual capital expenditures 200 million 2018 3 per year thereafter subject cost recovery rate increase caps proposed east ohio april 2020 ohio commission approved east ohio’s application adjust pir cost recovery rates 2019 costs filing reflects gross plant investment 2019 209 million cumulative gross plant investment 18 billion revenue requirement 218 million december 2020 east ohio filed application ohio commission requesting approval extend pir program additional five years upon expiration current authorization end 2021 east ohio proposed continued capital investment increases 3 per year related increases annual rateincrease caps application east ohio proposed new fiveyear period include investment december 31 2026 case pending cep program 2011 east ohio began cep enables east ohio defer depreciation expense property tax expense carrying costs debt rate 65 capital investments covered pir program expand upgrade replace pipeline system information technology systems well investments necessary comply ohio commission government regulation may 2019 east ohio filed application alternative rate plan establish cep rider recover existing ceprelated deferrals establish ongoing recovery mechanism future deferrals filing reflects cumulative gross plant investment 723 million 2018 revenue requirement 83 million december 2020 ohio commission approved cumulative gross plant investment 721 million revenue requirement 83 million west virginia regulation west virginia base rate case september 2020 hope filed base rate case schedules west virginia commission hope proposed nonfuel base rate increase 28 million base rate increase proposed recover significant investment distribution infrastructure costs associated acquisition 2000 miles gathering assets benefit west virginia customers proposed rates would provide roe 1025 compared authorized roe 945 rates expected go effect july 2021 matter pending prep may 2020 hope filed prep application west virginia commission requesting approval recover prep costs related 39 million 54 million projected capital investment 2020 2021 respectively application also includes trueup prep costs related 2019 actual capital investment 27 million sets forth 13 million annual prep costs recovered proposed rates effective november 1 2020 october 2020 west virginia commission approved prep rates effective november 1 2020 utah regulation purchased gas september 2020 questar gas submitted filing utah commission 40 million gas cost increase october 2020 utah commission approved application interim basis rates effective november 2020 rural expansion program december 2019 questar gas filed application utah commission cpcn construct natural gas infrastructure extend service eureka utah project expected include 11 miles highpressure pipeline 360 service lines service late 2021 questar gas also requested approval rural expansion rate adjustment tracker recover construction costs project august 2020 utah commission approved cpcn rural expansion rate adjustment tracker wyoming regulation wyoming base rate case november 2019 questar gas filed base rate case schedules wyoming commission questar gas proposed nonfuel base rate increase 4 million effective september 2020 base rate increase proposed replace aging infrastructure expand system questar gas presented earned return 746 based upon fullyadjusted test period compared authorized 95 return proposed 105 roe june 2020 wyoming commission approved base rate increase 2 million annually rates effective september 1 2020 revenue requirement increase based approved roe 935 note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain companies’ longlived assets companies aros primarily associated decommissioning nuclear generation facilities ash pond landfill closures companies also identified recognized aros related retirement dominion energy’s storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed companies’ generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2019 2020 follows 1 reflects future ash pond landfill closure costs certain utility generation facilities see discussion 2 reflects revisions future ash pond landfill closure costs certain utility generation facilities well revisions 20year license extensions regulated nuclear power stations virginia 3 includes 394 million 179 million reported current liabilities december 31 2019 2020 respectively 4 reflects revisions future ash pond landfill closure costs certain utility generation facilities asbestos abatement costs associated certain utility facilities completion nuclear decommissioning cost study related summer 5 reflects revisions future ash pond landfill closure costs certain utility generation facilities asbestos abatement costs associated certain utility facilities dominion energy’s aros december 31 2020 2019 include 19 billion 17 billion respectively 09 billion 08 billion recorded virginia power related future decommissioning nuclear facilities companies established trusts dedicated funding future decommissioning activities december 31 2020 2019 aggregate fair value dominion energy’s trusts consisting primarily equity debt securities totaled 69 billion 62 billion respectively december 31 2020 2019 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 32 billion 29 billion respectively addition aros december 31 2020 2019 include 28 billion 26 billion respectively related virginia power’s future ash pond landfill closure costs regulatory mechanisms primarily associated legislation described provide recovery costs incurred april 2018 governor virginia signed legislation law extending existing permit moratorium vdeq issuing solid waste permits closure ash ponds virginia power’s bremo chesapeake chesterfield possum point power stations july 2019 legislation also required virginia power solicit compile november 2018 information third parties suitability cost market demand beneficiation recycling coal ash units connection legislation virginia power recorded 81 million 60 million aftertax charge recorded operations maintenance expense consolidated statements income march 2019 governor virginia signed law legislation requires ccr unit located virginia power’s bremo chesapeake chesterfield possum point power stations stopped accepting ccr prior july 2019 closed removing ccr approved landfill recycling beneficial reuse costs associated closure ccr units including costs allocated customers outside virginia recoverable rider approved virginia commission connection legislation virginia power recorded 24 billion aro related cost landfills beneficial reuse offsetting increase property plant equipment 13 billion chesterfield power station increase primarily regulatory assets remaining portion related bremo chesapeake possum point power stations 2019 connection march 2020 commitment planned early retirement chesterfield power station costs reclassified property plant equipment primarily regulatory assets amounts recoverable riders remaining 185 million associated nonjurisdictional customers reclassified deferred charges assets 2020 virginia power recorded 140 million increase landfill beneficial use aros revisions post closure monitoring costs execution coal beneficiation contract landfill chesterfield power station see note 12 additional information addition virginia power revised estimated cash flows existing aro related future ash pond landfill closure costs resulted decrease 202 million corresponding 113 million 84 million aftertax benefit operations maintenance expense consolidated statements income 2019 note 15 leases december 31 2020 2019 companies following lease assets liabilities recorded consolidated balance sheets 1 included deferred charges assets companies’ consolidated balance sheets 2 included property plant equipment companies’ consolidated balance sheets net 50 million 9 million accumulated amortization dominion energy virginia power respectively december 31 2020 net 26 million 4 million accumulated amortization dominion energy virginia power respectively december 31 2019 3 included current liabilities companies’ consolidated balance sheets 4 included securities due within one year companies’ consolidated balance sheets 5 included deferred credits liabilities companies’ consolidated balance sheets 6 included longterm debt companies’ consolidated balance sheets addition amounts disclosed dominion energy’s consolidated balance sheets december 31 2020 2019 includes property plant equipment 22 billion 28 billion respectively accumulated depreciation 68 million 364 million respectively related facilities subject power purchase agreements dominion energy lessor years ended december 31 2020 2019 total lease cost associated companies’ leasing arrangements consisted following years ended december 31 2020 2019 cash paid amounts included measurement lease liabilities consisted following amounts included companies’ consolidated statements cash flows addition amounts disclosed dominion energy’s consolidated statements income years ended december 31 2020 2019 include 175 million 174 million respectively rental revenue included operating revenue 102 million 94 million respectively depreciation expense included depreciation depletion amortization related facilities subject power purchase agreements dominion energy lessor december 31 2020 2019 weighted average remaining lease term weighted discount rate companies’ finance operating leases follows companies’ lease liabilities following maturities corporate office leasing arrangement december 2019 dominion energy signed agreement lessor amended may 2020 construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 465 million fund estimated project costs dominion energy ultimately proceeds project completion project expected completed september 2024 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 61 million december 31 2020 project terminated certain events dominion energy could required pay 100 funded amount lease term commence construction substantially complete facility able occupied end december 2027 end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 83 project costs difference project costs sale proceeds dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements dominion energy expects recognize rightofuse asset corresponding finance lease liability commencement lease term dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense offshore wind vessel leasing arrangement december 2020 dominion energy signed agreement lessor complete construction lease jones act compliant offshore wind installation vessel designed handle current turbine technologies well next generation turbines lessor providing equity obtained financing commitments debt investors totaling 550 million fund estimated project costs project expected completed end 2023 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 187 million december 31 2020 project terminated certain events default dominion energy could required pay 100 funded amount initial lease term commence construction substantially complete vessel delivered mature november 2027 end initial lease term dominion energy extend term lease additional term subject approval participants current market terms ii purchase property amount equal outstanding project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors outstanding project costs dominion energy may required make payment lessor difference outstanding project costs sale proceeds dominion energy considered owner construction financial accounting purposes therefore reflect construction activity consolidated financial statements dominion energy expects recognize rightofuse asset corresponding finance lease liability commencement lease term dominion energy considered owner leased property tax purposes result entitled tax deductions depreciation interest expense note 16 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie dominion energy december 31 2020 dominion energy owns manager 67 membership interest certain nonregulated solar facilities discussed note 2 dominion energy concluded entities vies due members lacking characteristics controlling financial interest addition 2016 dominion energy created wholly owned subsidiary sbl holdco holding company interest vie nonregulated solar facilities accordingly sbl holdco vie dominion energy primary beneficiary sbl holdco nonregulated solar facilities power direct activities significantly impact economic performance well obligation absorb losses benefits could significant dominion energy’s securities due within one year longterm debt include 32 million 239 million respectively debt issued sbl holdco net issuance costs nonrecourse dominion energy secured sbl holdco’s interest certain nonregulated solar facilities december 31 2020 dominion energy owns 50 membership interest cove point discussed notes 3 9 dominion energy concluded cove point vie due limited partners lacking characteristics controlling financial interest result gts transaction effective november 1 2020 dominion energy longer primary beneficiary cove point bhe retains power direct activities significantly impact cove point’s economic performance dominion energy’s maximum exposure loss limited current future investment well obligations guarantee provided see note 23 information december 31 2020 dominion energy owns 53 membership interest atlantic coast pipeline dominion energy concluded atlantic coast pipeline vie insufficient equity finance activities without additional subordinated financial support dominion energy concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance power direct shared duke energy dominion energy obligated provide capital contributions based ownership percentage dominion energy’s maximum exposure loss limited future investment well obligations guarantee provided see note 9 details regarding nature entity dominion energy virginia power companies’ nuclear decommissioning trust funds dominion energy’s rabbi trusts hold investments limited partnerships similar type entities see note 9 details dominion energy virginia power concluded partnership investments vies due limited partners lacking characteristics controlling financial interest dominion energy virginia power concluded neither primary beneficiary power direct activities significantly impact vies’ economic performance dominion energy virginia power obligated provide capital contributions partnerships required partnership agreement based ownership percentages dominion energy virginia power’s maximum exposure loss limited current future investments virginia power virginia power longterm power capacity contract one nonutility generator aggregate summer generation capacity approximately 218 mw contract contained certain variable pricing mechanisms form partial fuel reimbursement virginia power considered variable interests virginia power previously concluded generation facility vie would primary beneficiary may 2019 virginia power entered agreement paid 135 million terminate remaining contract nonutility generator 135 million 100 million aftertax charge recorded impairment assets charges virginia power’s consolidated statements income reflected corporate segment second quarter 2019 virginia power paid 13 million 50 million electric capacity nonutility generators 1 million 18 million electric energy nonutility generators years ended december 31 2019 2018 respectively virginia power purchased shared services des affiliated vie 349 million 387 million 335 million years ended december 31 2020 2019 2018 respectively virginia power’s consolidated balance sheets included amounts due des 175 million december 31 2020 102 million december 31 2019 respectively recorded payables affiliates consolidated balance sheets virginia power determined primary beneficiary des power direct activities significantly impact economic performance well obligation absorb losses benefits could significant des provides accounting legal finance certain administrative technical services dominion energy subsidiaries including virginia power virginia power obligation absorb allocated share des costs note 17 shortterm debt credit agreements companies use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties dominion energy dominion energy’s shortterm financing supported access joint revolving credit facility described commercial paper letters credit outstanding well capacity available credit facility follows 1 weightedaverage interest rates outstanding commercial paper supported dominion energy’s credit facility 029 210 december 31 2020 2019 respectively 2 credit facility matures march 2023 used borrowers credit facility support bank borrowings issuance commercial paper well support combined 20 billion letters credit 3 october 2020 joint revolving credit facility amended remove dominion energy gas coborrower desc questar gas’ shortterm financings supported access coborrowers joint revolving credit facility discussed companies december 31 2020 sublimits desc questar gas 500 million 250 million respectively january 2020 desc genco applied ferc twoyear shortterm borrowing authorization march 2020 ferc granted desc authority march 2021 issue shortterm indebtedness pursuant section 204 federal power act amounts exceed 22 billion outstanding maturity dates one year less addition march 2020 ferc granted genco authority march 2021 issue shortterm indebtedness exceed 200 million outstanding maturity dates one year less january 2021 desc genco applied ferc twoyear shortterm borrowing authorization applications pending addition credit facility mentioned dominion energy also credit facility original stated maturity date june 2020 allowed dominion energy issue 21 million letters credit may 2020 credit facility amended increase facility capacity approximately 30 million extend maturity date june 2022 december 31 2020 2019 dominion energy 30 million 21 million respectively letters credit outstanding agreement addition credit facilities mentioned sbl holdco 30 million credit facilities original stated maturity date december 2017 automatic oneyear renewals maturity sbl holdco term loan agreement december 2023 dominion solar projects iii inc 25 million credit facilities original stated maturity date may 2018 automatic oneyear renewals maturity dominion solar projects iii inc term loan agreement may 2024 december 31 2020 2019 amounts outstanding either facilities march 2020 dominion energy entered 900 million 364day revolving credit agreement bears interest variable rate december 31 2020 225 million outstanding agreement proceeds borrowings used provide general working capital general corporate purposes maximum allowed total debt total capital ratio supplemental agreement consistent allowed ratio dominion energy’s joint revolving credit facility march 2020 dominion energy borrowed 500 million 364day term loan credit agreement bore interest variable rate proceeds used provide general working capital general corporate purposes november 2020 dominion energy repaid outstanding balance full april 2020 dominion energy borrowed 625 million 364day term loan credit agreement bore interest variable rate proceeds used provide general working capital general corporate purposes june 2020 dominion energy repaid outstanding balance full dominion energy effective shelf registration statement sec sale 30 billion variable denomination floating rate demand notes called dominion energy reliability investmentsm registration limits principal amount may outstanding one time 10 billion notes offered continuous basis bear interest floating rate per annum determined dominion energy reliability investment committee designee weekly basis notes stated maturity date nontransferable may redeemed whole part dominion energy investor’s option time december 31 2020 december 31 2019 dominion energy’s consolidated balance sheets include 268 million 75 million respectively presented within shortterm debt proceeds used general corporate purposes repay debt virginia power virginia power’s shortterm financing supported access coborrower joint revolving credit facility credit facility used working capital support combined commercial paper programs borrowers credit facility general corporate purposes virginia power’s share commercial paper letters credit outstanding joint revolving credit facility dominion energy questar gas desc follows 1 weightedaverage interest rates outstanding commercial paper supported credit facility 030 210 december 31 2020 2019 respectively 2 full amount facility available virginia power less amounts outstanding coborrowers dominion energy questar gas desc sublimit virginia power set within facility limit changed option borrowers credit facility multiple times per year december 31 2020 sublimit virginia power 15 billion virginia power liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion energy credit facility matures march 2023 used support bank borrowings issuance commercial paper well support 20 billion sublimit whichever less letters credit 3 october 2020 joint revolving credit facility amended remove dominion energy gas coborrower note 18 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2020 2 financings relate certain pollution control equipment virginia power’s generating facilities 3 includes debt assumed dominion energy merger former cng subsidiary 4 april 2020 dominion energy purchased canceled 7 million 2579 junior subordinated notes mature july 2020 june 2020 dominion energy prepaid remaining balance 993 million 5 february 2020 dominion energy purchased cancelled remaining 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 borrowings presented within securities due within one year dominion energy’s consolidated balance sheets december 31 2019 6 february 2020 scana provided notice redeem remaining principal outstanding 183 million 475 mediumterm notes 155 million 4125 medium term notes plus accrued interest makewhole premiums march 2020 notes would otherwise matured may 2021 february 2022 respectively borrowings presented within securities due within one year dominion energy’s consolidated balance sheets december 31 2019 7 january 2020 scana provided notice redeem floating rate senior notes remaining principal outstanding 66 million plus accrued interest march 2020 notes would otherwise matured june 2034 borrowings presented within securities due within one year dominion energy’s consolidated balance sheets december 31 2019 8 industrial revenue bonds totaling 68 million secured letters credit expire subject renewal fourth quarter 2021 9 represents debt associated eagle solar sbl holdco dominion solar projects iii inc debt nonrecourse dominion energy secured eagle solar’s sbl holdco’s dominion solar projects iii inc’s interest certain solar facilities 10 excludes amounts classified held sale see note 3 11 represents valuation certain fair value hedges associated dominion energy’s fixed rate debt 12 includes 22 million estimated mandatory prepayments due within one year based estimated cash flows excess debt service sbl holdco dominion solar projects iii inc based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2020 follows 1 excludes mandatory prepayments associated sbl holdco dominion solar projects iii inc based cash flows excess debt service december 31 2020 22 million estimated mandatory prepayments due within one year included securities due within one year dominion energy’s consolidated balance sheets 2 january 2020 scana provided notice redeem floating rate senior notes remaining principal outstanding 66 million plus accrued interest march 2020 notes would otherwise matured june 2034 3 february 2020 scana provided notice redeem remaining principal outstanding 183 million 475 mediumterm notes 155 million 4125 mediumterm notes plus accrued interest makewhole premiums march 2020 notes would otherwise matured may 2021 february 2022 respectively 4 april 2020 dominion energy purchased canceled 7 million 2579 junior subordinated notes mature july 2020 june 2020 dominion energy prepaid remaining balance 993 million 5 february 2020 dominion energy purchased cancelled remaining 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 borrowings presented within current liabilities dominion energy’s consolidated balance sheets december 31 2019 companies’ shortterm credit facility longterm debt agreements contain customary covenants default provisions december 31 2020 events default covenants senior note issuances february 2021 psnc entered agreement certain investors issue private placement march 2021 150 million 310 30year senior notes proceeds used repayment existing indebtedness general corporate purposes senior note redemptions march 2020 scana redeemed floating rate senior notes remaining principal balance 66 million plus accrued interest notes would otherwise matured june 2034 expenses related early redemption senior notes 7 million reflected within interest related charges consolidated statements income year ended december 31 2020 march 2020 scana redeemed remaining principal outstanding 183 million 475 mediumterm notes 155 million 4125 mediumterm notes plus accrued interest makewhole premiums notes would otherwise matured may 2021 february 2022 respectively total expenses related early redemption mediumterm notes 14 million reflected within interest related charges consolidated statements income year ended december 31 2020 enhanced junior subordinated notes june 2006 september 2006 dominion energy issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids september 2006 hybrids bore interest threemonth libor plus 2825 reset quarterly threemonth libor plus 23 reset quarterly respectively dominion energy executed rccs connection issuance june 2006 hybrids september 2006 hybrids terms rccs redemptions hybrids subject certain conditions 2019 dominion energy purchased cancelled 12 million 13 million june 2006 hybrids september 2006 hybrids respectively february 2020 dominion energy redeemed remaining 111 million 286 million june 2006 hybrids september 2006 hybrids respectively would otherwise matured 2066 purchases conducted compliance applicable rcc terminated february 2020 expenses related early redemption hybrids 10 million reflected within interest related charges consolidated statements income year ended december 31 2020 october 2014 dominion energy issued 685 million october 2014 hybrids bear interest 575 per year october 1 2024 thereafter bear interest threemonth libor plus 3057 reset quarterly july 2016 dominion energy issued 800 million 525 july 2016 hybrids july 2016 hybrids listed nyse symbol drua dominion energy may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion energy may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion energy may make payments redeem repurchase debt securities equal right payment subordinated hybrids remarketable subordinated notes june 2019 dominion energy successfully remarketed 700 million 2016 series a1 20 rsns due 2021 700 million 2016 series a2 20 rsns due 2024 pursuant terms related 2016 equity units connection remarketing interest rates series a1 series a2 notes reset 2715 3071 respectively payable semiannual basis dominion energy ceased ability redeem notes option defer interest payments dominion energy receive proceeds remarketing proceeds belonged investors holding 2016 equity units temporarily used purchase portfolio treasury securities upon maturity portfolio proceeds applied behalf investors related stock purchase contract settlement date pay purchase price dominion energy issuance 185 million shares common stock august 2019 derivative restructuring june 2020 dominion energy amended portfolio interest rate swaps notional value 20 billion extending mandatory termination dates 2020 2021 december 2024 transaction viewed noncash financing activity embedded interest rate swap result june 2020 dominion energy recorded 326 million longterm debt representing net present value initial fair value measurement new contract imputed interest rate 119 consolidated balance sheets embedded interest rate derivative fair value zero inception august 2020 virginia power amended portfolio interest rate swaps notional value 900 million extending mandatory termination dates 2020 december 2023 transaction viewed noncash financing activity embedded interest rate swap result august 2020 virginia power recorded 443 million longterm debt representing net present value initial fair value measurement new contract imputed interest rate 034 consolidated balance sheets embedded interest rate derivative fair value zero inception interest rate swaps hedge relationship prior transaction virginia power dedesignated hedge relationships prior transaction designated new interest rate swap hedge relationship transaction note 19 preferred stock dominion energy authorized issue 20 million shares preferred stock may designated separate classes december 31 2020 2019 dominion energy issued outstanding 24 million shares preferred stock 16 million 08 million designated series preferred stock series b preferred stock respectively desc authorized issue 20 million shares preferred stock december 31 2020 2019 desc issued outstanding 1000 shares preferred stock held scana eliminated consolidation virginia power authorized issue 10 million shares preferred stock 100 liquidation preference however none issued outstanding december 31 2020 2019 corporate units june 2019 dominion energy issued 16 billion 2019 equity units initially form 2019 series corporate units corporate units listed nyse symbol dcue net proceeds used general corporate purposes repay shortterm debt including commercial paper 2019 series corporate unit consists stock purchase contract 110 10 undivided beneficial ownership interest one share series preferred stock beginning june 2022 series preferred stock convertible option holder dominion energy common stock formula based upon average closing price dominion energy common stock prior conversion date series preferred stock redeemable cash dominion energy beginning september 2022 liquidation preference settlement conversion payable cash common stock combination thereof dominion energy’s election stock purchase contracts obligate holders purchase shares dominion energy common stock june 2022 purchase price paid stock purchase contracts 100 per corporate unit number shares purchased determined formula based upon average closing price dominion energy common stock near settlement date series preferred stock pledged upon issuance collateral secure purchase common stock related stock purchase contracts dominion energy pays cumulative dividends series preferred stock quarterly contract adjustment payments stock purchase contracts rates described dominion energy may elect pay dividends andor payments cash shares dominion energy common stock combination cash shares dominion energy common stock dominion energy may defer contract adjustment payments one consecutive periods generally beyond purchase contract settlement date payments deferred dominion energy may make distributions related capital stock including dividends redemptions repurchases liquidation payments also deferral period dominion energy may make payments redeem repay repurchase debt securities equal right payment subordinated contract adjustment payments make payment guarantee security subsidiary guarantee ranks equal junior contract adjustment payments unless accumulated unpaid dividends series preferred stock declared paid dominion energy may make distributions capital stock ranking equal junior series preferred stock dividends upon liquidation applicable including dividends redemptions repurchases liquidation payments circumstances dominion energy also may make contract adjustment payments similar types payments subject certain exceptions dominion energy recorded present value stock purchase contract payments liability offset common stock purchase contract payments recorded liability accretion stock purchase contract liability recorded imputed interest expense calculating diluted eps dominion energy applies treasury stock method stock purchase contracts ifconverted method series preferred stock terms stock purchase contracts assuming antidilution adjustments maximum number shares common stock dominion energy issue june 2022 218 million selected information dominion energy’s 2019 equity units presented 1 issuance costs 28 million recorded reduction preferred stock 14 million common stock 14 million consolidated balance sheets december 31 2019 2 dominion energy recorded dividends 28 million 1750 per share 15 million 9479 per share years ended december 31 2020 2019 respectively 3 payments 83 million 38 million made 2020 2019 respectively stock purchase contract liability 129 million 212 million december 31 2020 2019 respectively series b preferred stock december 2019 dominion energy issued 800000 shares series b preferred stock 791 million net 9 million issuance costs preferred stock liquidation preference 1000 per share currently pays 465 dividend per share liquidation preference dividends paid cumulatively semiannual basis commencing june 15 2020 dominion energy recorded dividends 37 million 4650 per share 2 million 19375 per share years ended december 31 2020 2019 respectively dividend rate series b preferred stock reset every five years beginning december 15 2024 equal thencurrent fiveyear us treasury rate plus spread 2993 unless accumulated unpaid dividends series b preferred stock declared paid dominion energy may make distributions capital stock ranking equal junior series b preferred stock dividends upon liquidation including dividends redemptions repurchases otherwise dominion energy may option redeem series b preferred stock whole part december 15 2024 subsequent fifth anniversary date price equal 1000 per share plus accumulated unpaid dividends dominion energy may also option redeem series b preferred stock whole part price equal 1020 per share plus accumulated unpaid dividends time within certain period time following change criteria ratings agencies use assign equity credit securities series b preferred stock certain adverse effects equity credit actually received series b preferred stock holders series b preferred stock voting rights except limited circumstances provided terms series b preferred stock otherwise required applicable law series b preferred stock subject sinking fund obligation redeem repurchase retire series b preferred stock preferred stock contains conversion rights note 20 equity common stock dominion energy 2020 2019 2018 dominion energy recorded net fees commissions 481 million 110 billion 25 billion issuance approximately 7 million 157 million 36 million shares common stock respectively acquisitions settlements stock purchase contracts litigation various programs including dominion energy direct® employee savings plans atthemarket program acquisitions 2019 dominion energy issued 956 million shares common stock connection acquisition scana time issuance common stock shares valued 68 billion see note 3 information issuance dominion energy common stock connection scana combination january 2019 dominion energy dominion energy midstream closed agreement plan merger pursuant dominion energy acquired outstanding common unit representing limited partner interests dominion energy midstream already owned dominion energy issuance 225 million shares common stock valued 16 billion terms agreement plan merger publicly held outstanding common unit representing limited partner interests dominion energy midstream converted right receive 02492 shares dominion energy common stock immediately prior closing series preferred unit representing limited partner interests dominion energy midstream converted common units representing limited partner interests dominion energy midstream accordance terms dominion energy midstream’s partnership agreement merger accounted dominion energy following guidance change parent company’s ownership interest consolidated subsidiary dominion energy controls dominion energy midstream merger changes dominion energy’s ownership interest dominion energy midstream accounted equity transaction gain loss recognized connection merger dominion energy recognized 40 million income taxes equity primarily attributable establishing additional regulatory liabilities related excess deferred income taxes changes state income taxes pension plan contribution december 2019 dominion energy contributed 61 million shares common stock valued 499 million qualified defined benefit pension plans see note 22 information regarding activity surrounding pension plan contributions dominion energy direct® employee savings plans dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans august 2020 dominion energy began purchasing common stock open market direct stock purchase plans 2020 dominion energy received cash 159 million issuance 21 million shares dominion energy direct® employee savings plans january 2021 dominion energy began issuing new shares common stock direct stock purchase plans stock purchase contracts august 2019 dominion energy issued 185 million shares related stock purchase contracts entered part dominion energy’s 2016 equity units received proceeds 14 billion see note 18 information surrounding stock purchase contracts issuances september 2020 dominion energy issued 41 million shares common stock satisfy obligation settlement agreement santee cooper ratepayer case discussed note 23 shares immediately repurchased discussed atthemarket program june 2017 dominion energy entered sales agency agreements effect sales atthemarket program january 2018 dominion energy issued 66 million shares received cash proceeds 495 million net fees commissions paid 5 million completed program february 2018 dominion energy entered sales agency agreements effect sales atthemarket program fourth quarter 2018 dominion energy issued 27 million shares received cash proceeds 197 million net fees commissions paid 2 million first quarter 2019 dominion energy issued 21 million shares received cash proceeds 154 million net fees commissions paid 2 million fourth quarter 2019 dominion energy issued 78 million shares received cash proceeds 639 million net fees commissions paid 6 million following issuances dominion energy remaining capacity program march 2020 dominion energy entered sales agency agreements effect sales 500 million atthemarket common stock program dominion energy issue shares program expired june 2020 august 2020 dominion energy entered sales agency agreements effect sales new atthemarket program sales agency agreements dominion energy may time offer sell shares common stock sales agents enter one forward sale agreements respect shares common stock sales dominion energy sales agents forward sellers pursuant forward sale agreement cannot exceed 10 billion aggregate dominion energy issued shares entered forward sale agreements new program forward sale agreements 2018 dominion energy entered separate forward sale agreements goldman sachs co llc credit suisse capital llc forward purchasers underwriting agreement credit suisse securities usa llc goldman sachs co llc representatives several underwriters named therein relating aggregate 20 million shares dominion energy common stock underwriting agreement granted underwriters 30day option purchase additional three million shares dominion energy common stock underwriters exercised respect approximately 21 million shares april 2018 dominion energy entered separate forward sale agreements forward purchasers respect additional shares december 2018 dominion energy received proceeds 14 billion deducting underwriting discounts deducting expenses subject forward price adjustments forward sale agreements upon physical settlement 221 million shares repurchase common stock 2020 dominion energy repurchased 389 million shares dominion energy common stock 31 billion open market agreement private transaction accelerated share repurchase agreements discussed july 2020 contemplation dominion energy entering july 2020 agreement sell substantially gas transmission storage operations bhe board directors authorized repurchase 30 billion dominion energy’s common stock rescinded prior repurchase authorization approved february 2005 modified june 2007 dominion energy completed repurchases authorization december 2020 november 2020 board directors authorized repurchase 10 billion dominion energy’s common stock addition repurchase program authorized july 2020 repurchase program include specific timetable price volume targets may modified suspended terminated time shares may purchased open market privately negotiated transactions otherwise discretion management subject prevailing market conditions applicable securities laws factors august 2020 dominion energy began repurchasing shares open market agreement financial institution third quarter 2020 dominion energy repurchased 72 million shares dominion energy common stock 562 million fourth quarter 2020 dominion energy repurchased 37 million shares dominion energy common stock 295 million september 2020 dominion energy repurchased 41 million shares dominion energy common stock private transaction 323 million september 2020 dominion energy entered two prepaid accelerated share repurchase agreements separate financial institutions counterparties dominion energy made payments totaling 15 billion counterparties exchange aggregate 172 million shares dominion energy common stock represented approximately 90 15 billion worth dominion energy shares based closing price shares date agreements executed november 2020 dominion energy received additional 14 million shares upon completion respective purchase periods terms agreements number additional shares delivered agreement based average daily volumeweighted average stock prices dominion energy’s common stock term applicable purchase period less discount result dominion energy recorded reduction common stock 15 billion december 2020 dominion energy entered new prepaid accelerated share repurchase agreement one financial institution counterparty dominion energy paid 400 million counterparty exchange aggregate 50 million shares dominion energy common stock represented 400 million worth dominion energy shares based closing price shares date agreement executed december 2020 dominion energy received additional 03 million shares upon completion purchase period terms agreement number additional shares based average daily volumeweighted average stock prices dominion energy’s common stock term purchase period less discount result dominion energy recorded reduction common stock 400 million addition repurchases described dominion energy also repurchases shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization dominion energy repurchase shares 2019 2018 except shares tendered employees satisfy tax withholding obligations vested restricted stock virginia power 2020 2019 2018 virginia power issue shares common stock dominion energy noncontrolling interests gts transaction closing november 2020 part gts transaction dominion energy sold 25 controlling interest cove point bhe resulting dominion energy’s remaining 50 noncontrolling interest accounted equity method investment prospectively result 14 billion noncontrolling interest related 25 interest cove point held brookfield reversed see notes 3 9 information gts transaction dominion energy’s equity method investment cove point sale interest cove point december 2019 dominion energy completed sale 25 noncontrolling limited partnership interest cove point brookfield exchange cash consideration 21 billion subject working capital adjustments see note 3 information sale interest remeasurement dominion energy midstream units may 2018 subordinated units dominion energy midstream held dominion energy converted common units 11 ratio following payment dominion energy midstream’s distribution first quarter 2018 june 2018 dominion energy general partner exercised incentive distribution right reset defined dominion energy midstream’s partnership agreement received 27 million common units representing limited partner interests dominion energy midstream result increase ownership interest dominion energy midstream dominion energy recorded decrease noncontrolling interest corresponding increase shareholders’ equity 375 million reflecting change carrying value interest net assets dominion energy midstream held others accumulated comprehensive income loss presented table summary aoci component dominion energy following table presents dominion energy’s changes aoci component net tax 1 see table details reclassifications following table presents dominion energy’s reclassifications aoci component virginia power following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications following table presents virginia power’s reclassifications aoci component stockbased awards 2014 incentive compensation plan permits stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan options outstanding either plan december 31 2020 approximately 20 million shares available future grants plans goalbased stock awards granted lieu cashbased performance grants certain officers achieved certain targeted level share ownership december 31 2020 unrecognized compensation cost related nonvested goalbased stock awards immaterial dominion energy measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion energy’s results years ended december 31 2020 2019 2018 include 64 million 46 million 48 million respectively compensation costs 16 million 11 million 12 million respectively income tax benefits related dominion energy’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion energy’s consolidated statements income excess tax benefits classified financing cash flow restricted stock restricted stock grants made officers dominion energy’s ltip may also granted certain key nonofficer employees fair value dominion energy’s restricted stock awards equal closing price dominion energy’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2020 2019 2018 december 31 2020 unrecognized compensation cost related nonvested restricted stock awards totaled 61 million expected recognized weightedaverage period 20 years fair value restricted stock awards vested 35 million 23 million 23 million 2020 2019 2018 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion energy stock applicable federal state local tax withholding rates cashbased performance grants cashbased performance grants made dominion energy’s officers dominion energy’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved february 2018 cashbased performance grant made officers payout performance grant occurred january 2021 based achievement two performance metrics 2018 2019 2020 tsr relative companies members dominion energy’s compensation peer group roic additional payout based dominion energy’s priceearnings ratio relative members dominion energy’s peer compensation group total payout grant 15 million accrued december 31 2020 february 2019 cashbased performance grant made officers payout performance grant expected occur march 15 2022 based achievement two performance metrics 2019 2020 2021 tsr relative companies members dominion energy’s compensation peer group roic additional opportunities earn portion award based dominion energy’s absolute tsr relative priceearnings ratio performance december 31 2020 targeted amount threeyear grant 15 million liability 14 million accrued award february 2020 cashbased performance grant made officers payout performance grant expected occur march 15 2023 based achievement two performance metrics 2020 2021 2022 tsr relative companies members dominion energy’s compensation peer group roic additional opportunities earn portion award based dominion energy’s absolute tsr relative priceearnings ratio performance december 31 2020 targeted amount threeyear grant 16 million liability 8 million accrued award note 21 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found inconsistent public interest december 31 2020 virginia commission restricted payment dividends virginia power north carolina commission order approving scana combination limited cumulative dividends payable dominion energy virginia power psnc amount retained earnings day prior closing scana combination plus ii future earnings recorded virginia power psnc closing addition notice north carolina commission required payment dividends causes equity component virginia power psnc’s capital structure fall 45 ohio utah commissions may prohibit public service company including east ohio questar gas declaring paying dividend affiliate found detrimental public interest december 31 2020 neither ohio commission utah commission restricted payment dividends east ohio specific restriction south carolina commission payment dividends paid desc pursuant scana merger approval order amount desc dividends paid must reasonable consistent longterm payout ratio electric utility industry gas distribution industry december 31 2020 desc’s retained earnings exceed balance established federal power act reserve earnings attributable hydroelectric generation plants result desc permitted pay dividends without additional regulatory approval provided amounts would bring retained earnings balance threshold see notes 18 19 description potential restrictions common stock dividend payments dominion energy connection deferral interest payments enhanced junior subordinated notes deferral contract adjustment payments 2019 equity units failure pay dividends series preferred stock series b preferred stock note 22 employee benefit plans dominion energydefined benefit plans dominion energy provides certain retirement benefits eligible active employees retirees qualifying dependents terms benefit plans dominion energy reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion energy maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion energy’s funding policy contribute annually amount accordance provisions erisa pension programs also provide benefits certain retired executives companysponsored nonqualified employee benefit plans nonqualified plans funded contributions grantor trusts dominion energy also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates rate compensation increases dominion energy uses december 31 measurement date employee benefit plans dominion energy uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost pension plans marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion energy’s pension postretirement benefit plans hold investments trusts fund employee benefit payments dominion energy’s pension postretirement plan assets experienced aggregate actual returns losses 19 billion 21 billion 2020 2019 respectively versus expected returns 933 million 848 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans third quarter 2020 dominion energy remeasured certain pension plans due curtailment resulting entering agreement sell substantially gas transmission storage operations bhe remeasurement resulted increase pension benefit obligation 497 million decrease fair value pension plan assets 87 million impact remeasurement net periodic pension benefit cost credit recognized prospectively remeasurement date remeasurement increased net periodic benefit credit approximately 4 million year ending december 31 2020 excluding impacts curtailments discount rate used remeasurement 311 316 assumptions used remeasurement consistent measurement december 31 2019 fourth quarter 2020 dominion energy remeasured certain postretirement benefit plans due curtailment settlement resulting dominion energy completing gts transaction remeasurement resulted increase accumulated postretirement benefit obligation 16 million decrease fair value postretirement benefit plan assets 25 million impact remeasurement net periodic benefit cost credit recognized prospectively remeasurement date discount rate used remeasurement 307 311 initial healthcare cost trend rate used remeasurement 625 decreased 500 20252026 assumptions used remeasurement consistent measurement december 31 2019 voluntary retirement program march 2019 companies announced voluntary retirement program employees meet certain age service requirements 2019 upon determinations made concerning number employees elected participate program dominion energy recorded charge 427 million 319 million aftertax included within operations maintenance expense 251 million taxes 21 million income 111 million discontinued operations 44 million virginia power recorded charge 198 million 146 million aftertax included within operations maintenance expense 190 million taxes 8 million respective consolidated statements income second quarter 2019 dominion energy remeasured pension postretirement benefit plans result voluntary retirement program remeasurement resulted increase pension benefit obligation 484 million increase fair value pension plan assets 671 million addition remeasurement resulted increase accumulated postretirement benefit obligation 101 million increase fair value postretirement benefit plan assets 156 million impact remeasurement net periodic benefit cost credit recognized prospectively remeasurement date discount rate used remeasurement 407410 dominion energy pension plans 405408 dominion energy postretirement benefit plans assumptions used remeasurement consistent measurement december 31 2018 third quarter 2019 dominion energy remeasured pension plan result settlement voluntary retirement program scana settlement related remeasurement resulted increase pension benefit obligation 37 million increase fair value pension plan assets 51 million dominion energy impact remeasurement net periodic benefit cost credit recognized prospectively remeasurement date discount rate used remeasurement 357 assumptions used remeasurement consistent measurement december 31 2018 funded status following table summarizes changes pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status dominion energy 1 2020 amounts include curtailments settlements recognized result gts transaction well settlements qualified nonqualified pension obligations 2019 amounts relate primarily curtailment settlement result voluntary retirement program 2 2020 amounts relate primarily settlements qualified nonqualified pension obligations 2019 amounts relate primarily settlement result voluntary retirement program actuarial losses recognized 2020 2019 dominion energy’s pension benefit obligations include 10 billion 11 billion loss respectively resulting decreases discount rates actuarial losses recognized 2020 dominion energy’s postretirement benefit obligations include 149 million loss resulting decrease discount rates partially offset 85 million actuarial gain result completed experience study one dominion energy’s postretirement plans impact update healthcare claims assumptions actuarial losses recognized 2019 dominion energy’s postretirement benefit obligations include 168 million loss resulting decrease discount rates partially offset 55 million actuarial gain result impact update healthcare claims healthcarerelated cost assumptions abo dominion energy’s defined benefit pension plans 106 billion 97 billion december 31 2020 2019 respectively funding policies dominion energy evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion energy determines amount contributions current year time december 2020 dominion energy contributed 250 million qualified defined benefit pension plans 2019 dominion energy made 520 million contributions qualified defined benefit pension plans including 61 million shares common stock valued 499 million shares contributed private placement exempt registration requirements independent fiduciary investment manager separate account within qualified defined benefit pension plans dominion energy also entered registration rights agreement independent fiduciary investment manager pursuant dominion energy agreed provide registrations rights customary terms respect shares dominion energy expects make 17 million contributions qualified pension plans 2021 certain dominion energy’s subsidiaries fund postretirement benefit costs vebas dominion energy’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion energy make contributions vebas associated postretirement plans 2020 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets dominion energy following table provides information abo fair value plan assets dominion energy’s pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid dominion energy’s plans plan assets dominion energy’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations substantially dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments us equity includes investments largecap midcap smallcap companies located us nonus equity includes investments largecap smallcap companies located outside us including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity real estate investment trusts investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies dominion energy also utilizes commoncollective trust funds investment vehicle defined benefit plans commoncollective trust fund pooled fund operated bank trust company investment assets various organizations individuals welldiversified portfolio commoncollective trust funds grouped assets follow various investment strategies strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 fair values dominion energy’s pension plan assets asset category follows 1 includes 365 million 508 million dominion energy common stock december 31 2020 2019 respectively 2 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 3 excludes net assets related pending sales securities advanced subscriptions 198 million net accrued income 20 million includes net assets related pending purchases securities 71 million december 31 2020 excludes net assets related pending sales securities 52 million net accrued income 24 million includes net assets related pending purchases securities 99 million december 31 2019 fair values dominion energy’s postretirement plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 excludes net assets related pending sales securities 10 million net accrued income 2 million includes net assets related pending purchases securities 2 million december 31 2020 excludes net assets related pending sales securities 2 million net accrued income 2 million includes net assets related pending purchases securities 5 million december 31 2019 plan assets investments determined based fair values investments underlying investments determined follows • cash equivalentsinvestments held primarily shortterm notes treasury bills valued cost plus accrued interest • common preferred stocksinvestments valued closing price reported active market individual securities traded • insurance contractsinvestments group annuity contracts john hancock entered 1992 stated fair value based fair value underlying securities provided managers include investments us government securities corporate debt instruments state municipal debt securities • corporate debt instrumentsinvestments valued using pricing models maximizing use observable inputs similar securities includes basing value yields currently available comparable securities issuers similar credit ratings quoted prices available identical similar instruments instrument valued discounted cash flows approach maximizes observable inputs current yields similar instruments includes adjustments certain risks may observable credit liquidity risks broker quote available • government securitiesinvestments valued using pricing models maximizing use observable inputs similar securities • commoncollective trust fundscommoncollective trust funds invest debt equity securities instruments characteristics similar funds’ benchmarks primary objectives funds seek investment returns approximate overall performance benchmark indexes benchmarks major equity indices fixed income indices money market indices focus growth income liquidity strategies applicable investments commoncollective trust funds stated nav determined issuer commoncollective trust funds based fair value underlying investments held fund less liabilities nav used practical expedient estimate fair value commoncollective trust funds unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment • alternative investmentsinvestments real estate funds private equity funds debt funds hedge funds stated fair value based nav plan’s proportionate share partnership joint venture alternative investment’s fair value determined reference audited financial statements nav statements provided investment manager nav used practical expedient estimate fair value adjusted contributions distributions occurring investment manager’s dominion energy’s measurement date valuations also involve assumptions methods reviewed evaluated adjusted necessary dominion energy net periodic benefit credit cost service cost component net periodic benefit credit cost reflected operations maintenance expense dominion energy’s consolidated statements income except 13 million 16 million 18 million years ended december 31 2020 2019 2018 respectively presented discontinued operations nonservice cost components net periodic benefit credit cost reflected income dominion energy’s consolidated statements income components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities dominion energy plans follows 1 assumptions used determine net periodic cost following year components aoci regulatory assets liabilities dominion energy’s plans recognized components net periodic benefit credit cost follows 1 december 31 2020 32 billion 112 million related pension benefits postretirement benefits 19 billion 40 million respectively included aoci remainder included regulatory assets liabilities december 31 2019 33 billion 98 million related pension benefits postretirement benefits 20 billion 65 million respectively included aoci remainder included regulatory assets liabilities expected longterm rates return plan assets discount rates healthcare cost trend rates mortality critical assumptions determining net periodic benefit credit cost dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions used dominion energy’s pension postretirement plans including discount rates expected longterm rates return healthcare cost trend rates mortality rates dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset classes’ volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major capital market assumptions • investment allocation plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans mortality rates developed actual projected plan experience postretirement benefit plans dominion energy’s actuary conducts experience study periodically part process select best estimate mortality dominion energy considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate assumed healthcare cost trend rates significant effect amounts reported dominion energy’s retiree healthcare plans dominion energy establishes healthcare cost trend rate assumption based analyses various factors including specific provisions medical plans actual cost trends experienced projected demographics plan participants virginia powerparticipation defined benefit plans virginia power employees covered dominion energy pension plan described participating employer virginia power subject dominion energy’s funding policy contribute annually amount accordance erisa 2020 virginia power made payment dominion energy 313 million related participation dominion energy pension plan addition december 2020 dominion energy notified virginia power required contribution 151 million recorded payables affiliates virginia power’s consolidated balance sheets december 31 2020 virginia power’s net periodic pension cost related plan 118 million 152 million 126 million 2020 2019 2018 respectively net periodic benefit credit cost reflected operations maintenance expense virginia power’s consolidated statements income funded status various dominion energy subsidiary groups employee compensation basis determining share total pension costs participating dominion energy subsidiaries see note 25 virginia power amounts due tofrom dominion energy related plan retiree healthcare life insurance benefits virginia power employees covered dominion energy retiree health welfare plan described virginia power’s net periodic benefit credit cost related plan 58 million 27 million 51 million 2020 2019 2018 respectively net periodic benefit credit cost reflected operations maintenance expense virginia power’s consolidated statements income employee headcount basis determining share total postretirement benefit costs participating dominion energy subsidiaries see note 25 virginia power amounts due tofrom dominion energy related plan dominion energy holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power’s employees participate investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash virginia power provide dominion energy share employee benefit plan contributions virginia power funds postretirement benefit costs vebas 2020 2019 virginia power made contributions vebas expect contribute vebas 2021 defined contribution plans dominion energy also sponsors defined contribution employee savings plans cover substantially employees 2020 2019 2018 dominion energy recognized 67 million 69 million 46 million respectively employer matching contributions plans excluding discontinued operations virginia power also participates employee savings plans 2020 2019 2018 virginia power recognized 19 million 20 million 20 million respectively employer matching contributions plans note 23 commitments contingencies result issues generated ordinary course business companies involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect companies’ financial position liquidity results operations environmental matters companies subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements mats february 2019 epa published proposed rule reverse previous finding appropriate necessary regulate hazardous air pollutant emissions coal oilfired electric generating units may 2020 epa’s final rule became effective final rule consistent epa’s february 2019 proposal determines appropriate necessary regulate mercury hazardous air pollutant emissions coal oilfired electric generating units final rule also states mats rule remains place emissions standards affected coal oilfired electric generating units change companies complying applicable requirements rule expect material impacts operations ozone standards epa published final nonattainment designations october 2015 ozone standard june 2018 states august 2021 develop plans address new standard states developed implementation plans standard companies unable predict whether extent new rules ultimately require additional controls expenditures required implement additional controls could material impact companies’ results operations cash flows oil gas nsps august 2012 epa issued nsps impacting new modified facilities natural gas production gathering sectors made revisions nsps natural gas processing transmission facilities rules establish equipment performance specifications emissions standards control voc emissions natural gas production wells tanks pneumatic controllers compressors upstream sector june 2016 epa issued another nsps regulation oil natural gas sector regulate methane voc emissions new modified facilities transmission storage gathering boosting production processing facilities projects commenced construction september 2015 required comply regulation october 2018 epa published proposed rule reconsidering amending portions 2016 rule including limited fugitive emissions requirements well sites compressor stations amended portions 2016 rule effective immediately upon publication august 2020 epa issued two final amendments related reconsideration nsps oil natural gas sector applicable voc methane emissions together two amendments effect rescinding methane portion nsps segments oil natural gas sector rescinding methane voc nsps transmission storage segment modifying nsps voc requirements facilities production processing segments two amendments challenged us court appeals dc circuit remain effect pending outcome litigation dominion energy completed evaluation potential impacts expects impact would insignificant results operations financial condition andor cash flows ace rule july 2019 epa published final rule informally referred ace rule replacement clean power plan january 2021 us court appeals dc circuit vacated ace rule remanded epa decision take effect upon issuance court’s mandate ace rule applies existing coalfired power plants would require states develop plans july 2022 establishing unitspecific performance standards existing coalfired power plants unknown time epa replace ace rule replacement affect companies’ operations financial condition andor cash flows carbon regulations august 2016 epa issued draft rule proposing reaffirm source’s obligation obtain psd title v permit ghgs triggered permitting requirements first triggered nonghg conventional pollutants regulated new source review program exceed significant emissions rate 75000 tons per year co2 equivalent emissions epa ultimately takes final action rulemaking companies cannot predict impact results operations financial condition andor cash flows december 2018 epa proposed revised standards performance greenhouse gas emissions new modified reconstructed stationary sources proposed rule would amend previous determination best system emission reduction newly constructed coalfired steam generating units longer partial carbon capture storage instead proposed revised best system emission reduction source category efficient demonstrated steam cycle eg supercritical steam conditions large units subcritical steam conditions small units combination best operating practices january 2021 epa published final rule affirming electric generating units included purposes regulating ghg emissions new modified reconstructed stationary sources proposed revision performance standards remains pending epa ultimately takes final action rulemaking companies cannot predict impact results operations financial condition andor cash flows state regulations may 2019 vdeq issued final rule establishing state carbon regulation program 280 million ton initial statewide carbon cap 2020 cap reduced approximately three percent per year 2030 resulting ultimate cap 196 million tons final rule included provision vdeq delay implementation rule pending authorization general assembly governor virginia april 2020 virginia legislation enacted authorizing vdeq implement final rule june 2020 vdeq signed co2 budget trading program rule outlining requirements virginia’s direct participation rggi starting 2021 result joining rggi 2021 virginia’s allotment regional cap adjusted approximately 271 million tons although virginia power may purchase additional allowances secondary market states rggi program regulatory framework virginia provides rate recovery mechanisms expected substantially mitigate impact legislation discussed considered related legislation vcea discussed note 13 vcea institutes mandatory renewable portfolio standard enhances renewable generation energy storage development requires retirement certain generation facilities establishes energy efficiency targets expands net metering directs virginia’s participation marketbased carbon trading program 2050 water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms companies must comply applicable aspects cwa programs operating facilities regulation 316b october 2014 final regulations section 316b cwa govern existing facilities new units existing facilities employ cooling water intake structure flow levels exceeding minimum threshold became effective rule establishes national standard impingement based seven compliance options forgoes creation single technology standard entrainment instead epa delegated entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination five mandatory facilityspecific factors including social costbenefit test six optional facilityspecific factors rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd dominion energy virginia power currently 15 nine facilities respectively subject final regulations dominion energy also working epa state regulatory agencies assess applicability section 316b eight hydroelectric facilities including three virginia power facilities companies anticipate may install impingement control technologies certain stations oncethrough cooling systems companies currently evaluating need potential entrainment controls final rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies desc conducting studies implementing plans required rule determine appropriate intake structure modifications certain facilities ensure compliance rule impacts rule could material companies’ results operations financial condition andor cash flows existing regulatory frameworks south carolina virginia provide rate recovery mechanisms could substantially mitigate impacts regulated electric utilities effluent limitations guidelines september 2015 epa released final rule revise effluent limitations guidelines steam electric power generating category final rule established updated standards wastewater discharges apply primarily coal oil steam generating stations affected facilities required convert wet dry closed cycle coal ash management improve existing wastewater treatment systems andor install new wastewater treatment technologies order meet new discharge limits april 2017 epa granted two separate petitions reconsideration effluent limitations guidelines final rule stayed future compliance dates rule also april 2017 us court appeals fifth circuit granted epa’s request stay pending consolidated litigation challenging rule epa addresses petitions reconsideration september 2017 epa signed rule postpone earliest compliance dates certain waste streams regulations effluent limitations guidelines final rule november 2018 november 2020 however latest date compliance regulations december 2023 october 2020 epa released final rule extends latest dates compliance individual facilities’ compliance dates vary based circumstances determination state regulators may range 2021 2028 impacts rule could material companies’ results operations financial condition andor cash flows existing regulatory frameworks south carolina virginia provide rate recovery mechanisms could substantially mitigate impacts regulated electric utilities waste management remediation operations companies subject variety state federal laws regulations governing management disposal solid hazardous waste release hazardous substances associated current andor historical operations cercla amended similar state laws may impose joint several strict liability cleanup potentially responsible parties owned operated arranged disposal facilities affected release hazardous substances addition many states created programs incentivize voluntary remediation sites historical releases hazardous substances identified property owners responsible parties decide initiate cleanups time companies may identified potentially responsible party connection alleged release hazardous substances wastes site applicable federal state laws companies could responsible costs associated investigation remediation impacted sites subject contribution claims responsible parties costs incurred sites companies also may identify evaluate remediate potentially impacted sites voluntary state programs remediation costs may subject reimbursement companies’ insurance policies rate recovery mechanisms except described companies believe matters material effect results operations financial condition andor cash flows dominion energy determined associated former manufactured gas plant sites including certain sites associated virginia power 12 sites associated dominion energy including certain sites acquired scana combination remediation work substantially completed federal state oversight required sites following stateapproved groundwater monitoring programs dominion energy proposed expects propose remediation plans associated three sites including one virginia power expects conduct remediation activities primarily end 2021 december 31 2020 2019 dominion energy 42 million 34 million respectively reserves recorded dominion energy’s reserves include charges 14 million 11 million aftertax 16 million 12 million aftertax recorded 2020 2018 respectively operations maintenance expense consolidated statements income december 31 2020 2019 virginia power 26 million 16 million respectively reserves recorded virginia power’s reserves include charges 10 million 7 million aftertax 16 million 12 million aftertax recorded 2020 2018 respectively operations maintenance expense consolidated statements income addition one site associated dominion energy updated work plan submitted scdhec september 2018 would increase costs approximately 11 million approved federal state agencies september 2020 plan submitted army corps engineers dominion energy associated 12 additional sites including two associated virginia power investigation state federal environmental agency subject current proposed plans perform remediation activities due uncertainty surrounding sites companies unable make estimate potential financial statement impacts legal matters companies defendants number lawsuits claims involving unrelated incidents property damage personal injury due uncertainty surrounding matters companies unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows scana legal proceedings following describes certain legal proceedings involving dominion energy scana desc relating events occurring closing scana combination dominion energy intends vigorously contest lawsuits claims assessments filed initiated scana desc reference disclosure proceeding item matter described shall construed admission indication proceeding item matter material certain matters unless otherwise noted therein dominion energy unable estimate reasonable range possible loss related financial statement impacts matter could material impact results operations financial condition andor cash flows matters dominion energy able reasonably estimate probable loss dominion energy’s consolidated balance sheets december 31 2020 2019 include reserves 208 million 696 million respectively insurance receivables 8 million 111 million respectively included within receivables dominion energy’s consolidated statements income year ended december 31 2020 include charges 90 million 68 million aftertax included within impairment assets charges reflected corporate segment addition dominion energy’s consolidated statements income year ended december 31 2020 include charges 25 million 25 million aftertax included within income expense dominion energy’s consolidated statements income year ended december 31 2019 includes charges 641 million 480 million aftertax included within impairment assets charges reflected corporate segment ratepayer class actions may 2018 consolidated complaint desc scana state south carolina filed state court common pleas hampton county south carolina desc ratepayer case september 2018 court certified case class action plaintiffs allege among things desc negligent unjustly enriched breached alleged fiduciary contractual duties committed fraud misrepresentation failing properly manage nnd project desc committed unfair trade practices violated state antitrust laws plaintiffs sought declaratory judgment desc may charge customers past continuing costs nnd project sought scana desc’s assets frozen monies recovered toshiba corporation sources placed constructive trust benefit ratepayers sought specific performance alleged implied contract construct nnd project december 2018 state court common pleas hampton county entered order granting preliminary approval class action settlement stay pretrial proceedings desc ratepayer case settlement agreement contingent upon closing scana combination provided scana desc would establish escrow account proceeds escrow account would distributed class members payment certain taxes attorneys fees expenses administrative costs escrow account would include 1 20 billion net credit 20 billion future electric bill relief would inure benefit escrow account favor class members period time established south carolina commission order related matters south carolina commission related nnd project 2 cash payment 115 million 3 transfer certain descowned real estate sales proceeds sale properties counsel desc ratepayer class estimate aggregate value 60 million 85 million closing scana combination scana desc funded cash payment portion escrow account court held fairness hearing settlement may 2019 june 2019 court entered order granting final approval settlement order became effective july 2019 july 2019 desc transferred 117 million representing cash payment plus accrued interest plaintiffs august 2020 property plant equipment net recorded value 27 million transferred plaintiffs coordination courtappointed real estate trustee satisfy settlement agreement september 2020 court entered order approving final resolution transfer real estate sales proceeds cash contribution 385 million desc conveyance property plant equipment net recorded value 3 million october 2020 desc completed conveyance property plant equipment funded cash contribution september 2017 purported class action filed santee cooper ratepayers santee cooper desc palmetto electric cooperative inc central electric power cooperative inc state court common pleas hampton county south carolina santee cooper ratepayer case allegations substantially similar desc ratepayer case plaintiffs seek declaratory judgment defendants may charge purported class reimbursement past future costs nnd project march 2018 plaintiffs filed amended complaint including additional named defendants including certain current former directors santee cooper scana june 2018 santee cooper filed notice petition original jurisdiction supreme court south carolina december 2018 santee cooper filed answer plaintiffs fourth amended complaint filed cross claims desc denied october 2019 santee cooper voluntarily consented stay cross claims desc pending outcome trial underlying case november 2019 desc removed case us district court district south carolina december 2019 plaintiffs santee cooper filed motion remand case state court january 2020 case remanded state court march 2020 parties executed settlement agreement relating matter well luquire case glibowski case described settlement agreement provides dominion energy santee cooper establish fund benefit class members amount 520 million dominion energy’s portion 320 million shares dominion energy common stock also march 2020 court granted preliminary approval settlement agreement july 2020 court issued final approval settlement agreement september 2020 dominion energy issued 322 million shares dominion energy common stock satisfy obligation settlement agreement including interest charges july 2019 similar purported class action filed certain santee cooper ratepayers desc scana dominion energy former directors officers scana state court common pleas orangeburg south carolina luquire case august 2019 desc scana dominion energy voluntarily dismissed case claims similar santee cooper ratepayer case march 2020 parties executed settlement agreement described relating matter well santee cooper ratepayer case glibowski case dismissed part santee cooper ratepayer case settlement described rico class action january 2018 purported class action filed subsequently amended scana desc certain former executive officers us district court district south carolina glibowski case plaintiff alleges among things scana desc individual defendants participated unlawful racketeering enterprise violation rico conspired violate rico fraudulently inflating utility bills generate unlawful proceeds desc ratepayer class action settlement described previously contemplates dismissal claims desc ratepayers case desc scana officers august 2019 individual defendants filed motions dismiss march 2020 parties executed settlement agreement described relating matter well santee cooper ratepayer case luquire case dismissed part santee cooper ratepayer case settlement described scana shareholder litigation september 2017 purported class action filed scana certain former executive officers directors us district court district south carolina subsequent additional purported class actions separately filed nearly defendants collectively scana securities class action january 2018 us district court district south carolina consolidated suits plaintiffs filed consolidated amended complaint march 2018 plaintiffs allege among things defendants violated §10b securities exchange act 1934 amended rule 10b5 promulgated thereunder individually named defendants liable §20a act june 2018 defendants filed motions dismiss march 2019 us district court district south carolina granted part denied part defendants’ motions dismiss december 2019 parties executed settlement agreement pursuant scana pay 1925 million 325 million satisfied issuance shares dominion energy common stock subject approval us district court district south carolina february 2020 us district court district south carolina granted preliminary approval settlement agreement pending fairness hearing march 2020 scana funded escrow account 160 million cash balance settlement paid upon final approval settlement court july 2020 court granted final approval settlement agreement august 2020 scana paid balance 325 million cash satisfy settlement september 2017 shareholder derivative action filed certain former executive officers directors scana state court common pleas richland county south carolina september 2018 action consolidated another action business court pilot program richland county plaintiffs allege among things defendants breached fiduciary duties shareholders gross mismanagement nnd project defendants unjustly enriched bonuses paid connection project january 2019 defendants filed motion dismiss consolidated action february 2019 one action voluntarily dismissed march 2020 court denied defendants’ motion dismiss april 2020 defendants filed notice appeal south carolina court appeals petition supreme court south carolina seeking appellate review denial motion dismiss june 2020 plaintiffs filed motion dismiss appeal south carolina court appeals granted july 2020 august 2020 supreme court south carolina denied defendants’ petition seeking appellate review also august 2020 defendants filed petition rehearing south carolina court appeals relating july 2020 ruling court denied october 2020 november 2020 scana filed petition certiorari supreme court south carolina seeking appellate review denial scana’s motion dismiss case pending january 2018 purported class action filed scana dominion energy certain former executive officers directors scana state court common pleas lexington county south carolina city warren lawsuit plaintiff alleges among things defendants violated fiduciary duties shareholders executing merger agreement would unfairly deprive plaintiffs true value scana stock dominion energy aided abetted actions among remedies plaintiff seeks enjoin andor rescind merger february 2018 dominion energy removed case us district court district south carolina filed motion dismiss march 2018 june 2018 case remanded back state court common pleas lexington county dominion energy appealed decision remand us court appeals fourth circuit appeal consolidated similar appeal metzler lawsuit discussed june 2019 us court appeals fourth circuit reversed order remanding case state court february 2018 purported class action filed dominion energy certain former directors scana desc state court common pleas richland county south carolina metzler lawsuit allegations made relief sought plaintiffs substantially similar described city warren lawsuit february 2018 dominion energy removed case us district court district south carolina filed motion dismiss march 2018 august 2018 case remanded back state court common pleas richland county dominion energy appealed decision remand us court appeals fourth circuit appeal consolidated city warren lawsuit june 2019 us court appeals fourth circuit reversed order remanding case state court september 2019 us district court district south carolina granted plaintiffs’ motion consolidate city warren lawsuit metzler lawsuit october 2019 plaintiffs filed amended complaint certain former directors executive officers scana desc stated substantially similar allegations city warren lawsuit metzler lawsuit well inseparable fraud claim november 2019 defendants filed motion dismiss april 2020 us district court district south carolina denied motion dismiss may 2020 scana filed motion intervene denied august 2020 september 2020 scana filed notice appeal us court appeals fourth circuit case pending may 2019 case filed certain former executive officers directors scana state court common pleas richland county south carolina plaintiff alleges among things defendants breached fiduciary duties shareholders gross mismanagement nnd project unjustly enriched bonuses paid connection project breached fiduciary duties secure obtain best price sale scana also may 2019 case removed us district court south carolina nonsouth carolina defendants june 2019 plaintiffs filed motion remand case state court january 2020 case remanded state court february 2020 defendants filed motion dismiss case pending employment class actions indemnification august 2017 case filed us district court district south carolina behalf persons formerly employed nnd project july 2018 court certified case class action february 2019 certain plaintiffs filed additional case dismissed plaintiffs joined case filed august 2017 plaintiffs allege among things scana desc fluor corporation fluor enterprises inc violated worker adjustment retraining notification act connection decision stop construction nnd project plaintiffs allege defendants failed provide adequate advance written notice terminations employment seeking damages could much 100 million 100 nnd project january 2021 us district court district south carolina granted summary judgment favor scana desc fluor corporation fluor enterprises inc february 2021 plaintiffs filed notice appeal us court appeals fourth circuit case pending september 2018 case filed state court common pleas fairfield county south carolina fluor enterprises inc fluor daniel maintenance services inc desc santee cooper plaintiffs make claims indemnification breach contract promissory estoppel arising among things defendants alleged failure refusal defend indemnify fluor defendants aforementioned case pending filot litigation related matters november 2017 fairfield county filed complaint motion temporary injunction desc state court common pleas fairfield county south carolina making allegations breach contract fraud negligent misrepresentation breach fiduciary duty breach implied duty good faith fair dealing unfair trade practices related desc’s termination filot agreement desc fairfield county related nnd project plaintiff sought temporary permanent injunction prevent desc terminating filot agreement plaintiff withdrew motion temporary injunction december 2017 case pending governmental proceedings investigations june 2018 desc received notice proposed assessment approximately 410 million excluding interest scdor following audit desc’s sales use tax returns periods september 1 2008 december 31 2017 proposed assessment includes 100 nnd project based scdor’s position desc’s sales use tax exemption nnd project apply facility become operational december 2020 parties reached agreement principle amount 165 million resolve matter september october 2017 scana served subpoenas issued us attorney’s office district south carolina staff sec’s division enforcement seeking documents related nnd project february 2020 sec filed complaint scana two former executive officers desc us district court district south carolina alleging defendants violated federal securities laws making false misleading statements nnd project april 2020 scana desc reached agreement principle staff sec’s division enforcement settle without admitting denying allegations complaint december 2020 us district court district south carolina issued order approving settlement required scana pay civil monetary penalty totaling 25 million scana desc pay disgorgement prejudgment interest totaling 1125 million disgorgement prejudgment interest amount deemed satisfied settlements scana securities class action desc ratepayer case scana paid civil penalty december 2020 sec civil action two former executive officers scana remains pending currently subject stay granted court june 2020 request us attorney’s office district south carolina addition south carolina law enforcement division conducting criminal investigation handling nnd project scana desc dominion energy cooperating fully investigations us attorney’s office south carolina law enforcement division including responding additional subpoenas document requests dominion energy also entered cooperation agreement us attorney’s office south carolina attorney general’s office cooperation agreement provides consideration full cooperation investigations satisfaction agencies neither agency criminally prosecute bring civil action dominion energy current previous future direct indirect subsidiaries related nnd project former executive officer scana entered plea agreement us attorney’s office south carolina attorney general’s office june 2020 entered guilty plea us district court district south carolina july 2020 another former executive officer scana entered plea agreement us attorneys office south carolina attorney generals office november 2020 matters pending litigation december 2018 arbitration proceedings commenced desc cameco corporation related supply agreement signed may 2008 agreement provides terms conditions desc agreed purchase uranium hexafluoride cameco corporation period 2010 2020 cameco corporation alleges desc violated agreement failing purchase stated quantities uranium hexafluoride 2017 2018 delivery years desc denies breach agreement believes reduced purchase quantity within terms agreement january 2021 parties entered mutual release claims dismissed arbitration abandoned nnd project desc agent santee cooper entered engineering construction procurement contract westinghouse wectec 2008 design construction nnd project desc’s ownership share 55 various difficulties encountered connection project ability westinghouse wectec adhere established budgets construction schedules affected many variables including unanticipated difficulties encountered connection project engineering construction project components constrained financial resources contractors regulatory legal training construction processes associated securing approvals permits licenses necessary amendments within projected time frames availability labor materials estimated costs efficiency project labor also contractor supplier performance issues difficulties timely meeting critical regulatory requirements contract disputes changes key contractors subcontractors matters preceded filing bankruptcy protection westinghouse wectec march 2017 subject comprehensive analyses performed scana santee cooper based results scana’s analysis light santee coopers decision suspend construction nnd project july 2017 scana determined stop construction units pursue recovery costs incurred connection construction abandonment provisions base load review act means decision scana became focus numerous legislative regulatory legal proceedings remain unresolved described september 2017 desc agent santee cooper filed us bankruptcy court southern district new york proofs claim unliquidated damages westinghouse wectec proofs claim based upon anticipatory repudiation material breach westinghouse wectec contract assert westinghouse wectec claims based thereon may related thereto westinghouse’s reorganization plan confirmed us bankruptcy court southern district new york became effective august 2018 connection effectiveness reorganization plan contract associated nnd project deemed rejected desc contesting approximately 285 million filed liens fairfield county south carolina asserted liens claims relate work performed westinghouse subcontractors westinghouse bankruptcy although claims arising work performed westinghouse bankruptcy westinghouse indicated unsecured creditors sought may seek amounts beyond westinghouse allocated submitted reorganization plan us bankruptcy court southern district new york unsecured creditor successful attempt include claim part class general unsecured creditors beyond amounts bankruptcy reorganization plan allocated westinghouse possible reorganization plan provide payment full nearly full prepetition trade creditors shortfall could significant desc santee cooper responsible amounts owed westinghouse valid work performed westinghouse subcontractors nnd project westinghouse bankruptcy filing termination interim assessment agreement december 2019 desc santee cooper entered confidential settlement agreement w wind co llc resolving claims relating interim assessment agreement westinghouse subcontractors made claims westinghouse bankruptcy proceeding also filed desc santee cooper south carolina state court damages many claimants also asserted construction liens nnd project site desc also intends oppose claims liens respect claims westinghouse subcontractors desc believes sufficient amounts previously funded interim assessment agreement period pay validly asserted claims respect westinghouse subcontractor claims relate periods desc understands claims paid pursuant westinghouse’s confirmed bankruptcy reorganization plan desc understands amounts paid plan may satisfy claims full therefore desc believes westinghouse subcontractors may paid substantially potentially full westinghouse dominion energy cannot assured exposure account unpaid westinghouse subcontractor claims desc presently disputing dominion energy believes unlikely required make payments account claims nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews nrc industry groups institute nuclear power operations like us nuclear operators dominion energy gathered supporting data participated industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisted actions nrc staff determined started without unnecessary delay tier 2 3 items consisted items could initiated near term resource restraints need technical assessment dependent activities related higher priority tier 1 issues december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactor licensees construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion energy requiring implementation safety enhancements related mitigation strategies responding extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation implemented information requests issued nrc requested reactor licensee reevaluate seismic external flooding hazards facility using presentday methods information conduct walkdowns facility ensure protection hazards current design basis reevaluate emergency communications systems staffing levels walkdowns unit completed audited nrc found adequate reevaluation emergency communications systems staffing levels completed part effort comply orders reevaluation seismic hazards complete final nrc acceptance received dominion energy facilities reevaluation external flooding hazards complete dominion energy facilities nrc approved external flooding hazards surry may 2020 millstone august 2020 companies currently expect compliance nrcs information requests materially impact financial position results operations cash flows implementation period nrc staff resolved tier 2 tier 3 recommendations additional future actions part dominion energy anticipated respect recommendations therefore companies expect material financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioning minimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2020 calculation nrc minimum financial assurance amount aggregated dominion energy virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 28 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2020 nrc minimum financial assurance amounts calculated using preliminary december 31 2020 us bureau labor statistics indices dominion energy believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades companies continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial instruments recognized nrc see note 9 additional information nuclear decommissioning trust investments nuclear insurance priceanderson amendments act 1988 provides public 138 billion liability protection per site per nuclear incident basis via obligations required owners nuclear power plants allows inflationary provision adjustment every five years second quarter 2020 total liability protection per nuclear incident available participants secondary financial protection program decreased 139 billion 138 billion decrease impact dominion energy’s responsibility per active unit priceanderson amendments act 1988 companies purchased 450 million coverage commercial insurance pools millstone summer surry north anna remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us companies could assessed 138 million licensed reactors exceed 21 million per year per reactor limit number incidents retrospective premium assessed nrc granted exemption march 2015 remove kewaunee secondary financial protection program exemption permitted dominion energy reduce kewaunee’s required level liability coverage 100 million reduction implemented january 2018 following removal storage spent nuclear fuel spent fuel pool current levels nuclear property insurance coverage companies’ nuclear units follows 1 surry north anna share blanket property limit 200 million companies’ nuclear property insurance coverage millstone summer surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site march 2015 nrc granted exemption allowed kewaunee reduce property insurance limit 50 million reduction implemented january 2018 following removal storage spent nuclear fuel spent fuel pool includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion energy virginia powers maximum retrospective premium assessment current policy period 99 million 48 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment companies financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination additionally desc maintains excess property insurance policy european mutual association nuclear insurance policy provides coverage summer property damage outage costs 415 million resulting event nonnuclear origin european mutual association nuclear insurance policy permits retrospective assessments certain conditions cover insurers losses based current annual premium descs share retrospective premium assessment would exceed 2 million millstone virginia power summer also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program companies subject retrospective premium assessment policy year losses exceed funds available neil dominion energy virginia powers maximum retrospective premium assessment current policy period 33 million 9 million respectively odec part owner north anna santee cooper part owner summer massachusetts municipal green mountain part owners millstone’s unit 3 responsible companies share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel companies entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act companies’ contracts doe companies previously received damages award payments settlement payments related contracts mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 settlement agreements surry north anna millstone nuclear power stations extended provide periodic payments damages incurred december 31 2022 additional extensions contemplated settlement agreements similar agreement summer extends doe accepted amount spent fuel facility fully performed contractual obligations june 2018 lawsuit kewaunee filed us court federal claims recovery spent nuclear fuel storage costs incurred 2013 march 2019 dominion energy amended filing recovery spent nuclear fuel storage include costs incurred year ended december 31 2018 matter pending 2020 virginia power received payments 24 million resolution claims incurred north anna surry period january 1 2018 december 31 2018 addition dominion energy received payments 11 million resolution claims incurred millstone period july 1 2018 june 30 2019 4 million resolution share claims incurred summer period january 1 2019 december 31 2019 virginia power received payments 15 million resolution claims incurred north anna surry period january 1 2017 december 31 2017 addition dominion energy received 11 million resolution claims incurred millstone period july 1 2017 june 30 2018 3 million resolution share claims incurred summer period january 1 2018 december 31 2018 virginia power received payments 16 million resolution claims incurred north anna surry period january 1 2016 december 31 2016 addition dominion energy received payment 13 million resolution claims incurred millstone period july 1 2016 june 30 2017 companies continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion energy’s receivables spent nuclear fuelrelated costs totaled 46 million 52 million december 31 2020 2019 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 35 million december 31 2020 2019 companies continue manage spent fuel accepted doe longterm purchase agreements december 31 2020 dominion energy following longterm commitments noncancelable cancelable certain conditions third party used secure financing facility provide contracted goods services 1 commitments represent estimated amounts payable energy power purchase contracts qualifying facilities expire various dates 2046 energy payments generally based fixed dollar amounts per month totaled 52 million 29 million years ended december 31 2020 2019 respectively guarantees surety bonds letters credit upon closing gts transaction dominion energy retained four guarantees related cove point equity method investment support terminal services transportation construction two cove point guarantees cumulative maximum exposure 19 billion two guarantees maximum limit amounts related guarantees recorded dominion energy’s guarantee agreement support portion atlantic coast pipeline’s obligation revolving credit facility described note 9 dominion energy also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties subsidiaries fail perform pay contracts counterparties seek performance payment dominion energy would obligated satisfy obligation extent liability subject guarantee incurred one dominion energy’s consolidated subsidiaries liability included consolidated financial statements dominion energy required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion energy currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2020 dominion energy issued following subsidiary guarantees 1 guarantees related commodity commitments certain subsidiaries guarantees provided counterparties order facilitate physical financial transaction related commodities services 2 guarantees primarily related certain dgi subsidiaries regarding aspects running nuclear facility 3 includes guarantees facilitate development solar projects also includes guarantees entered dgi behalf certain subsidiaries facilitate acquisition development solar projects 4 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects insurance programs also includes guarantees entered dominion energy rng holdings llc behalf subsidiary facilitate construction renewable natural gas facilities due uncertainty workers’ compensation claims parental guarantee stated limit 5 excludes dominion energy’s guarantees new corporate office properties offshore wind installation vessel discussed note 15 additionally december 31 2020 dominion energy purchased 157 million surety bonds including 88 million virginia power authorized issuance letters credit financial institutions 100 million facilitate commercial transactions subsidiaries third parties terms surety bonds companies obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business companies may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law companies unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2020 companies believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position charitable commitments 2020 dominion energy made unconditional promises several charitable organizations including support commitment diversity social justice scholarship programs donations historically black colleges universities result dominion energy recorded charges totaling 80 million income consolidated statements income commitments funded various intervals 2028 dominion energy’s consolidated balance sheets include 73 million deferred credits liabilities december 31 2020 note 24 credit risk dominion energy diversified energy company dominion energy transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest rocky mountain southeast regions us dominion energy believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion energy exposed significant concentration credit risk receivables arising electric gas utility operations dominion energy’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion energy transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include marketing nonregulated generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2020 dominion energy’s credit exposure totaled 107 million amount investment grade counterparties including internally rated represented 96 single counterparty whether investment grade noninvestment grade exceeded 41 million exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2020 virginia power’s credit exposure totaled 15 million amount investment grade counterparties including internally rated represented 97 single counterparty exceeded 6 million exposure creditrelated contingent provisions certain dominion energy’s derivative instruments contain creditrelated contingent provisions require dominion energy provide collateral upon occurrence specific events primarily credit rating downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2020 2019 dominion energy would required post 14 million 10 million respectively additional collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion energy posted 1 million collateral december 31 2020 related derivatives creditrelated contingent provisions liability position fully collateralized cash posted collateral december 31 2019 aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2020 2019 15 million 10 million respectively include impact offsetting asset positions creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2020 2019 virginia power would required post additional 2 million 8 million respectively collateral counterparties see note 7 information derivative instruments note 25 relatedparty transactions virginia power engages related party transactions primarily dominion energy subsidiaries affiliates virginia power’s receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power included dominion energy’s consolidated federal income tax return applicable combined income tax returns dominion energy filed various states see note 2 information dominion energy’s transactions equity method investments described note 9 discussion significant related party transactions follows virginia power transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised forward commodity purchases manage commodity price risks associated purchases natural gas see notes 7 20 information december 31 2020 virginia power’s derivative assets liabilities affiliates 3 million 22 million respectively december 31 2019 virginia power’s derivative assets liabilities affiliates 3 million 53 million respectively virginia power participates certain dominion energy benefit plans described note 22 december 31 2020 2019 virginia power’s amounts due dominion energy associated dominion energy pension plan reflected noncurrent pension postretirement benefit liabilities consolidated balance sheets 436 million 782 million respectively december 31 2020 2019 virginia power’s amounts due dominion energy associated dominion energy retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 354 million 287 million respectively des affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage financial statements years presented include costs certain general administrative corporate expenses assigned des virginia power basis direct allocated methods accordance virginia power’s services agreements des costs incurred cannot determined specific identification costs allocated based proportional level effort devoted des resources attributable entity determined reference number employees salaries wages similar measures relevant des service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable presented virginia power’s significant transactions des affiliates 1 includes capitalized expenditures 141 million 133 million 145 million year ended december 31 2020 2019 2018 respectively virginia power borrowed funds dominion energy shortterm borrowing arrangements 380 million 107 million shortterm demand note borrowings dominion energy december 31 2020 2019 respectively weightedaverage interest rate borrowings 030 322 december 31 2020 2019 respectively virginia power outstanding borrowings net repayments dominion energy money pool nonregulated subsidiaries december 31 2020 2019 interest charges related virginia power’s borrowings dominion energy immaterial years ended december 31 2020 2019 2018 issuances virginia power’s common stock dominion energy 2020 2019 2018 note 26 operating segments companies organized primarily basis products services sold us description operations included companies’ primary operating segments follows 1 includes virginia power’s nonjurisdictional generation operations 2 includes renewable natural gas operations well wexpro’s natural gas development production operations addition operating segments companies also report corporate segment dominion energy corporate segment dominion energy includes corporate service companies functions including unallocated debt well nonregulated retail energy marketing operations including dominion energy’s noncontrolling interest wrangler addition corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources well net impact gas transmission storage operations held discontinued operations discussed note 3 2020 dominion energy reported aftertax net expenses 37 billion corporate segment including 34 billion aftertax net expenses specific items 12 billion aftertax net expenses attributable operating segments net expenses specific items attributable dominion energy’s operating segments 2020 primarily related impact following items • 751 million 564 million aftertax charge primarily related planned early retirement certain virginia power electric generation facilities attributable dominion energy virginia • 405 million 325 million aftertax charge associated certain nonregulated solar generation facilities attributable contracted assets • 221 million 171 million aftertax charge associated sale fowler ridge attributable contracted assets • 130 million 97 million aftertax charge expected ccro provided virginia retail electric customers gtsa attributable dominion energy virginia • 127 million 94 million aftertax charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 attributable dominion energy virginia • 117 million 93 million aftertax charges associated litigation acquired scana combination attributable dominion energy south carolina partially offset • 335 million 264 million aftertax net gain related investments nuclear decommissioning trust funds attributable • dominion energy virginia 27 million aftertax • contracted assets 237 million aftertax 2019 dominion energy reported aftertax net expenses 18 billion corporate segment including 15 billion aftertax net expenses specific items 19 billion aftertax net expenses attributable operating segments net expenses specific items attributable dominion energy’s operating segments 2019 primarily related impact following items • 10 billion 756 million aftertax charge refunds amounts previously collected retail electric customers desc nnd project attributable dominion energy south carolina • 641 million 480 million aftertax charges associated litigation acquired scana combination attributable dominion energy south carolina • 427 million 320 million aftertax charges merger integrationrelated costs associated scana combination including 394 million 295 million aftertax charge related voluntary retirement program attributable • dominion energy virginia 151 million aftertax • gas distribution 56 million aftertax • dominion energy south carolina 75 million aftertax • contracted assets 38 million aftertax • 346 million 257 million aftertax charge related early retirement certain virginia power electric generation facilities attributable dominion energy virginia • 194 million tax charge 258 million income taxrelated regulatory assets acquired scana combination dominion energy committed forgo recovery attributable dominion energy south carolina • 160 million 119 million aftertax charge related virginia power’s planned early retirement certain automated meter reading infrastructure attributable dominion energy virginia • 135 million 100 million aftertax charge related virginia power’s contract termination nonutility generator attributable dominion energy virginia • 114 million 86 million aftertax charge property plant equipment acquired scana combination primarily dominion energy committed forgo recovery attributable dominion energy south carolina partially offset • 553 million 411 million aftertax net gain related investments nuclear decommissioning trust funds attributable • dominion energy virginia 49 million aftertax • contracted assets 362 million aftertax • 113 million 84 million aftertax benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 attributable dominion energy virginia 2018 dominion energy reported aftertax net income 117 million corporate segment including 322 million aftertax net income specific items 196 million aftertax net expenses attributable operating segments net expenses specific items attributable dominion energy’s operating segments 2018 primarily related impact following items • 215 million 160 million aftertax charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers attributable dominion energy virginia • 170 million 134 million aftertax net loss related investments nuclear decommissioning trust funds attributable • dominion energy virginia 14 million aftertax • contracted assets 120 million aftertax • 81 million 60 million aftertax charge associated primarily asset retirement obligations ash ponds landfills certain utility generation facilities connection enactment virginia legislation april 2018 attributable dominion energy virginia • 70 million 52 million aftertax charge associated major storm damage service restoration attributable dominion energy virginia partially offset • 282 million 229 million aftertax benefit associated sale certain nonregulated generation facilities attributable contracted assets following table presents segment information pertaining dominion energy’s operations 1 excludes liability atlantic coast pipeline intersegment sales transfers dominion energy based contractual arrangements may result intersegment profit loss eliminated consolidation including amounts related entities presented within discontinued operations virginia power corporate segment virginia power primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources 2020 virginia power reported aftertax net expenses 863 million corporate segment including 915 million aftertax net expenses specific items attributable operating segment net expenses specific items attributable operating segment 2020 primarily related 751 million 559 million aftertax charge related planned early retirement certain electric generation facilities 130 million 97 million aftertax charge expected ccro provided virginia retail electric customers gtsa 127 million 94 million aftertax charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 2019 virginia power reported aftertax net expenses 634 million corporate segment including 627 million aftertax net expenses specific items attributable operating segment net expenses specific items attributable operating segment 2019 primarily related impact following items • 346 million 257 million aftertax charge related early retirement certain electric generation facilities • 198 million 146 million aftertax charge related voluntary retirement program • 160 million 119 million aftertax charge related planned early retirement certain automated meter reading infrastructure • 135 million 100 million aftertax charge related contract termination nonutility generator • 62 million 46 million aftertax charge related abandonment project electric generating facility partially offset • 113 million 84 million aftertax benefit revision future ash pond landfill closure costs result virginia legislation enacted march 2019 2018 virginia power reported aftertax net expenses 312 million corporate segment specific items attributable operating segment net expenses specific items attributable operating segment 2018 primarily related impact following items • 215 million 160 million aftertax charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers • 81 million 60 million aftertax charge associated primarily asset retirement obligations ash ponds landfills certain utility generation facilities connection enactment virginia legislation april 2018 • 70 million 52 million aftertax charge associated major storm damage service restoration following table presents segment information pertaining virginia power’s operations note 27 quarterly financial data unaudited summary companies’ quarterly results operations years ended december 31 2020 2019 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors addition dominion energy’s results recast reflecting presentation operations included gts transaction qpipe transaction investment atlantic coast pipeline discontinued operations see notes 3 9 information dominion energy dominion energy’s 2020 results include impact following significant items • fourth quarter results include 94 million aftertax charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 • third quarter results include 298 million aftertax charge associated certain nonregulated solar generation facilities 170 million aftertax charge associated sale fowler ridge 149 million aftertax charge expected ccro provided virginia retail electric customers gtsa • second quarter results include 22 billion aftertax charges presented discontinued operations associated cancellation atlantic coast pipeline project related portions supply header project • first quarter results include 566 million aftertax charge primarily related planned early retirement certain virginia power electric generation facilities dominion energy’s 2019 results include impact following significant items • fourth quarter results include 244 million aftertax charge related litigation acquired scana combination offset 150 million net gain related nuclear decommissioning trust funds • second quarter results include 283 million aftertax charge related voluntary retirement program 100 million aftertax charge related contract termination nonutility generator 75 million aftertax charge litigation acquired scana combination • first quarter results include 13 billion aftertax merger integrationrelated costs related scana combination inclusive 756 million aftertax charge refunds amounts previously collected retail electric customers desc nnd project 277 million aftertax charge certain regulatory assets property plant equipment acquired scana combination dominion energy committed forego recovery 134 million aftertax charge litigation acquired scana combination 409 million aftertax charge planned early retirement certain virginia power electric generation facilities automated metering reading infrastructure partially offset 197 million aftertax net gain related nuclear decommissioning trust funds 84 million aftertax revision future ash ponds landfill closure costs virginia power virginia power’s quarterly results operations follows virginia power’s 2020 results include impact following significant items • fourth quarter results include 94 million aftertax charge forgiveness virginia retail electric customer accounts arrears pursuant legislation enacted november 2020 • third quarter results include 149 million aftertax charge expected ccro provided virginia retail electric customers gtsa • first quarter results include 561 million aftertax charge primarily related planned early retirement certain virginia power electric generation facilities virginia power’s 2019 results include impact following significant items • second quarter results include 144 million aftertax charge related voluntary retirement program 100 million aftertax charge related contract termination nonutility generator 47 million aftertax charge abandonment project electric generation facility • first quarter results include 409 million aftertax charge planned early retirement certain electric generation facilities automated metering reading infrastructure partially offset 84 million aftertax revision future ash ponds landfill closure costs item 9 item 8 financial statements supplementary data report management companys management responsible information representations contained consolidated financial statements sections companys annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent consolidated financial statements management maintains system internal accounting controls designed provide reasonable assurance reasonable cost companys assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 2000 system internal control adequate accomplish intended objective consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance auditing standards generally accepted united states america included review companys accounting systems procedures internal controls performance tests auditing procedures sufficient provide reasonable assurance consolidated financial statements materially misleading contain material errors audit committee board directors dominion resources inc composed entirely directors officers employees dominion resources inc subsidiaries meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters company ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time management recognizes responsibility fostering strong ethical climate companys affairs conducted according highest standards personal corporate conduct responsibility characterized reflected companys code ethics distributed throughout company code ethics addresses among things importance ensuring open communication within company potential conflicts interest compliance domestic foreign laws including relating financial disclosure confidentiality proprietary information full disclosure public information virginia electric power company g scott hetzer steven rogers senior vice president treasurer vice president principal accounting officer independent auditors report board directors virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company wholly owned subsidiary dominion resources inc subsidiaries company december 31 2000 1999 related consolidated statements income retained earnings cash flows three years period ended december 31 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2000 1999 results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements company changed method accounting used develop market related value pension plan assets 2000 deloitte touche llp richmond virginia january 25 2001 virginia electric power company consolidated statements income company comprehensive income reportable accordance statement financial accounting standards sfas 130 reporting comprehensive income accompanying notes integral part consolidated financial statements virginia electric power company consolidated balance sheets accompanying notes integral part consolidated financial statements virginia electric power company consolidated balance sheets 1asdescribed note 14 consolidated financial statements 805 junior subordinated notes totaling 139 million principal amount constitute 100 trusts assets accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements retained earnings accompanying notes integral part financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part consolidated financial statements virginia electric power company notes consolidated financial statements note 1 nature operations virginia electric power company whollyowned subsidiary dominion resources inc dominion virginia corporation regulated public utility engaged generation transmission distribution sale electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 percent virginias total land area accounts 80 percent population company engages system wholesale purchases sales electricity purchases sales natural gas developed trading relationships beyond geographic limits retail service territory within document term company shall refer entirety virginia electric power company including virginia north carolina operations subsidiaries company manages operations along two primary business lines energy delivery energy segment encompasses companys portfolio generating facilities power purchase contracts trading marketing activities nuclear consulting services energy services activities delivery segment includes bulk power transmission distribution metering services customer service continues subject costbased regulation note 2 significant accounting policies methods allocating costs accounting periods operations subject federal state costofservice rate regulation may differ accounting methods generally applied nonregulated companies accounting allocations prescribed regulatory authorities used ratemaking economic effects thereof must considered application generally accepted accounting principles see note 9 discussion regulatory assets consolidated financial statements reflect certain estimates assumptions made management affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses periods presented actual results could differ estimates consolidated financial statements represent accounts company elimination intercompany transactions certain amounts 1999 1998 financial statements reclassified conform 2000 presentation operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers revenue trading activities includes realized commodity contract revenue net related cost sales amortization option premiums unrealized gains losses resulting marking market commodity contracts yet settled fuel net fuel net represents fuel costs subject rate regulation includes cost fossil fuel nuclear fuel purchased energy used serve electric sales also includes cost purchased energy associated power marketing sales subject cost service rate regulation virginia electric power company notes consolidated financial statementscontinued approximately 95 percent rate regulated fuel costs subject deferral accounting deferral accounting provides difference reasonably incurred actual expenses level expenses included current rates deferred matched future revenue fuel net includes effect deferral accounting may therefore reflect expenses marginally higher lower actual cost fuel consumed period property plant equipment property plant equipment recorded original cost includes labor materials services capitalized interest indirect costs cost maintenance repairs charged appropriate operating expense accounts cost additions replacements charged appropriate utility plant account except cost minor additions replacements charged maintenance expense 2000 1999 company capitalized interest costs generationrelated projects 18 million 13 million respectively depreciation amortization depreciation property plant equipment nuclear fuel computed straightline method based projected useful service lives cost depreciable transmission distribution property retired related cost removal less salvage charged accumulated depreciation generationrelated property cost removal charged expense incurred company records gains losses upon retirement generation related property based upon difference proceeds received propertys undepreciated basis retirement date general ranges estimated useful lives property plant equipment follows generation 541 years transmission 34 years distribution 27 years 825 years operating expenses include amortization nuclear fuel provided unit production basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs income taxes company files consolidated federal income tax return dominion company subject taxsharing agreement dominion pursuant taxes allocated company based upon taxable income determined separate company basis deferred investment tax credits amortized service lives property giving rise credits amortization debt issuance costs company defers amortizes expenses incurred connection issuance longterm debt including premiums discounts associated debt lives respective issues permitted appropriate regulatory jurisdictions gains losses resulting redemption debt deferred amortized remaining lives redeemed issues case refinancing company amortizes gains losses lives new issues longterm debt gains losses resulting retirement refinancing debt allocable generationrelated operations recorded accordance sfas 4 reporting gains losses extinguishment debt virginia electric power company notes consolidated financial statementscontinued cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 2000 1999 companys accounts payable included net effect checks outstanding yet presented payment 78 million 52 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand temporary investments purchased initial maturity three months less commodity contracts part companys strategy market energy generation capacity manage risks related thereto company enters contracts purchase sale energy commodities trading activities companys energy clearinghouse include forward contracts purchase sale overthecounter options require physical delivery underlying commodity furthermore order manage risk associated energy requirements utility operations company uses physically financially settled swap future forward option instruments negotiated exchange overthecounter contracts initiated within energy clearinghouse shown fair value companys financial statements marktomarket valuation method results unrealized gains losses commodity contracts yet settled unrealized gains losses contracts initiated trading purposes reported earnings unrealized gains losses contracts designated hedges accounting purposes shown changes assets liabilities exchangetraded contracts marked market based exchange closing prices instruments negotiated overthecounter fair value reflects managements best estimates considering exchange closing prices industry publications independent price quotations time value volatility factors underlying commitments commodity contracts representing unrealized gain positions reported commodity contract assets commodity contracts representing unrealized losses reported commodity contract liabilities addition purchased options sold reported commodity contract assets commodity contract liabilities respectively estimated market value exercise expiration realized commodity contract revenue net related cost sales settlement futures contracts amortization option premiums unrealized gains losses resulting marking positions market included revenue cash flows trading activities reported operating activities consolidated statements cash flows interest rate swaps net amounts paid amounts received interest rate swaps reported interest expense consolidated statements income note 3 accounting change 2000 dominion subsidiaries including company adopted new companywide method calculating market related value pension plan assets used determine expected return plan assets component net periodic pension cost prior dominions acquisition consolidated natural gas company cng company used different methods determine calculated value market related value plan assets dominions previous method recognized interest income dividends realized gains losses immediately recognized unrealized gains losses evenly fiveyear period new method market related value plan assets would reflect difference actual investment returns expected investment returns evenly fouryear period dominion believes new method virginia electric power company notes consolidated financial statementscontinued preferable continuing use either former methods new method enhances predictability expected return plan assets provides consistent treatment investment gains losses results calculated market related plan asset values generally closer market value compared values calculated previous methods primary participating employer dominion resources retirement plan company recorded proportionate share cumulative effect change accounting principle 21 million net income taxes 11 million impact cumulative effect change accounting principle effect change net income 2000 material retroactive application new method pro forma basis would materially changed companys net income 1999 1998 note 4 recently issued accounting standards 2000 financial accounting standards board fasb issued sfas 138 accounting certain derivative instruments certain hedging activities amends sfas 133 accounting derivative instruments hedging activities sfas 133 requires derivative instruments recorded balance sheet fair value beginning january 1 2001 company holds certain commodity contracts trading purposes already subject fair value accounting emerging issues task force eitf issue 9810 accounting contracts involved energy trading risk management activities company determined certain contracts subject fair value accounting sfas 133 substantial portion contracts used company production delivery energy customers involves various hedging strategies addition commodity contracts company uses interest rate swaps manage cost capital sfas 133 changes fair value derivatives recorded period current earnings comprehensive income depending whether derivative designated effective part hedge strategy whether strategy represents fair value cash flow hedge fair value hedge strategies company hedging changes fair value assets liabilities firm commitments changes fair value derivative instruments generally offset income statement changes fair value hedged items cash flow hedge strategies company hedging variability cash flows related variablepriced assets liabilities forecasted transactions including anticipated production purchases sales changes fair value derivative instruments reported comprehensive income amounts reported comprehensive income adjusted changes fair value reclassified earnings reclassification generally occur earnings affected hedged transactions amounts reclassified comprehensive income impact earnings generally offset recognition hedged transactions company record aftertax charges net income approximately 1 million comprehensive income approximately 14 million first quarter 2001 initial adoption sfas 133 adjustments recognized january 1 2001 cumulative effect change accounting principle derivatives implementation group dig group sponsored fasb continues develop interpretative guidance dig yet concluded certain issues could ultimately impact application standard also 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities revises standards accounting disclosure securitizations virginia electric power company notes consolidated financial statementscontinued transfers financial assets extinguishments liabilities certain exceptions standard applied prospectively transfers servicing financial assets extinguishments liabilities occurring march 31 2001 company expect adoption new standard material impact financial condition results operations note 5 restructuring costs subsequent cng acquisition january 28 2000 dominion subsidiaries developed began implementation plan restructure operations combined companies restructuring plan includes following components involuntary severance program voluntary early retirement program erp transition plan implement operational changes provide efficiencies including consolidation postmerger operations integration information technology systems dominion subsidiaries established comprehensive involuntary severance package salaried employees whose positions eliminated severance payments based individuals base salary years service time termination restructuring plan 174 positions company subsidiaries identified elimination resulting 14 million employee severance related costs december 31 2000 total 168 positions eliminated 8 million severance benefits paid salaried employees company excluding officers attained age 52 completed least five years service july 1 2000 eligible erp early retirement option provides three additional years age three additional years employee service subject age service maximums benefit formula purposes dominions pension postretirement medical plans approximately 400 company employees elected participate erp resulting expense approximating 51 million erp participants receive benefits involuntary severance package erp benefits involuntary severance package subject reduction result coordination additional retirement plan benefits provided erp restructuring costs also included 6 million related consolidation integration business operations administrative functions note 6 extraordinary item 1998 virginia rate settlement extraordinary itemdiscontinuance sfas 71 1999 legislation passed established detailed plan restructure electric utility industry virginia legislations deregulation generation event required discontinuation sfas 71 companys generation operations 1999 companys transmission distribution operations continue meet criteria recognition regulatory assets liabilities defined sfas 71 addition fuel continues subject deferral accounting order measure amount regulatory assets written upon discontinuance sfas 71 company evaluated extent recovery regulatory assets would provided capped rates transition period ending july 2007 generationrelated assets liabilities recovered capped rates written 1999 resulting aftertax charge earnings 255 million see note 9 discussion net regulatory assets december 31 2000 255 million virginia electric power company notes consolidated financial statementscontinued charge also included 1 writeoff approximately 38 million aftertax deferred investment tax credits 2 approximately 18 million aftertax generationrelated assets corresponding regulatory asset 23 million established representing amount expected recovered transition period related assets events caused discontinuance sfas 71 generation related assets liabilities also required review generation assets accordance provisions sfas 121 accounting impairment longlived assets longlived assets disposed review based estimates possible future market prices load growth competition many assumptions included effects nuclear decommissioning currently identified environmental expenditures based analyses highly dependent underlying assumptions plant writedowns appropriate time company also reviewed longterm power purchase contracts potential loss accordance sfas 5 accounting contingencies accounting research bulletin 43 chapter 4 inventory pricing based projections possible future market prices wholesale electricity results analyses indicated loss recognition appropriate time projections possible future market prices indicated possible loss 500 million absence capped rates provided legislation march 31 1999 potential loss exposure would approximately 32 billion significant estimates required recording effect deregulation legislation including resulting impact fair value determination generating facilities estimated purchases longterm power purchase contracts projections highly dependent future customer load projections generating unit availability timing type future capacity additions companys market area future market prices fuel electricity subject future reevaluation virginia rate settlement companys 1998 settlement outstanding base rate proceedings defined new regulatory framework companys transition electric competition impact settlement provisions largely recognized 1998 1999 included 1 150 million base rate reduction phasedin 1998 1999 2 150 million onetime refund 1998 3 accrual 159 million coupled 65 million previously recorded earlier years writeoff 220 million regulatory assets virginia electric power company notes consolidated financial statementscontinued note 7 income taxes details income tax expense follows total federal income tax expense differs amount computed applying statutory federal income tax rate pretax income following reasons companys net accumulated deferred income taxes consist following virginia electric power company notes consolidated financial statementscontinued note 8 nuclear operations decommissioning companys nuclear units cease operations company obligated decontaminate remove radioactive contaminants property require nuclear regulatory commission nrc oversight phase nuclear power plants life cycle termed decommissioning units operating amounts currently collected ratepayers combined investment earnings used fund future obligation dollars deposited external trusts funds invested amount accrued decommissioning equal amount collected ratepayers included depreciation amortization expense decommissioning collections 36 million per year period 1998 2000 however additional 10 million expensed 1997 based expected increase decommissioning collections 1997 provided companys rate case pending virginia commission since virginia rate case settlement include increase 1998 expense provision decreased 10 million therefore expense levels 36 million 36 million 26 million 2000 1999 1998 respectively net earnings losses trusts investments included income companys consolidated statements income 2000 1999 1998 net earnings 20 million 17 million 18 million respectively accretion decommissioning obligation equal trusts net earnings also recorded income accumulated provision decommissioning included accumulated depreciation companys consolidated balance sheets includes accrued expense accretion described unrealized gains losses trusts investments december 31 2000 net unrealized gains 268 million decrease 23 million december 31 1999 amount 291 million accumulated provision decommissioning december 31 2000 1999 851 million 818 million respectively total estimated cost decommission companys four nuclear units 16 billion based upon sitespecific study completed 1998 cost estimate assumes method completing decommissioning activities prompt dismantlement method assumes dismantlement decommissioning activities begin shortly cessation operations current operating licenses begin 2012 detailed table virginia electric power company notes consolidated financial statementscontinued nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities companys 2000 nrc minimum financial assurance amount aggregated four nuclear units 10 billion satisfied combination surety bonds funds collected external trusts fasb reviewing accounting nuclear plant decommissioning fasb tentatively determined estimated cost decommissioning reported liability rather accumulated depreciation substantial portion decommissioning obligation recognized earlier operating life nuclear unit deliberations fasb expanded scope project include similar unavoidable obligations perform closure postclosure activities longlived assets possibly including nonnuclear power plants forthcoming standard also may change regulated utility plant depreciation practices impact cannot determined time insurance priceanderson act limits public liability owner nuclear power plant 95 billion single nuclear incident priceanderson act amendment 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risk sharing program event nuclear incident licensed nuclear reactor united states company could assessed 88 million four licensed reactors exceed 10 million per year per reactor limit number incidents retrospective premium assessed companys current level property insurance coverage 255 billion north anna 255 billion surry exceeds nrcs minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc companys nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 21 million based severity incident board directors companys nuclear insurer discretion lower eliminate maximum retrospective premium assessment losses exceed limits insurance proceeds available must first used stabilization decontamination company financial responsibility losses company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program company subject retrospective premium assessment policy year losses exceed funds available neil current policy periods maximum assessment 5 million part owner north anna power station coowner responsible share nuclear decommissioning obligation insurance premiums applicable station including retrospective premium assessments losses covered insurance virginia electric power company notes consolidated financial statementscontinued note 9 regulatory assets regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process companys regulatory assets include following incurred costs underlying regulatory assets may represent expenditures company may represent recognition liabilities ultimately settled time future see note 6 information impairment regulatory assets resulting 1999 virginia deregulation legislation 1998 virginia rate settlement permitted appropriate regulatory jurisdictions portion companys operations subject costbased regulation income taxes recoverable future rates represent principally tax effect depreciation differences normalized earlier years ratemaking purposes amounts amortized related temporary differences reverse amounts net related regulatory liabilities 39 million associated deferred income taxes established rates excess current federal rate subject internal revenue code normalization requirements cost decommissioning department energys doe uranium enrichment facilities represents companys required contributions fund decommissioning decontaminating uranium enrichment facilities company began making contributions 1992 expected continue 15year period escalation inflation costs currently recovered fuel rates permitted appropriate regulatory jurisdictions portion companys operations subject costbased regulation gains losses refinanced debt deferred amortized lives new debt issues gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues deferred fuel accounting provides difference reasonably incurred actual expenses recovery costs included current rates deferred matched future revenue virginia electric power company notes consolidated financial statementscontinued note 10 property plant equipment property plant equipment nuclear fuel consists following note 11 jointly owned plants following information relates companys proportionate share jointly owned plants december 31 2000 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest companys share operating costs classified appropriate operating expense fuel operations maintenance depreciation taxes etc consolidated statements income virginia electric power company notes consolidated financial statementscontinued note 12 shortterm debt credit agreements company commercial paper program supported two credit facilities company 300 million credit facility also participate credit facility supports combined commercial paper programs dominion company consolidated natural gas company cng facility established june 2000 175 billion matures may 2001 although company access full amount 175 billion facility operates internal allocation may vary depending upon needs participating entities net borrowings commercial paper program 714 million december 31 2000 weighted average interest rate 663 percent 378 million december 31 1999 weighted average interest rate 611 percent virginia electric power company notes consolidated financial statementscontinued note 13 longterm debt longterm debt includes following 1thefirst refunding mortgage bonds fixed interest rate tax exempt financings secured mortgage lien substantially companys property 2certainpollution control facilities companys generating facilities pledged conveyed secure financings 3interestrates vary based shortterm taxexempt market rates 2000 1999 weighted average daily interest rates approximately 33 percent although bonds remarketed within one year period classified longterm debt company intends maintain debt supported longterm bank commitments following amounts debt mature next five years 2001 241 million 2002 535 million 2003 240 million 2004 325 million 2005 0 february 2001 company issued 50 million aggregate principal amount taxexempt pollution control revenue bonds due 2031 virginia electric power company notes consolidated financial statementscontinued note 14 obligated mandatorily redeemable preferred securities subsidiary trust virginia power capital trust vp capital trust established subsidiary company sole purpose selling 135 million preferred securities 54 million shares 25 par 1995 company concurrently issued 139 million 1995 series 805 junior subordinated notes exchange 135 million realized sale preferred securities 4 million common securities vp capital trust preferred securities common securities represent total beneficial ownership interest assets held vp capital trust notes sole assets vp capital trust preferred securities subject mandatory redemption upon repayment notes liquidation amount 25 plus accrued unpaid distributions including interest notes due september 30 2025 however date may extended additional ten years certain conditions satisfied note 15 preferred stock subject mandatory redemption total number authorized shares preferred stock whether subject mandatory redemption 10 million shares upon involuntary liquidation dissolution windingup company presently outstanding preferred stock entitled receive 100 per share plus accrued dividends cumulative december 31 1999 18 million issued outstanding shares preferred stock subject mandatory redemption 180 million company classified securities due within one year 2000 company redeemed 18 million issued outstanding shares note 16 preferred stock subject mandatory redemption shown series preferred stock subject mandatory redemption outstanding december 31 2000 1sharesare presented thousands 2through73103 amounts decline steps thereafter 10000 73113 3through83103 amounts decline steps thereafter 10000 83113 4moneymarket preferred mmp dividend rates variable set every 49 days via auction process combined weighted average rates series 2000 1999 1998 including fees brokerdealer agreements 571 percent 482 percent 449 percent respectively virginia electric power company notes consolidated financial statementscontinued note 17 common stock changes number authorized outstanding shares companys common stock three years ended december 31 2000 note 18 longterm incentives 1999 approximately two million dominion common stock options granted certain officers key employees company stock based compensation plan sponsored dominion options vested january 1 2000 compensation expense recognized provisions accounting principles board opinion 25 accounting stock issued employees related interpretations compensation expense measured based fair value options date grant calculated provisions sfas 123 accounting stock based compensation companys allocated share compensation expense would reduced reported net income 1999 approximately 5 million 2000 officers company became employees dominion resources services inc stock options granted 2000 key employees company material compensation expense recognized awards pro forma impact net income company measured compensation expense sfas 123 would material note 19 employee benefit plans company participates dominion resources inc retirement plan defined benefit pension plan retirement benefits based years service average base compensation consecutive 60month period pay highest pension benefits 1999 1998 company provided certain health care life insurance benefit plans retired employees benefits health care benefits provided retirees complete least 10 years service attaining age 45 beginning 2000 company participated plans providing benefits multiple dominion subsidiaries terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits companys level participation benefit plans significant following disclosures net periodic benefits costs funded status present plan totals pension benefit plans company participates well benefit costs allocated andor incurred company virginia electric power company notes consolidated financial statementscontinued components provision net periodic benefit cost follows subsequent dominions acquisition cng dominion subsidiaries developed began implementation plan restructure operations combined companies plan included voluntary early retirement program erp salaried employees company excluding officers attained age 52 completed least five years service july 1 2000 eligible erp early retirement option provides three additional years age three additional years employee service subject age service maximums benefit formula purposes dominions postretirement medical pension plans expenses erp associated pension benefits 38 million 13 million respectively see note 5 discussion restructuring costs virginia electric power company notes consolidated financial statementscontinued following table sets forth funded status plans significant assumptions used determining net periodic pension cost projected benefit obligation postretirement benefit obligations medical cost trend rate assumed gradually decrease 475 2005 years thereafter virginia electric power company notes consolidated financial statementscontinued assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects funds collected postretirement benefits rates excess benefits actually paid year contributed external benefit trusts see note 20 discussion impact deregulation legislation recoverability potentially stranded costs company also sponsors employee savings plans cover substantially employees employer matching contributions 12 million 11 million 11 million expensed 2000 1999 1998 respectively note 20 commitments contingencies company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies regarding matters arising ordinary course business involve substantial amounts management believes final disposition proceedings material adverse effect companys operations financial position liquidity results operations utility rate regulation virginias electric utility industry deregulation legislation companys base rates remain unchanged july 2007 recovery generationrelated costs provided capped rates period capped rates may terminate early january 1 2004 petitioned company approved virginia commission industry transitions deregulated environment especially period capped rates company remains exposed numerous risks including among others exposure potentially stranded costs future environmental compliance requirements changes tax laws inflation increased capital costs december 31 2000 companys exposure potentially stranded costs comprised longterm power purchase contracts could ultimately determined market generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements see notes 8 19 retrospective premium assessments several companys nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note 8 construction program company made substantial commitments connection construction program nuclear fuel expenditures estimated total approximately 831 million 2001 virginia electric power company notes consolidated financial statementscontinued company presently estimates 2001 construction expenditures including nuclear fuel met cash flow operations combination sales securities shortterm borrowing power purchase contracts company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 54 nonutility purchase contracts combined dependable summer capacity 3973 mw table reflects companys minimum commitments december 31 2000 power purchases utility nonutility suppliers addition minimum purchase commitments table contracts company may purchase option additional power needed purchased power expenditures subject cost service rate regulation including economy emergency limited term shortterm long term purchases years 2000 1999 1998 11 billion 12 billion 11 billion respectively see note 6 regarding evaluation companys potential exposure longterm purchased power commitments fuel purchase commitments companys estimated fuel purchase commitments next five years system generation follows 2001 379 million 2002 193 million 2003 166 million 2004 153 million 2005 133 million lease commitments total future minimum lease payments companys noncancellable capital leases operating leases initial remaining lease terms excess one year 174 million december 31 2000 expected future minimum lease payments leases next five years follows 2001 34 million 2002 26 million 2003 20 million 2004 16 million 2005 14 million 64 million years thereafter virginia electric power company notes consolidated financial statementscontinued sales power company enters agreements utilities parties purchase sell capacity energy agreements may cover current future periods volume transactions varies day based market conditions current anticipated load factors combined amounts sales purchases range 3000 mw 15000 mw various times given year operations closely monitored risk management perspective environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations company historically company recovered costs customers utility rates however extent environmental costs incurred period ending june 30 2007 excess level currently included virginia jurisdictional rates companys results operations decrease date company may seek recovery customers utility rates environmental costs related transmission distribution operations 1987 environmental protection agency epa identified company number entities potentially responsible parties prps two superfund sites located kentucky pennsylvania current cost studies estimate total remediation costs sites range 98 million 156 million companys proportionate share total cost expected range 2 million 3 million based upon allocation formulas volume waste shipped sites company accrued reserve 2 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay costs apportioned company generally seeks recover costs associated environmental remediation third party insurers december 31 2000 pending possible claims recognized asset offset obligations company 1999 company notified department justice alleged noncompliance epas oil spill prevention control countermeasures spcc plans facility response plan frp requirements one companys power stations legal proceeding instances noncompliance deemed occurred company may required remedy alleged deficiencies pay civil penalties settlement matter currently negotiation expected material companys financial condition results operations company also identified matters certain power stations epa might view compliance spcc frp requirements company reported matters epa plan correction thereof presently epa assessed penalties company pending review companys disclosure information future resolution matters expected material impact companys financial condition results operations 2000 company received notice violation nov epa alleging company operating mt storm power station west virginia violation clean air act nov alleges company failed obtain new source review permits prior undertaking specified construction projects station violations clean air act may result imposition substantial virginia electric power company notes consolidated financial statementscontinued civil penalties injunctive relief also 2000 attorney general new york filed suit company alleging similar violations clean air act mt storm power station company also received notices attorneys general connecticut new jersey intentions file suit company similar violations currently company reached agreement principle federal government state new york resolution various clean air act matters agreement principle includes payment 5 million civil penalty commitment 14 million major environmental projects virginia west virginia connecticut new jersey new york 12year 12 billion capital investment program environmental improvements companys coalfired generating stations virginia west virginia company already committed substantial portion 12 billion expeditures so2 nox emissions controls response clean air act requirements although company epa reached agreement principle terms final binding settlement still negotiated december 31 2000 company recorded discounted basis 17 million liability civil penalty environmental projects note 21 fair value financial instruments company used available market information appropriate valuation methodologies estimate fair value class financial instrument practicable estimate fair value estimates necessarily indicative amounts company could realize market exchange addition use different market assumptions may material effect estimated fair value amounts 1thecarrying amount cash equivalents approximates fair value short maturity 2fairvalue based available market information generally average bid asked price 3fairvalue reflects companys best estimates considering overthe counter quotations time value volatility factors underlying commitments virginia electric power company notes consolidated financial statementscontinued 4fairvalue based market quotations 5theinterest rates notes vary fair value approximates carrying value 6thefair value based market quotations estimated discounting dividend principal payments representative issue series average remaining life series 7fairvalue determined respective counterparties agreements based upon present value estimated net future cashflows commodity contracts held trading purposes part companys strategy market energy generation capacity manage related risks company manages portfolio commodity contracts held trading purposes contracts reported fair value consolidated balance sheet commodity contract assets totaled 11 billion 365 million december 31 2000 1999 respectively commodity contract liabilities totaled 11 billion 352 million december 31 2000 1999 respectively disclosed table included amounts commoditybased derivative financial instruments consisting swaps options net gains associated companys trading activities reported net related cost sales revenue totaled 94 million 65 million 2000 1999 respectively see note 2 discussion accounting policies associated commodity contracts commodity contracts sensitive changes prices electricity natural gas company appropriate operating procedures place administered experienced management help ensure proper internal controls maintained addition company established independent function monitor compliance price risk management policies subsidiaries trading activities also expose company credit risk credit risk represents potential loss company would incur result nonperformance counterparties pursuant terms contractual obligations company maintains credit policies respect counterparties management believes minimize overall credit risk policies include evaluation prospective counterpartys financial condition collateral requirements deemed necessary use standardized agreements facilitate netting cash flows associated single counterparty company also monitors financial condition existing counterparties ongoing basis considering system internal controls place credit reserve levels december 31 2000 company believes unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance note 22 related party transactions subsequent dominions acquisition cng company engaged exchange certain quantities natural gas affiliates index prices ordinary course business period january 28 2000 december 31 2000 unregulated subsidiary company purchased approximately 60 million natural gas affiliates sold approximately 33 million natural gas affiliates effective february 1 2000 dominion created subsidiary service company dominion resources services inc services provides certain services company connection formation services certain companys employees became employees services cost services charged services virginia power period february 1 2000 december 31 2000 approximately 202 million addition prior february 1 2000 certain employees dominion provided services company cost services 2 million 9 million 5 million period january 1 2000 january 31 2000 years ended december 31 1999 1998 respectively company also charged affiliates certain costs incurred behalf including facility virginia electric power company notes consolidated financial statementscontinued equipment expenses personnel costs cost services charged virginia power affiliates 15 million 2 million 2000 1999 respectively cost services 1998 insignificant company leases principal office building dominion agreement approved virginia commission expires 2006 agreement accounted capital lease capitalized cost property lease net accumulated amortization approximately 19 million 21 million december 31 2000 1999 respectively rental payments lease 3 million years ended december 31 2000 1999 1998 july 2000 virginia commission approved transfer virginia power issued outstanding common stock vps communications inc vps communications dominion transfer took place august 1 2000 resulting vps communications becoming direct subsidiary dominion transfer made vps communications book value approximately 30 million accordingly gain loss recorded transfer connection transfer vps communications renamed dominion telecom inc dominion telecom dominion telecom leases fiber optic capacity virginia power rates subject approval virginia commission december 2000 company acquired additional fiber optic capacity lease dominion telecom approximately 10 million payments received company connection dominion telecoms lease fiber optic equipment related fiber optic support maintenance services period august 1 2000 december 31 2000 approximately 1 million company net outstanding payable balance approximately 105 million affiliates net outstanding receivable balance approximately 1 million affiliates december 31 2000 1999 respectively balances due affiliates settled based contractual terms monthly basis depending nature underlying transactions see notes 2 18 19 discussion inclusion company dominions consolidated federal income tax return companys participation certain dominion employee incentive benefit plans note 23 business segments company manages operations along two primary business lines energy delivery majority companys revenue provided bundled rate tariffs generally revenues allocated two business lines management reporting based prior cost service studies amounts include 1 corporate operations assets 2 transactions allocated segments internal reporting purposes including 2000 restructuring costs 2000 cumulative effect change accounting principle 1999 extraordinary item 3 adjustments reconcile internal financial statement groupings used prepare externally reported consolidated financial statements 4 intersegment eliminations applicable virginia electric power company notes consolidated financial statementscontinued virginia electric power company notes consolidated financial statementscontinued note 24 quarterly financial data unaudited following amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors following accruals adjustments recorded 2000 1999 extraordinary unusual infrequent nature restructuring costs 2000 company incurred restructuring costs 71 million connection implementation plan restructure operations dominion subsidiaries following dominions acquisition cng charges related primarily costs associated workforce reduction activities see note 5 cumulative effect change accounting principlein 2000 result acquisition cng dominion adopted new companywide standard method calculating market related value plan assets pension plans dominion subsidiaries market related value plan assets used determine expected return plan assets component net periodic pension cost cumulative effect accounting change january 1 2000 21 million net income taxes 11 million see note 3 extraordinary itemthe passing legislation establishing detailed plan restructure electric utility industry virginia event required discontinuation sfas 71 generation operations generationrelated assets liabilities expected recovered costbased rates written 1999 resulting aftertax charge 255 million see note 6 item 9 item 8 financial statements supplementary data index report management companys management responsible information representations contained consolidated financial statements sections companys annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent consolidated financial statements management maintains system internal accounting controls designed provide reasonable assurance reasonable cost companys assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 1995 system internal control adequate accomplish intended objective consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance generally accepted auditing standards included review companys accounting systems procedures internal controls performance tests auditing procedures sufficient provide reasonable assurance consolidated financial statements materially misleading contain material errors audit committee board directors composed entirely directors officers employees company meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time management recognizes responsibility fostering strong ethical climate companys affairs conducted according highest standards personal corporate conduct responsibility characterized reflected companys code ethics distributed throughout company code ethics addresses among things importance ensuring open communication within company potential conflicts interest compliance domestic foreign laws including relating financial disclosure confidentiality proprietary information full disclosure public information virginia electric power company report independent auditors board directors virginia electric power company audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries december 31 1995 1994 related consolidated statements income earnings reinvested business cash flows three years period ended december 31 1995 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position companies december 31 1995 1994 results operations cash flows three years period ended december 31 1995 conformity generally accepted accounting principles deloitte touche llp richmond virginia february 2 1996 virginia electric power company consolidated statements income accompanying notes integral part financial statements virginia electric power company consolidated balance sheets assets accompanying notes integral part financial statements virginia electric power company consolidated balance sheets liabilities shareholders equity described note j consolidated financial statements 805 junior subordinated notes totalling 1392 million principal amount constitute 100 trusts assets accompanying notes integral part financial statements virginia electric power company consolidated statements earnings reinvested business accompanying notes integral part financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part financial statements virginia electric power company notes consolidated financial statements significant accounting policies general virginia electric power company regulated public utility engaged generation transmission distribution sale electric energy within 30000 square mile area virginia northeastern north carolina sells electricity retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities virginia service area comprises 65 percent virginias total land area accounts 80 percent population companys accounting practices generally prescribed uniform system accounts promulgated regulatory commissions jurisdiction accordance generally accepted accounting principles applicable regulated enterprises financial statements include accounts company subsidiaries significant intercompany transactions accounts eliminated consolidation company whollyowned subsidiary dominion resources inc virginia corporation preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates revenues operating revenues recorded basis service rendered property plant equipment utility plant recorded original cost includes labor materials services afc permitted regulators indirect costs cost maintenance repairs charged appropriate operating expense clearing accounts cost additions replacements charged appropriate utility plant account except cost minor additions replacements provided uniform system accounts charged maintenance expense depreciation amortization depreciation utility plant nuclear fuel computed straightline method based projected useful service lives cost depreciable utility plant retired cost removal less salvage charged accumulated depreciation provision depreciation based weighted average depreciable plant using rate 32 percent 1995 1994 1993 operating expenses include amortization nuclear fuel provided unit production basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs federal income taxes company files consolidated federal income tax return dominion resources deferred investment tax credits amortized service lives property giving rise credits allowance funds used construction applicable regulatory uniform system accounts defines afc cost construction period borrowed funds used construction purposes reasonable rate funds used pretax afc rates 1995 1994 1993 89 94 percent respectively approximately 83 percent companys construction work progress included rate base cash return collected currently thereon deferred capacity fuel expense approximately 80 capacity expenses 90 fuel expenses subject deferral accounting difference reasonably incurred actual expenses level expenses included current rates deferred matched future revenues amortization debt issuance costs company defers amortizes expenses incurred issuance longterm debt including premiums discounts associated debt lives respective issues gains losses resulting refinancing debt also deferred amortized lives new issues longterm debt permitted appropriate regulatory jurisdictions gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 1995 1994 companys accounts payable included net effect checks outstanding yet presented payment 627 million 668 million respectively purposes consolidated statement cash flows company considers cash equivalents include cash hand temporary investments purchased initial maturity three months less reclassification certain amounts 1994 1993 financial statements reclassified conform 1995 presentation b income taxes details income tax expense follows total federal income tax expense differs amount computed applying statutory federal income tax rate pretax income following reasons following chart reconciles total income tax expense shown consolidated statements income companys net accumulated deferred income taxes consist following c nuclear operations decommissioning nuclear plant decommissioning costs accrued recovered rates expected service lives companys nuclear generating units amounts collected customers placed trusts accumulated earnings thereon utilized solely fund future decommissioning obligations approximately every four years sitespecific studies prepared determine decommissioning cost estimate companys four nuclear units decon assumes activities associated decontamination prompt removal radioactive contaminants begin shortly cessation operations property may released unrestricted use accumulated provision decommissioning 3514 million 2609 million included utility plant accumulated depreciation december 31 1995 1994 respectively provisions decommissioning 285 million 245 million 244 million applicable 1995 1994 1993 respectively included depreciation amortization expense net unrealized gain 407 million net unrealized loss 52 million associated securities held companys nuclear decommissioning trust december 31 1995 1994 respectively included accumulated provision decommissioning earnings trust funds 159 million 152 million 163 million 1995 1994 1993 respectively included income companys consolidated statements income accretion accumulated provision decommissioning equal earnings trust funds also recorded income financial accounting standards board fasb reviewing accounting nuclear plant decommissioning current electric utility industry practices decommissioning changed annual provisions decommissioning could increase fasb tentatively determined estimated cost decommissioning reported liability rather accumulated depreciation substantial portion decommissioning obligation recognized earlier operating life nuclear plant deliberations fasb expanded scope project include similar unavoidable obligations perform closure postclosure activities incurred condition operate assets nuclear power plants whether position adopted would impact assets company cannot determined time furthermore fasb tentatively determined would inappropriate account cost removal negative salvage thus forthcoming standard may also cause changes industry plant depreciation practices insurance priceanderson act limits public liability owner nuclear power plant 89 billion single nuclear incident priceanderson amendments act 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risk sharing program event nuclear incident licensed nuclear reactor united states company could assessed 817 million including 3 insurance premium tax virginia four licensed reactors exceed 103 million including 3 insurance premium tax virginia per year per reactor limit number incidents retrospective premium assessed nuclear liability coverage claims made nuclear workers first hired january 1 1988 except arising extraordinary nuclear occurrence provided master worker insurance program first hired nuclear industry prior january 1 1988 covered policy discussed aggregate limit coverage industry 400 million 200 million policy limit automatic reinstatements additional 200 million companys maximum retrospective assessment approximately 125 million including 3 insurance premium tax virginia companys current level property insurance coverage 255 billion north anna 240 billion surry exceeds nrcs minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc companys nuclear property insurance provided nuclear mutual limited nml nuclear electric insurance limited neil two mutual insurance companies subject retrospective premium assessments policy year losses exceed funds available insurance companies maximum assessment first incident current policy period 427 million maximum assessment related second incident additional 154 million based severity incident boards directors companys nuclear insurers discretion lower maximum retrospective premium assessment eliminate either completely losses exceed limits insurance proceeds available must first used stabilization decontamination company financial responsibility losses company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program virginia power subject retrospective premium assessment policy year losses exceed funds available neil current policy periods maximum assessment 9 million part owner north anna power station odec responsible proportionate share 116 percent insurance premiums applicable station including retrospective premium assessments losses covered insurance sale receivables company agreement sell limited recourse certain accounts receivable including unbilled amounts maximum 200 million additional receivables continually sold companys discretion replace collected limit december 31 1995 amount outstanding however december 31 1994 160 million receivables sold outstanding agreement limited recourse provided companys assignment additional undivided interest accounts receivable cover potential losses purchaser due uncollectible accounts company provided estimated amount losses accounts e utility plant utility plant consisted following f jointly owned plants following information relates companys proportionate share jointly owned plants december 31 1995 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest companys share operating costs classified appropriate operating expense fuel maintenance depreciation taxes etc consolidated statements income g regulatory assets certain expenses normally reflected income deferred balance sheet regulatory assets recognized income related amounts included rates recovered customers companys regulatory assets included following income taxes recoverable future rates represent principally tax effect depreciation differences normalized amounts amortized related temporary differences reverse costs decommissioning department energys doe uranium enrichment facilities deferred represent unamortized portion virginia powers required contributions fund decommissioning decontaminating uranium enrichment facilities virginia power making contributions fifteenyear period escalation inflation costs recovered fuel rates losses gains reacquired debt deferred amortized lives new issues longterm debt gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues construction north anna unit 3 terminated november 1982 retail jurisdictions permitted recovery incurred costs virginia ferc jurisdictional customers amounts deferred amortized date termination costs first includible rates incurred costs underlying regulatory assets may represent expenditures company may represent recognition liabilities ultimately settled time future regulatory assets representing past expenditures included companys rate base used adjust companys capital structure company allowed earn return unrecovered balance 8164 million regulatory assets december 31 1995 approximately 123 million represent past expenditures effectively excluded rate base virginia state corporation commission primary jurisdiction companys rates however amount 1018 million represent present value amounts recovered future rates north anna unit 3 project termination costs thus reflect reduction actual dollars recovered future rates time value money company earn return remaining 212 million regulatory assets effectively excluded rate base recovered various recovery periods 23 years depending nature deferred costs h leases plant property capital leases included following company leases principal office building parent dominion resources capitalized cost property lease net accumulated amortization represented 24 million 25 million december 31 1995 1994 respectively rental payments lease 3 million three years ended december 31 1995 1994 1993 company responsible expenses connection leases noted including maintenance future minimum lease payments noncancellable capital leases operating leases initial remaining lease terms excess one year december 31 1995 follows rents leases charged operation expenses 98 million 96 million 112 million 1995 1994 1993 respectively longterm debt 1 substantially companys property subject lien mortgage securing first refunding mortgage bonds 2 certain pollution control facilities companys generating facilities pledged conveyed secure financings 3 interest rates vary based shortterm taxexempt market rates weighted average daily interest rates 389 296 1995 1994 respectively pollution control bonds subject remarketing within one year classified longterm debt extent companys intention maintain debt supported longterm bank commitments maturities 2000 follows millions 1996 2596 1997 3113 1998 3335 1999 261 2000 1955 j company obligated mandatorily redeemable preferred securities subsidiary trust 1995 company established virginia power capital trust vp capital trust vp capital trust sold 5400000 shares preferred securities 135 million representing preferred beneficial interests 97 beneficial ownership assets held vp capital trust company issued 1392 million 1995 series 805 junior subordinated notes exchange 135 million realized sale preferred securities 42 million common securities vp capital trust common securities represent remaining 3 beneficial ownership interest assets held vp capital trust notes constitute 100 vp capital trusts assets notes due september 30 2025 may extended additional ten years subject satisfying certain conditions however company may redeem notes september 30 2000 certain circumstances preferred securities subject mandatory redemption upon repayment notes maturity earlier redemption preferred security shall entitled receive liquidation amount 25 plus accrued unpaid distributions including interest thereon k preferred stock subject mandatory redemption preferred stock subject mandatory redemption 100 liquidation preference december 31 1995 follows shares noncallable prior redemption b shares redeemed 312000 c shares redeemed 912000 years 1993 1995 following shares redeemed total number authorized shares preferred stock 10000000 shares upon involuntary liquidation presently outstanding preferred stock entitled receive 100 per share plus accrued dividends cumulative l preferred stock subject mandatory redemption preferred stock subject mandatory redemption 100 liquidation preference december 31 1995 follows money market preferred mmp dividend rates variable set every 49 days via auction process combined weighted average rates series 1995 1994 1993 including fees brokerdealer agreements 493 375 301 respectively years 1993 1995 following shares redeemed common stock years 1993 1995 following changes common stock occurred n shortterm debt company established commercial paper program supported credit agreement expiration date july 31 2000 credit agreement provides maximum borrowing 300 million december 31 1995 169 million commercial paper outstanding commercial paper outstanding december 31 1994 weighted average interest rate commercial paper december 31 1995 579 retirement plan postretirement benefits retirement plan company participates dominion resources inc retirement plan retirement plan defined benefit pension plan retirement plan covers virtually employees dominion resources subsidiaries including company benefits based years service average base compensation consecutive 60month period pay highest pension plan expenses 203 million 193 million 159 million 1995 1994 1993 respectively amounts funded 427 million 427 million 16 million 1995 1994 1993 respectively terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits postretirement benefits net periodic postretirement benefit expense follows following table sets forth funded status plan one percent increase health care cost trend rate would result increase 35 million service interest cost components 369 million increase accumulated postretirement benefit obligation significant assumptions used determining postretirement benefit obligation company recovering costs rates accrual basis material respects jurisdictions current future recoveries postretirement benefits opeb accruals expected collect sufficient amounts provide unfunded accumulated postretirement obligation time funds collected opeb accruals rates excess opeb benefits actually paid year contributed external benefit trusts companys current funding policy benefits 1994 company offered early retirement program employees aged 50 older offered voluntary separation program regular fulltime employees approximately 1400 employees accepted offers programs costs associated programs 901 million company capitalized 259 million based upon regulatory precedent expensed 642 million p restructuring march 1995 company announced implementation phase vision 2000 program phase company began reviewing operations objective outsourcing services economical appropriate engineering remaining functions streamline operations reengineering process resulting outsourcing decentralization reorganization downsizing portions companys operations part process company reevaluating utilization capital resources operations company identify opportunities operational efficiencies outsourcing reengineering processes restructuring charges 1179 million 1995 included severance costs purchase power contract cancellation negotiated settlement costs capital project cancellation costs incurred directly result vision 2000 initiatives vision 2000 review operations expected continue 1996 time company management cannot estimate restructuring costs yet incurred may 1995 company established comprehensive involuntary severance package salaried employees lose positions result initiatives company recognizing cost associated employee terminations accordance emerging issues task force consensus 943 management identifies positions eliminated severance payments made period exceed twenty months december 31 1995 management decided eliminate 1018 positions recognition severance costs resulted charge operations 1995 512 million december 31 1995 507 employees terminated severance payments totaling 87 million paid company estimates staffing reductions result annual savings net outsourcing costs range 50 million 60 million savings reflected lower construction expenditures well lower operation maintenance expenses effort minimize exposure potential stranded investment company evaluating longterm purchased power contracts negotiating modifications terms including cancellations determined economically advantageous company also negotiated settlements several parties terminate rights sell power company cost contract cancellations negotiated settlements 81 million 1995 based contract terms estimated quantities power would otherwise delivered cancellation contracts rights sell power company effect reducing companys future purchased power costs including energy payments 214 million annually cost alternative sources power might ultimately required result settlements expected significantly less 214 million annual basis restructuring charges reported 1995 included 373 million cancellation project construct facility handle low level radioactive waste companys north anna power station result reevaluating handling low level radioactive waste company concluded facility completed due additional capital investment required decreased company volumes low level radioactive waste resulting improvements station procedures availability economical offsite processing regulated utility virginia power provides service customers rates based cost operations opportunity earn return shareholders investment time company reviews cost providing regulated services files information certain regulatory commissions jurisdiction company regulatory commissions may initiate proceedings review rates charged company jurisdictional customers incurrence restructuring charges savings resulting therefrom subsequent periods elements companys cost operations accordingly vision 2000 costs related savings considered future review companys overall regulatory cost service q commitments contingencies company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies regarding matters arising ordinary course business involve substantial amounts management opinion final disposition proceedings material adverse effect results operations financial position company federal energy regulatory commission audit ferc recently conducted compliance audit companys financial statements years 1990 1994 company received preliminary draft audit report certain compliance exceptions noted company supplied information ferc staff relating preliminary exceptions final audit report issued based information available time disposition issues expected significant effect companys financial position results operations retrospective premium assessments several companys nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note c consolidated financial statements construction program company made substantial commitments connection construction program nuclear fuel expenditures estimated total 5693 million excluding afc 1996 additional financing contemplated connection program purchased power contracts since 1984 company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 67 nonutility purchase contracts combined dependable summer capacity 3493 mw 66 projects aggregating 3295 mw operational end 1995 remaining project become operational 1998 table reflects companys minimum commitments december 31 1995 power purchases utility nonutility suppliers addition minimum purchase commitments table contracts company may purchase option additional power needed actual payments purchased power including economy emergency limited term shortterm longterm purchases years 1995 1994 1993 1093 million 1025 million 958 million respectively fuel purchase commitments companys estimated fuel purchase commitments next five years system generation follows millions 1996 348 1997 319 1998 205 1999 137 2000 151 sale power november 26 1991 company odec signed agreement whereby company provide 100 mw firm capacity associated energy commercial operation clover unit 2 currently scheduled april 1996 december 31 1996 whichever occurs first addition company diversity exchange agreement aps delivers 200 mw virginia power summer virginia power delivers 200 mw aps winter company entered agreements supply wholesale power various terms firm basis certain upcoming winter summer months agreements company following commitments environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations company costs historically recovered ratemaking process however material costs incurred recovered rates companys results operations financial condition could adversely impacted site remediation epa identified company several entities potentially responsible parties prps two superfund sites located kentucky pennsylvania estimated future remediation costs sites range 465 million 1346 million companys proportionate share cost expected range 05 million 67 million based upon allocation formulas volume waste shipped sites december 31 1995 company accrued reserve 14 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay costs apportioned company dominion resources along consolidated natural gas remedial action responsibilities remaining two coal tar sites company accrued 2 million reserve meet estimated liability based site studies investigations performed sites addition december 13 1995 civil action instituted city norfolk virginia power landowner alleges property contaminated toxic pollutants originating one sites owned city norfolk plaintiff seeks compensatory damages 10 million punitive damages 5 million virginia power company filed answer denying liability january 10 1996 company generally seeks recover costs associated environmental remediation third party insurers december 31 1995 pending possible claims recognized asset offset recorded obligations company r fair value financial instruments company used available market information appropriate valuation methodologies estimate fair value class financial instrument practicable estimate fair value estimates necessarily indicative amounts company could realize market exchange addition use different market assumptions may material effect estimated fair value amounts cash equivalents pollution control project funds shortterm debt carrying amount items approximates fair value short maturity nuclear decommissioning trust funds fair value based available market information generally average bid asked price first refunding mortgage bonds pollution control bonds fair value based market quotations mediumterm notes valued discounting remaining cash flows rate estimated issue yield curve rate estimated relate treasury bond rates specific issues corresponding maturities money market municipal pollution control notes variable interest rates set fair value approximates carrying value preferred stock subject mandatory redemption fair value based market quotations estimated discounting dividend principal payments representative issue series average remaining life series preferred securities subsidiary trust fair value based market quotations quarterly financial data unaudited following amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions rate relief factors part vision 2000 program see note p consolidated financial statements company recorded 1179 million restructuring charges 1995 restructuring charges included severance costs purchase power contract cancellation negotiated settlement costs capital project cancellation costs incurred directly result vision 2000 initiatives company expensed 35 million 18 million 306 million 82 million first second third fourth quarters respectively impact writeoff reduced balance available common stock 23 million 11 million 199 million 533 million first second third fourth quarters respectively 1994 company offered early retirement program employees aged 50 older offered voluntary separation program regular fulltime employees approximately 1400 employees accepted offers programs costs associated programs 901 million company capitalized 259 million based upon regulatory precedent expensed 28 million 104 million 51 million second third fourth quarters respectively impact writeoff reduced balance available common stock 18 million 67 million 331 million second third fourth quarters respectively item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2013 2012 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2013 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2012 based criteria established internal controlintegrated framework 1992 issued committee sponsoring organizations treadway commission report dated february 27 2014 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 27 2014 dominion resources inc consolidated statements income 1 recast reflect brayton point kincaid discontinued operations described note 3 consolidated financial statements eps amounts reflect per share impact recast 192 006 2012 2011 respectively 2 includes income tax benefit 43 million 692 million 33 million 2013 2012 2011 respectively 2012 includes impairment charges 16 billion related brayton point kincaid see note 6 additional information accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 billion shares authorized 581 million shares 576 million shares outstanding december 31 2013 2012 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements equity 1 includes subsidiary preferred dividends related noncontrolling interests 17 million 16 million 17 million 2013 2012 2011 respectively 2 see note 15 consolidation vie october 2011 3 contains shares issued excess principal amounts related converted securities see note 17 information convertible securities 4 primarily includes 28 million shares issued excess principal amounts related converted securities see note 17 information convertible securities 5 see note 17 information 6 see note 15 information accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows accompanying notes integral part dominion’s consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2013 2012 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2013 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 27 2014 virginia electric power company consolidated statements income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 500000 shares authorized december 31 2013 2012 274723 shares outstanding december 31 2013 2012 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power regulated public utility generates transmits distributes electricity sale virginia north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s common stock owned dominion’s operations also include regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states lng import transport storage facility maryland regulated gas transportation distribution operations ohio west virginia dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations second quarter 2013 dominion commenced restructuring producer services business restructuring result termination natural gas trading certain energy marketing activities restructuring intended reduce producer services’ earnings volatility expected material impact dominion’s business dominion manages daily operations three primary operating segments dvp dominion generation dominion energy dominion also reports corporate segment includes corporate service company functions including unallocated debt net impact operations discontinued discussed note 3 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 discussion dominion’s virginia power’s operating segments note 2 significant accounting policies general dominion virginia power make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates dominion’s virginia power’s consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries vies dominion determined primary beneficiary dominion virginia power report certain contracts instruments investments fair value see note 6 information fair value measurements dominion maintains pension postretirement benefit plans virginia power participates certain plans see note 21 information plans certain amounts 2012 2011 consolidated financial statements footnotes reclassified conform 2013 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion inclusive virginia power applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers companies collect sales consumption consumer utility taxes however amounts excluded revenue dominion’s customer receivables december 31 2013 2012 included 555 million 411 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2013 2012 included 395 million 348 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers primary types sales service activities reported operating revenue dominion follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity  regulated gas sales consist primarily stateregulated retail natural gas sales related distribution services  nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity  gas transportation storage consists primarily regulated sales gathering transmission distribution storage services associated derivative activity also included regulated gas distribution charges retail distribution service customers opting alternate suppliers  revenue consists primarily sales ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences virginia power’s actual electric fuel purchased energy expenses dominion’s purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed virginia power participates intercompany tax sharing agreement dominion subsidiaries current income taxes based taxable income loss determined separate company basis accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities dominion virginia power recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets dominion virginia power recognize changes estimated interest payable net underpayments income taxes interest expense changes interest receivable related net overpayments income taxes estimated penalties may result settlement uncertain tax positions recognized income consolidated statements income 2013 dominion recognized interest income 3 million interest expense 10 million penalties 2012 dominion recognized interest income 8 million interest expense 3 million reduction penalties less 1 million 2011 dominion recognized interest income 12 million interest expense 7 million reduction penalties less 1 million dominion accrued interest receivable 5 million interest payable 15 million penalties payable less 1 million december 31 2013 interest receivable 5 million interest payable 10 million penalties payable less 1 million december 31 2012 virginia power’s interest penalties immaterial 2013 2012 2011 virginia power recognized interest income 12 million penalties immaterial december 31 2013 virginia power’s consolidated balance sheet included 3 million state income taxes receivable 22 million federal state income taxes payable 12 million noncurrent state income taxes receivable 28 million noncurrent federal state income taxes payable december 31 2012 virginia power’s consolidated balance sheet included 10 million federal income taxes payable 36 million noncurrent federal state income taxes payable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment december 31 2013 2012 dominion’s accounts payable included 38 million 53 million respectively checks outstanding yet presented payment december 31 2013 2012 virginia power’s accounts payable included 21 million 30 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion virginia power use derivative instruments futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations combined notes consolidated financial statements continued derivatives exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance dominion virginia power offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 620 million 212 million associated cash collateral december 31 2013 2012 respectively dominion margin liabilities 2 million 4 million associated cash collateral december 31 2013 2012 respectively virginia power margin assets 11 million 18 million associated cash collateral december 31 2013 2012 respectively virginia power’s margin liabilities associated cash collateral material december 31 2013 2012 see note 7 information offsetting derivatives manage price risk dominion virginia power hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates part dominion’s strategy market energy manage related risks also manages portfolio commoditybased financial derivative instruments held trading purposes dominion uses established policies procedures manage risks associated price fluctuations energy commodities uses various derivative instruments reduce risk creating offsetting market positions statement income presentation  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges based nature underlying risk virginia power’s generation operations changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments dominion virginia power designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges dominion virginia power formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges derivative instruments accounted fair value hedges cash flow hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority dominion’s virginia power’s hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas energyrelated products companies also use foreign currency contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions dominion virginia power hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable fair value hedgesdominion also uses fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition dominion virginia power designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value derivative gains losses hedged item reclassified earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2013 2012 2011 dominion capitalized interest costs afudc property plant equipment 66 million 91 million 85 million respectively 2013 2012 2011 virginia power capitalized afudc property plant equipment 33 million 31 million 31 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2013 2012 2011 virginia power recorded 32 million 37 million 20 million afudc related projects respectively property subject costofservice rate regulation including virginia power electric distribution electric transmission generation property certain dominion natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation retired abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable retired abandoned dominion virginia power property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives dominion’s virginia power’s average composite depreciation rates utility property plant equipment follows dominion’s nonutility property plant equipment depreciated using straightline method following estimated useful lives nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets dominion virginia power perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairments related certain longlived assets intangible assets finite lives regulatory assets liabilities accounting dominion’s regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made asset retirement obligations dominion virginia power recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts generally capitalized costs related tangible longlived assets since combined notes consolidated financial statements continued relevant market information available fair value estimated using discounted cash flow analyses least annually companies evaluate key assumptions underlying aros including estimates amounts timing future cash flows associated retirement activities aros adjusted significant changes assumptions identified dominion reports accretion aros depreciation asset retirement costs associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros virginia power reports accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense consolidated statements income amortization debt issuance costs dominion virginia power defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities  trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income  availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments dominion virginia power account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include  equity method investments dominion virginia power ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets dominion virginia power record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method  cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investmentsspecial considerations  recognition provisions fasb’s otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities  debt securitiesusing information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss companies record credit loss earnings remaining portion unrealized loss aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors  equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since companies limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory used east ohio gas distribution operations valued using lifo method lifo method stored gas inventory valued 7 million 24 million december 31 2013 december 31 2012 respectively based average price gas purchased 2013 2012 cost replacing current portion stored gas inventory exceeded amount stated lifo basis approximately 77 million 69 million respectively stored gas inventory held hope certain nonregulated gas operations valued using weightedaverage cost method gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion values imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion parties reported current assets imbalances dominion owes parties reported current liabilities consolidated balance sheets goodwill dominion evaluates goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount note 3 dispositions sale illinois gas contracts june 2013 dominion completed sale illinois gas contracts sales price approximately 32 million subject postclosing adjustments sale resulted gain approximately 29 million 18 million aftertax net 3 million writeoff goodwill included operations maintenance expense dominion’s consolidated statement income sale illinois gas contracts qualify discontinued operations classification considered component applicable accounting guidance sale brayton point kincaid equity method investment elwood march 2013 dominion entered agreement energy capital partners sell brayton point kincaid equity method investment elwood first second quarters 2013 brayton point’s kincaid’s assets liabilities disposed classified held sale adjusted estimated fair value less cost sell resulting impairment charges totaling 48 million 28 million aftertax included discontinued operations dominion’s consolidated statements income periods dominion used market approach estimate fair value brayton point’s kincaid’s longlived assets considered level 2 fair value measurements given based agreedupon sales price dominion’s 50 interest elwood equity method investment therefore accordance applicable accounting guidance carrying amount investment classified held sale equity earnings investment reported discontinued operations august 2013 dominion completed sale received proceeds approximately 465 million net transaction costs sale resulted 35 million 25 million aftertax gain attributable equity method investment elwood included income dominion’s consolidated statement income partially offset 17 million 18 million aftertax loss attributable brayton point kincaid includes 16 million writeoff goodwill reflected loss discontinued operations dominion’s consolidated statement income see note 6 impairments related power stations following table presents selected information regarding results operations brayton point kincaid reported discontinued operations dominion’s consolidated statements income 1 includes 64 million charges related defeasance brayton point debt early redemption kincaid debt 2013 see note 17 information 2 includes longlived asset impairment charge 16 billion sale salem harbor state line august 2012 dominion completed sale salem harbor second quarter 2012 assets liabilities disposed classified held sale adjusted estimated fair value less cost sell also second quarter 2012 dominion completed sale state line ceased operations march 2012 see note 6 impairments related power stations following table presents selected information regarding results operations salem harbor state line reported discontinued operations dominion’s consolidated statements income 1 includes longlived asset impairment charges 55 million 2011 combined notes consolidated financial statements continued note 4 operating revenue dominion’s virginia power’s operating revenue consists following note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently dominion virginia power routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material january 2 2013 us federal legislation enacted provides extension 50 bonus depreciation allowance qualifying capital expenditures incurred 2013 september 2013 irs issued final regulations provide guidance taxpayers treatment amounts paid acquire produce improve tangible property including whether expenditures deducted repairs capitalized depreciated tax returns final regulations include number safe harbor tax accounting methods taxpayer may choose elect adopted challenged irs addition irs reissued certain temporary regulations also issued concurrently proposed regulations regarding property dispositions final regulations effective tax years beginning january 1 2014 although changes tax accounting methods would effective prospectively implementation certain changes require calculation cumulative effect change prior years irs procedural guidance issued january 2014 cumulative effect increases taxable income includible taxable income fouryear period beginning year change however cumulative effect decreases taxable income entire amount includible taxable income year change dominion virginia power evaluated tax accounting method changes may elected required final regulations december 31 2013 17 million deferred tax liabilities classified current companies’ consolidated balance sheets representing cumulative adjustment amounts expected reflected income tax purposes twelve months ending december 31 2014 tax accounting method changes 2014 expected materially affect companies’ cash flows results operations financial condition continuing operations details income tax expense continuing operations including noncontrolling interests follows 1 2012 dominion’s current federal income tax expense continuing discontinued operations includes 195 million benefit related carryback 2012 net operating loss 2011 dominion’s deferred federal income tax expense includes recognition 346 million benefit including 51 million related discontinued operations 2011 net operating loss expected used reduce taxable income future years 2 2011 virginia power’s deferred federal income tax expense includes 54 million benefit related portion 2011 net operating loss expected used future years also virginia power’s current federal income tax expense reflects amounts 2011 net operating losses realized participation tax sharing agreement dominion subsidiaries continuing operations including noncontrolling interests statutory us federal income tax rate reconciles dominion’s virginia power’s effective income tax rate follows dominion’s effective tax rate 2012 reflects 20 million reduction valuation allowance related state operating loss carryforwards attributable fairless considering results fairless’ operations recent years forecast future operating results reflecting dominion’s planned purchase facility dominion concluded likely tax benefit operating losses would realized dominion acquired fairless 2013 continue evaluate likelihood realizing tax benefits quarterly basis companies’ deferred income taxes consist following december 31 2013 dominion following deductible loss credit carryforwards • federal loss carryforwards 12 billion expire unutilized period 2021 2033 • federal investment tax credits 58 million expire unutilized 2033 • federal production tax credits 45 million expire unutilized period 2031 2033 • state loss carryforwards 15 billion expire unutilized period 2014 2033 valuation allowance 763 million carryforwards established • state minimum tax credits 133 million expire • state investment tax credits 7 million expire unutilized 2017 december 31 2013 virginia power following deductible loss credit carryforwards • federal loss carryforwards 282 million expire unutilized period 2031 2033 combined notes consolidated financial statements continued • federal production tax credits 5 million expire unutilized period 2031 2033 • state loss carryforwards 2 million expire unutilized period 2031 2033 reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion subsidiaries unrecognized tax benefits 126 million 167 million 184 million december 31 2013 2012 2011 respectively dominion change unrecognized tax benefits decreased income tax expense 29 million 2013 increased income tax expense 1 million 51 million 2012 2011 respectively virginia power unrecognized tax benefits 8 million 13 million 20 million december 31 2013 2012 2011 respectively virginia power change unrecognized tax benefits increased income tax expense 4 million 1 million 6 million 2013 2012 2011 respectively january 2012 appellate division irs informed dominion joint committee completed review settlement tax years 2004 2005 dominion consolidated subsidiaries since measurement unrecognized tax benefits 2011 considered results completed settlement negotiations dominion’s results operations 2012 affected april 2012 irs issued revenue agent report dominion’s consolidated tax returns tax years 2006 2007 reflecting resolution issues except one subsequently settled 2012 irs examination tax years 2008 2009 2010 began first quarter 2012 later expanded include examination 2011 tax year audit concluded late 2013 resulting payment 46 million however amount refund previously received dominion carryback 2008 losses 2007 adjusted loss carryback adjusted submitted joint committee review dominion anticipates resolution matter early 2014 adjustments accordingly except 2007 2008 earliest tax year remaining open examination dominion’s federal tax returns 2012 effective 2014 tax year dominion accepted cap method identifying resolving tax issues open cooperative transparent interaction irs taxpayers prior filing return cap dominion opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions accepted irs precap plan irs audit tax years 2012 2013 begin early 2014 audit protection afforded tax accounting method changes implemented september 2013 irs regulations settlement negotiations expiration statutes limitations reasonably possible unrecognized tax benefits could decrease 2014 115 million dominion 25 million virginia power changes occur revisions accrual interest tax underpayments overpayments earnings could increase 65 million dominion 7 million virginia power otherwise regard 2013 prior years dominion virginia power cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2014 major states dominion operates earliest tax year remaining open examination follows 1 virginia state considered major virginia power’s operations dominion virginia power also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes operating losses tax credits generated years statute limitations expired amounts subject examination discontinued operations details income tax expense discontinued operations follows dominion’s effective tax rate 2013 reflects impact goodwill written sale brayton point kincaid deductible tax purposes dominion’s effective tax rate 2011 reflects expectation state line’s deferred tax assets including 2011 operating losses realized state line’s separately filed state tax returns note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact dominion’s virginia power’s nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion virginia power apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments including held dominion’s rabbi pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values inputs assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions dominion’s virginia power’s commodity derivative valuations prepared erm department erm department reports directly companies’ cfo erm department creates daily marktomarket valuations companies’ derivative transactions using computerbased statistical models inputs go market valuations transactional information stored systems record market pricing information resides data warehouse databases majority forward prices automatically uploaded data warehouse databases various thirdparty sources inputs obtained thirdparty sources evaluated reliability considering reputation independence market presence methodology used thirdparty forward prices available thirdparty sources erm department models forward prices based available market data team consisting risk management risk quantitative analysts meets business day assess validity market prices marktomarket valuations meeting changes marktomarket valuations period examined qualified historical expectations discrepancies identified process marktomarket valuations market pricing information evaluated adjusted necessary options contracts optionlike characteristics observable pricing information available external sources companies generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value companies use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity foreign currency derivative contracts  forward commodity prices  forward foreign currency prices combined notes consolidated financial statements continued  transaction prices  price volatility  price correlation  mean reversion  volumes  commodity location  load shaping  usage factors  interest rates  credit quality counterparties dominion virginia power  credit enhancements  time value interest rate derivative contracts  interest rate curves  credit quality counterparties dominion virginia power  volumes  credit enhancements  time value investments  quoted securities prices indices  securities trading information including volume restrictions  maturity  interest rates  credit quality  nav alternative investments commoncollective trust funds dominion virginia power regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels  level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments majority exchangetraded derivatives exchangelisted equities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include nonexchange traded derivatives overthecounter commodity forwards swaps interest rate swaps foreign currency forwards options restricted cash equivalents certain treasury securities money market funds commoncollective trust funds corporate state municipal debt securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 dominion virginia power consist longdated commodity derivatives ftrs modeled commodity derivatives additional instruments categorized level 3 dominion include ngls natural gas peaking options alternative investments consisting investments partnerships joint ventures alternative investments held benefit plan trust funds fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability derivative contracts dominion virginia power recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ngl derivatives market illiquidity requires valuation based proxy markets always correlate actual instrument therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions generally considered liquid markets modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets alternative investments categorized level 3 due absence quoted market prices illiquidity longterm nature assets investments generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value state ments provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date dominion virginia power enter certain physical financial forwards futures options full requirements contracts considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures full requirements contracts discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads full requirements contracts add load shaping usage factors addition discounted cash flow model inputs option model used value level 3 physical financial options option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices price correlations mean reversion speeds original sales prices volumes level 3 fair value measurements forward market prices implied price volatilities price correlations load shaping mean reversion speeds usage factors considered unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty pricing sources combined notes consolidated financial statements continued following table presents dominion’s virginia power’s quantitative information level 3 fair value measurements range weighted average presented dollars market price inputs years mean reversion speeds percentages price volatility price correlations load shaping usage factors 1 averages weighted volume 2 includes basis 3 information represents virginia power’s quantitative information level 3 fair value measurements 4 includes ngls 5 represents market prices beyond defined terms levels 1 2 6 represents volatilities unrepresented published markets 7 represents intraprice correlations markets exist 8 represents meanreverting property price simulation modeling 9 converts block monthly loads 24hour load shapes 10 represents expected increase decrease sales volumes compared historical usage 11 range market prices result large variability hourly power prices peak offpeak hours sensitivity fair value measurements changes significant unobservable inputs follows significant unobservable inputs position change input impact fair value measurement market price buy increase decrease gain loss market price sell increase decrease loss gain price volatility buy increase decrease gain loss price volatility sell increase decrease loss gain price correlation buy increase decrease loss gain price correlation sell increase decrease gain loss load shaping sell1 increase decrease loss gain usage factor sell2 increase decrease gain loss mean reversion buy increase decrease loss gain mean reversion sell increase decrease gain loss 1 assumes contract gain position load increases peak hours 2 assumes contract gain position nonrecurring fair value measurements natural gas facilities june 2013 dominion purchased certain natural gas infrastructure facilities previously leased third parties purchase price based terms lease exceeded current market pricing result purchase price expected losses dominion recorded impairment charge 49 million 29 million aftertax operations maintenance expense consolidated statements income write longlived assets estimated fair values less 1 million management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion used income approach discounted cash flows estimate fair value assets impairment test considered level 3 fair value measurement due use significant unobservable inputs including estimates future production commodity prices merchant power stations third quarter 2012 dominion decided pursue sale brayton point kincaid well 50 interest elwood equity method investment since dominion unlikely operate brayton point kincaid facilities estimated useful lives dominion evaluated power stations recoverability probability weighted approach concluded carrying values facilities impaired september 30 2012 december 31 2012 dominion updated recoverability analysis brayton point kincaid reflect bids received updated probability weighting result updated evaluation dominion recorded impairment charge approximately 16 billion 10 billion aftertax included loss discontinued operations consolidated statement income write brayton point’s kincaid’s longlived assets estimated fair value approximately 216 million dominion used market approach estimate fair value brayton point’s kincaid’s longlived assets considered level 2 fair value measurement given based bids received see note 3 information regarding sale brayton point kincaid dominion’s equity method investment elwood including additional impairment april 2011 dominion announced would pursue sale kewaunee since able move forward original plan grow nuclear fleet midwest take advantage economies scale dominion unable find buyer facility addition power purchase agreements two utilities contracted buy kewaunee’s generation expired december 2013 time low wholesale electricity prices region september 30 2012 dominion expected would permanently cease generation operations kewaunee 2013 commence decommissioning facility result dominion evaluated kewaunee impairment since likely kewaunee would retired end previously estimated useful life management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion used income approach discounted cash flows estimate fair value kewaunee’s longlived assets considered level 3 fair value measurement due use significant unobservable inputs including estimates future power commodity prices result evaluation september 2012 dominion recorded impairment charges 435 million 281 million aftertax largely reflected operations maintenance expense consolidated statement income primarily reflects 378 million 244 million aftertax charge full impairment kewaunee’s longlived assets write materials supplies inventories 33 million 21 million aftertax 24 million 16 million aftertax charge related severance costs decision decommission kewaunee approved dominion’s board directors october 2012 consideration factors discussed made uneconomic kewaunee continue operations kewaunee ceased operations decommissioning activities commenced may 2013 march 2011 dominion determined unlikely state line would participate may 2011 pjm capacity base residual auction would commit state line’s capacity june 2014 may 2015 determination reflected expectation margins coalfired generation remain compressed 2014 2015 period combination expectation state line may impacted time period environmental regulations would likely require significant capital expenditures result dominion evaluated state line impairment since likely state line would retired end previously estimated useful life result evaluation dominion recorded impairment charge 55 million 39 million aftertax reflected loss discontinued operations consolidated statement income write state line’s longlived assets estimated fair value less 1 million state line retired march 2012 sold second quarter 2012 management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion used income approach discounted cash flows estimate fair value state line’s longlived assets considered level 3 fair value measurement due use significant unobservable inputs including estimates future power commodity prices second quarter 2012 agreement reached sell salem harbor assets liabilities disposed classified held sale adjusted estimated fair value less cost sell resulted pretax charge 27 million 16 million aftertax included loss discontinued operations dominion’s consolidated statement income considered level 2 fair value measurement based negotiated sales price salem harbor sold third quarter 2012 emissions allowances third quarter 2011 dominion virginia power evaluated so2 emissions allowances expected consumed generating units potential impairment due epa’s issuance csapr discussed note 22 prior issuance csapr dominion virginia power held 57 million 43 million respectively so2 emissions allowances obtained arp cair compliance due csapr’s establishment new allowance program elimination cair dominion virginia power so2 emissions allowances needed arp compliance result evaluation dominion virginia power recorded impairment charge write emissions allowances estimated fair value less 1 million dominion 57 million 34 million aftertax charge recorded partially operations maintenance expense 43 million 26 million aftertax partially loss discontinued operations 14 million 8 million aftertax consolidated statement income virginia power 43 million 26 million aftertax charge recorded operations maintenance expense consolidated statement income estimate value emissions allowances dominion utilized market approach obtaining broker quotes validate csapr’s impact emissions allowance prices combined notes consolidated financial statements continued ever due limited market activity future so2 vintage year allowances considered level 3 fair value measurement recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s pension postretirement benefit plans presented note 21 dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category following table presents dominion’s gains losses included earnings level 3 fair value category virginia power following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category including attributable change unrealized gains losses relating assets still held reporting date classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2013 2012 2011 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2013 2012 2011 fair value financial instruments substantially dominion’s virginia power’s financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents customer receivables shortterm debt accounts payable representative fair value shortterm nature instruments dominion’s virginia power’s financial instruments recorded fair value carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms combined notes consolidated financial statements continued remaining maturities fair value measurements classified level 2 carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes amounts represent unamortized discount premium december 31 2013 2012 includes valuation certain fair value hedges associated dominion’s fixed rate debt approximately 55 million 93 million respectively 3 carrying amount includes amounts represent unamortized discount premium 4 includes deferred issuance expenses 2 million december 31 2013 2012 note 7 derivatives hedge accounting activities dominion virginia power exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well currency exchange interest rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross dominion’s virginia power’s consolidated balance sheets dominion’s virginia power’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit cases forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized dominion’s virginia power’s consolidated balance sheets well letters credit forms security included tables subject offset master netting similar arrangements would reduce net exposure dominion tables present dominion’s derivative asset liability balances type financial instrument effects offsetting 1 december 31 2013 total derivative asset balance contains 687 million current assets presented current derivative assets dominion’s consolidated balance sheet 203 million noncurrent assets presented deferred charges assets dominion’s consolidated balance sheet december 31 2012 total derivative asset balance contains 518 million current assets presented current derivative assets dominion’s consolidated balance sheet 310 million noncurrent assets presented deferred charges assets dominion’s consolidated balance sheet 1 december 31 2013 total derivative liability balance contains 828 million current liabilities presented current derivative liabilities dominion’s consolidated balance sheet 274 million noncurrent liabilities presented deferred credits liabilities dominion’s consolidated balance sheet december 31 2012 total derivative liability balance contains 510 million current liabilities presented current derivative liabilities dominion’s consolidated balance sheet 151 million noncurrent liabilities presented deferred credits liabilities dominion’s consolidated balance sheet combined notes consolidated financial statements continued following table presents volume dominion’s derivative activity december 31 2013 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil years ended december 31 2013 2012 2011 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2013 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates fair value gains losses derivative instruments following tables present fair values dominion’s derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheets following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 2 amounts recorded dominion’s consolidated statements income classified interest related charges combined notes consolidated financial statements continued virginia power tables present virginia power’s derivative asset liability balances type financial instrument effects offsetting 1 december 31 2013 total derivative asset balance contains 53 million current assets presented current assets virginia power’s consolidated balance sheet december 31 2012 total derivative asset balance contains 6 million current assets presented current assets virginia power’s consolidated balance sheet 1 december 31 2013 total derivative liability balance contains 12 million current liabilities presented current derivative liabilities virginia power’s consolidated balance sheet december 31 2012 total derivative liability balance contains 33 million current liabilities presented current derivative liabilities virginia power’s consolidated balance sheet 1 million noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheet following table presents volume virginia power’s derivative activity december 31 2013 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions years ended december 31 2013 2012 2011 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable time value options changes differences spot prices forward prices combined notes consolidated financial statements continued fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases 3 amounts recorded virginia power’s consolidated statements income classified interest related charges note 8 earnings per share following table presents calculation dominion’s basic diluted eps 1 dilutive securities consist primarily contingently convertible senior notes see note 17 information dominion’s 2013 series equity units 2013 series b equity units issued june 2013 potentially dilutive securities excluded calculation diluted eps year ended december 31 2013 see note 17 information potentially dilutive securities excluded calculation diluted eps years ended december 31 2012 2011 note 9 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 107 million 95 million december 31 2013 2012 respectively costmethod investments held dominion’s rabbi trusts totaled 10 million 14 million december 31 2013 2012 respectively decommissioning trust securities dominion holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes pending sales securities 11 million pending purchases securities 6 million december 31 2013 2012 respectively 3 fair value securities unrealized loss position 604 million 195 million december 31 2013 2012 respectively combined notes consolidated financial statements continued fair value dominion’s marketable debt securities held nuclear decommissioning trust funds december 31 2013 contractual maturity follows presented selected information regarding dominion’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 dominion recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 18 million 4 million 6 million december 31 2013 2012 2011 respectively equity method investments dominion accounts equity method accounting follows 1 following 2013 sale elwood december 31 2013 dominion retained 05 cost method investment december 31 2012 dominion owned 50 elwood therefore considered equity method investment 2 dominion 50 million commitment invest clean power technology businesses 2018 dominion’s equity earnings investments totaled 14 million 25 million 35 million 2013 2012 2011 respectively dominion received distributions investments 33 million 58 million 55 million 2013 2012 2011 respectively december 31 2013 2012 carrying amount dominion’s investments exceeded dominion’s share underlying equity net assets approximately 36 million 30 million respectively 28 million differences relate dominion’s investments wind projects primarily reflect capitalized interest construction excess cash contributions book value development assets contributed dominion’s partners projects amortized useful lives underlying assets remaining 8 million differences reflect equity method goodwill amortized blue racer december 2012 dominion formed joint venture caiman provide midstream services natural gas producers operating utica shale region ohio portions pennsylvania joint venture blue racer equal partnership dominion caiman dominion contributing midstream assets caiman contributing private equity capital return december 2012 contribution assets joint venture dominion received 50 interest blue racer received 115 million cash proceeds resulting gain 72 million 43 million aftertax net transaction fees 9 million recorded operations maintenance expense dominion’s consolidated statement income march 2013 dominion sold line tl404 blue racer received approximately 47 million cash proceeds resulting approximately 25 million 14 million aftertax gain phase 1 natrium natural gas processing fractionation facility completed second quarter 2013 contributed blue racer third quarter 2013 resulting increased equity method investment blue racer 473 million also third quarter 2013 dominion sold line tpl2a line tl388 blue racer received approximately 83 million cash proceeds resulting approximately 75 million 42 million aftertax gain fourth quarter 2013 dominion sold western system blue racer 30 million cash proceeds resulting approximately 4 million 2 million aftertax gain dominion ngl pipelines llc contributed january 2014 blue racer prior commencement service resulting increased equity method investment 155 million joint venture leveraging dominion’s existing presence utica region significant additional new capacity designed meet producer needs utica shale acreage developed midstream services offered include gathering processing fractionation ngl transportation marketing addition assets already sold contributed dominion expects sell additional east ohio gathering assets blue racer virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes pending sales securities 6 million december 31 2013 2012 3 fair value securities unrealized loss position 299 million 104 million december 31 2013 2012 respectively fair value virginia power’s debt securities december 31 2013 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities 1 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments follows 1 amounts include otherthantemporary impairment losses debt securities 9 million 2 million 4 million december 31 2013 2012 2011 respectively investments dominion virginia power hold restricted cash equivalent balances primarily consist money market fund investments held trust purpose funding certain qualifying construction projects december 31 2013 2012 dominion 11 million 37 million respectively virginia power 8 million 10 million respectively restricted cash equivalents balances presented current assets investments consolidated balance sheets combined notes consolidated financial statements continued note 10 property plant equipment major classes property plant equipment respective balances companies follows 1 2012 amount includes 957 million due consolidation vie see note 15 information jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2013 follows 1 units jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income assignment marcellus acreage december 2013 dti closed agreements two natural gas producers convey approximately 100000 acres marcellus shale development rights underneath several natural gas storage fields agreements provide payments dti subject customary adjustments approximately 200 million period nine years overriding royalty interest gas produced acreage 2013 dominion received approximately 100 million cash proceeds resulting approximately 20 million 12 millionafter tax gain approximately 80 million deferred revenue recognized remaining terms agreements note 11 goodwill intangible assets goodwill changes dominion’s carrying amount segment allocation goodwill presented 1 goodwill recorded corporate segment allocated primary operating segments goodwill impairment testing purposes 2 goodwill amounts contain accumulated impairment losses 3 recast reflect nonregulated retail energy marketing operations dominion generation segment 4 see note 3 discussion dominion’s dispositions related goodwill writeoffs 5 related assets sold contributed blue racer intangible assets dominion’s virginia power’s intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 72 million 82 million 78 million 2013 2012 2011 respectively 2013 dominion acquired 81 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 10 years amortization expense virginia power’s intangible assets 22 million 2013 2012 2011 2013 virginia power acquired 14 million intangible assets primarily representing software estimated weightedaverage amortization period 5 years components intangible assets follows annual amortization expense intangible assets estimated follows note 12 regulatory assets liabilities regulatory assets liabilities include following 1 reflects deferrals electric transmission ferc formula rate deferral costs associated certain current prospective rider projects see note 13 information 2 reflects unrecovered gas costs dominion’s regulated gas operations recovered annual filings applicable regulatory authority combined notes consolidated financial statements continued 3 amounts recovered annual surcharge reimburse virginia power incremental sales taxes incurred due repeal public service company sales tax exemption virginia 4 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 5 reflects costs anticipated recovered north carolina base rates certain coal units expected retired 6 current regulatory assets presented current assets dominion’s consolidated balance sheets 7 represents unrecognized pension postretirement benefit costs expected recovered future rates generally expected remaining service period plan participants certain dominion’s rateregulated subsidiaries 8 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 9 primarily reflects costs recognized excess amounts included regulated rates charged dominion’s regulated gas operations rates updated reflect change accounting method postretirement benefit costs 10 pipp eligible customers receive energy assistance based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rider according east ohio tariff provisions see note 13 information regarding pipp 11 primarily reflects deferred fuel expenses virginia jurisdiction virginia power’s generation operations 2013 amount includes approximately 5 million related doe claims see note 13 information 12 current regulatory liabilities presented current liabilities dominion’s consolidated balance sheets 13 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 14 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aro december 31 2013 approximately 129 million dominion’s 63 million virginia power’s regulatory assets represented past expenditures currently earn return majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business dominion virginia power involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect dominion’s virginia power’s financial position liquidity results operations fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities dominion’s merchant generators sell electricity pjm miso isone wholesale markets dominion’s marketbased sales tariffs authorized ferc virginia power purchases ferc marketbased rate authority sells electricity wholesale market addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure july 2008 virginia power filed application ferc requesting revision revenue requirement reflect additional roe incentive adder eleven electric transmission enhancement projects proposal cost transmission service would increase include roe incentive adder eleven projects beginning date project enters commercial operation january 1 2009 virginia power proposed incentive 15 four projects including meadow brooktoloudoun carsontosuffolk lines completed 2011 incentive 125 seven projects august 2008 ferc approved proposal effective september 1 2008 incentives included pjm tariff billing incentives made accordingly 2012 pjm canceled one eleven projects estimated cost 7 million total cost ten projects included virginia power’s formula rate 2014 857 million remaining projects completed 2012 numerous parties sought rehearing ferc order august 2008 may 2012 ferc issued order denying rehearing requests july 2012 north carolina commission filed appeal ferc orders us court appeals fourth circuit january 2014 court rejected appeal affirmed ferc’s decision granting incentives march 2010 odec ncemc filed complaint ferc virginia power claiming approximately 223 million transmission costs related specific projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate odec ncemc requested ferc establish procedures determine amount costs applicable project excluded virginia power’s rates october 2010 ferc issued order dismissing complaint part established hearings settlement procedures remaining part complaint february 2012 virginia power submitted ferc settlement agreement resolve issues set hearing transmission customer parties proceeding joined settlement virginia commission north carolina commission public staff north carolina commission parties settlement agreed oppose settlement accepted ferc may 2012 provides payment virginia power transmission customer parties collectively 250000 per year ten years resolves matters allocation incremental cost certain underground transmission facilities briefed pursuant ferc’s may 2012 order awaits ferc action virginia power cannot predict outcome briefing expected material effect results operations regulatory matters electric regulation virginia regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs environmental compliance conservation energy efficiency programs renewable energy programs also constitutes statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission amended provides enhanced returns capital expenditures specific newly proposed generation projects virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows 2013 biennial review pursuant regulation act march 2013 virginia power submitted base rate filings accompanying schedules support virginia commission’s 2013 biennial review virgina power’s rates terms conditions well virginia power’s earnings 2011 2012 test periods virginia power earnings test analysis reviewed virginia commission reflected roe 1030 generation distribution services earnings combined test periods november 2013 virginia commission issued 2013 biennial review order deciding eleven contested earnings test adjustments virginia commission ruled virginia power earned average roe approximately 1025 generation distribution services combined 2011 2012 test periods roe 50 basis points virginia power’s authorized roe 109 virginia commission authorized deferred recovery earnings test purposes 23 million costs related asset impairments early retirement decisions severe weather events natural disasters amortized 2013 calendar year virginia commission order base rate increase virginia power previously waived right increase determined virginia power revenue sufficiency approximately 280 million projecting annual revenues generated base rates revenues required cover costs service earn fair return part revenue sufficiency determination virginia commission also made findings eleven rate case adjustments addition changes cost capital structure resulted changes virginia power’s rate year revenues expenses virginia power’s rate base generation distribution rate year beginning january 1 2014 virginia power incurred 55 million 37 million aftertax charge connection 2013 biennial review order 2013 biennial review order virginia commission also set roe used virginia power’s 2015 biennial review earnings test analysis earnings generation distribution services combined 2013 2014 test periods applied riders r w b bw c1a c2a pursuant regulation act virginia power’s authorized roe lower average returns reported three previous years less majority comparable utilities southeastern us subject certain limitations described regulation act following statutory peer group analysis virginia commission determined peer group floor roe virginia power 989 held declining increase decrease virginia power’s combined rate return based performance virginia power’s roe earnings test purposes 2015 biennial review rate adjustment clause purposes 100 consistent determination virginia power’s market cost equity 100 virginia fuel expenses may 2013 virginia power submitted annual fuel factor filing virginia commission proposing increase approximately 162 million fuel revenue rate year beginning july 1 2013 june 2013 virginia commission issued order approving rate november 2013 virginia commission approved virginia power’s voluntary request reduce virginia power’s currentlyapproved fuel factor rate 2942 ¢kwh 2572 ¢kwh effective usage december 1 2013 due expected overrecovery fuel costs request expected reduce virginia power’s anticipated fuel recoveries june 30 2014 140 million december 31 combined notes consolidated financial statements continued 2013 virginia power’s consolidated balance sheets reflected 24 million current liabilities 85 million noncurrent regulatory liabilities related overrecovered fuel costs rate adjustment clauses discussion significant riders associated various virginia power projects  2012 virginia commission approved conversion altavista hopewell southampton power stations biomass conjunction approved rider b virginia power proposed approximately 16 million revenue requirement rate year beginning april 1 2014 case pending  2013 virginia commission approved virginia power’s request construct operate brunswick county conjunction approved associated transmission facilities rider bw virginia power proposed approximately 101 million revenue requirement rate year beginning september 1 2014 case pending  virginia commission previously approved rider conjunction virginia city hybrid energy center virginia power proposed approximately 248 million revenue requirement rate year beginning april 1 2014 case pending  virginia commission previously approved rider w conjunction warren county virginia power proposed approximately 101 million total revenue requirement rate year beginning april 1 2014 case pending  virginia commission approved riders c1a c2a connection various dsm programs requested revenue requirements approximately 1 million rider c1a approximately 35 million rider c2a case pending  may 2013 virginia power filed adjustment current rider t1 virginia commission rate year beginning september 1 2013 reflects total revenue requirement approximately 404 million july 2013 virginia commission issued order approving rate bremo power station september 2013 virginia commission issued final order approving amended reissued cpcn would allow virginia power convert bremo units 3 4 using coal natural gas fuel source proposed conversion preserve 227 mw net existing capacity expected cost approximately 53 million excluding financing costs north anna virginia power considering construction third nuclear unit site located north anna april 2013 virginia power decided replace reactor design previously selected potential unit esbwr technology virginia power decides build new unit must first receive col nrc approval virginia commission certain environmental permits approvals virginia power filed first twopart amendment col application nrc july 2013 reflect esbwr technology filed second part amendment december 2013 col expected 2015 virginia power yet committed building new nuclear unit north anna may 2013 bredl filed motion nrc aslb reopen col adjudicatory proceeding relating north anna based new information citing change reactor technology motion propose new contentions asked either proceeding restarted beginning submittal new application renoticing federal register ii proceeding reopened pending submittal new contentions bredl would given extended amount time file july 2013 aslb issued order holding bredl’s motion abeyance aslb noted bredl proposed contentions could determine whether portion motion falls within aslb’s jurisdiction currently limited ruling september 2011 petition filed bredl reopen col proceeding related seismic issues january 2014 virginia power informed aslb parties company’s assessment seismic issues complete previous ruling aslb bredl period 60 days time virginia power informs nrc parties seismic assessment complete submit motion reopen proceeding topic legislation proposed would limit portion costs incurred investorowned electric utility july 1 2007 december 31 2013 developing nuclear power facility offshore wind project recoverable virginia jurisdictional nonjurisdictional customers future rate adjustment clause maximum 30 amount virginia power deferred capitalized costs totaling 570 million december 31 2013 related development third nuclear unit site located north anna proposed legislation enacted 70 costs previously deferred capitalized would recovered virginia jurisdictional nonjurisdictional ratepayers part 2013 2014 base rates upon enactment virginia power would recognize 70 costs previously deferred capitalized net income 2014 remaining deferred capitalized costs well costs incurred december 31 2013 would continue eligible inclusion future rate adjustment clause electric transmission projects january 2013 notice appeal filed supreme court virginia private party regarding virginia commission’s december 2012 order granting cpcn authorizing construction waxpoolbrambletonbeco line october 2013 supreme court virginia issued opinion affirming virginia commission’s decision october 2013 virginia power applied cpcn rebuild within existing rightsofway existing 500 kv loudounpleasant view transmission line loudoun county stated application project needed address nerc reliability standards violations projected occur 2016 replace aging transmission facilities case pending november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton december 2013 virginia power filed motion reconsideration virginia commission notice appeal virginia commission’s order supreme court virginia commission granted reconsideration ordered hearing held january 2014 matter pending virginia commission projected inservice date transmission project delayed december 2015 earliest ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 20 pipeline system approximately 4100 miles 25year period february 2013 east ohio filed application ohio commission adjust cost recovery charge costs associated pir investments calendar year 2012 cumulatively application includes total gross plant investment 2012 148 million cumulative gross plant investment 511 million revenue requirement 67 million ohio commission issued order approving rates april 2013 may 2013 approved pir cost recovery rates became effective november 2013 east ohio filed notice adjust pir cost recovery 2013 costs filing reflects projected gross plant investment 2013 170 million cumulative gross plant investment 681 million estimated revenue requirement approximately 90 million case pending pipp plus program ohio pipp plus program eligible customers receive energy assistance based ability pay bill difference customer’s total bill pipp payment plan amount deferred collected pipp rider accordance rules ohio commission july 2013 ohio commission approved east ohio’s annual update pipp rider reflects refund next year overrecovery accumulated arrearages approximately 91 million march 31 2013 net projected deferred program costs approximately 54 million period april 2013 june 2014 ferc regulation dti fuel settlement mid2013 dti received concerns fuel retainage percentages apparent overrecovery fuel costs certain time periods reflected annual fuel reports december 2013 dti submitted ferc approval stipulation agreement addressing among things reductions fuel retainage percentages february 2014 ferc approved stipulation agreement dti implement reduced fuel retainage percentages effective march 1 2014 dti also provide refunds interest settling customer reflecting value actual quantities fuel retained party january 1 2014 march 1 2014 implementation date agreement expected reduce dti’s revenues approximately 35 million 2014 combined notes consolidated financial statements continued note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain dominion’s virginia power’s longlived assets dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities addition dominion’s aros include plugging abandonment gas oil wells interim retirements natural gas gathering transmission distribution storage pipeline components future abatement asbestos expected disturbed companies’ generation facilities companies also identified recognized aros related retirement dominion’s lng facility dominion’s gas storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed companies’ generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2012 2013 follows 1 includes 15 million 64 million 94 million reported current liabilities december 31 2011 2012 2013 respectively 2 primarily reflects accelerated timing decommissioning kewaunee began 2013 3 primarily reflects lower anticipated nuclear decommissioning costs 4 includes 1 million reported current liabilities 5 primarily reflects effect higher anticipated nuclear decommissioning costs dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2013 2012 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 39 billion 33 billion respectively december 31 2013 2012 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 18 billion 15 billion respectively note 15 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie virginia power longterm power capacity contracts four nonutility generators aggregate summer generation capacity approximately 870 mw contracts contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance entities remaining terms virginia power’s contracts years entities expected operate contractual relationships expire contracts expire various dates ranging 2015 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 864 million december 31 2013 virginia power paid 217 million 214 million 211 million electric capacity 98 million 83 million 125 million electric energy entities years ended december 31 2013 2012 2011 respectively virginia power purchased shared services drs affiliated vie approximately 331 million 328 million 389 million years ended december 31 2013 2012 2011 respectively virginia power determined closely associated entity drs therefore primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power virginia power obligation absorb allocated share drs costs august 2013 dominion leased fairless generating facility pennsylvania juniper lessor began commercial operations june 2004 dominion made annual lease payments approximately 53 million juniper formed 2003 limited partnership organized purpose acquiring constructing number assets lease assets financed proceeds issuance bank debt privately placed longterm debt partnership capital received juniper’s general limited partners dominion voting equity interest juniper subject business scope exception dominion required evaluate whether juniper vie prior october 2011 september 30 2011 juniper held various power plant leases including fairless october 2011 last lease fairless expired related asset sold juniper fairless sole remaining asset juniper longer qualified business october 2011 required dominion determine whether juniper vie dominion concluded juniper vie entity’s capitalization insufficient support operations power direct significant activities entity held equity holders dominion guaranteed portion residual value fairless activities significantly impacted juniper’s economic performance related operation fairless decisions related operations fairless made dominion considered primary beneficiary accordingly dominion consolidated juniper october 2011 recorded fair value approximately 957 million property plant equipment 896 million debt 61 million noncontrolling interests debt nonrecourse dominion secured juniper’s assets annual lease payments made dominion juniper fairless eliminated consolidated statements income excluded lease commitments table note 22 consolidated financial statements dominion’s virginia power’s annual report form 10k year ended december 31 2012 dominion provide financial support juniper previously contractually required provide august 2013 lease expired dominion purchased fairless 923 million juniper per terms lease agreement however dominion previously consolidated juniper purchase accounted equity transaction acquire noncontrolling interests juniper 923 million dominion retained control fairless acquisition resulted removal securities due within one yearvie noncontrolling interests dominion’s consolidated balance sheet 2013 note 16 shortterm debt credit agreements dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 effective september 2013 maturity date extended september 2017 september 2018 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 effective september 2013 maturity date 400 million 500 million committed capacity extended september 2017 september 2018 also effective september 2013 maturity date remaining 100 million extended september 2016 september 2018 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 033 049 december 31 2013 2012 respectively combined notes consolidated financial statements continued virginia power virginia power’s shortterm financing supported two joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion follows 1 effective september 2013 maturity date extended september 2017 september 2018 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year 2 effective september 2013 maturity date 400 million 500 million committed capacity extended september 2017 september 2018 also effective september 2013 maturity date remaining 100 million extended september 2016 september 2018 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rates outstanding commercial paper supported credit facilities 033 047 december 31 2013 2012 respectively addition credit facility commitments mentioned virginia power also 120 million credit facility effective september 2013 maturity date extended september 2017 september 2018 december 31 2013 facility supports approximately 119 million certain variable rate taxexempt financings virginia power note 17 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2013 2 financings relate certain pollution control equipment virginia power’s generating facilities certain variable rate taxexempt financings supported 120 million credit facility terminates september 2018 3 option holders 510 million dominion’s 525 senior notes due 2033 600 million dominion’s 8875 senior notes due 2019 subject redemption 100 principal amount plus accrued interest august 2015 january 2014 respectively 4 convertible combination cash shares dominion’s common stock time closing price common stock equals 120 applicable conversion price higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter option holders december 15 2018 securities subject redemption 100 principal amount plus accrued interest senior notes callable dominion since december 15 2011 5 debt issued mdfa behalf brayton point connection sale brayton point sole obligor bonds changed brayton point dominion june 2013 combined notes consolidated financial statements continued 6 represents debt assumed dominion merger former cng subsidiary 7 juniper notes issued 2004 consolidated october 2011 due dominion becoming primary beneficiary vie amount excludes 18 million unamortized premium 2012 debt nonrecourse dominion secured juniper’s assets dominion’s purchase fairless august 2013 resulted removal debt dominion’s consolidated balance sheet see note 15 additional information 8 represented debt associated kincaid debt nonrecourse dominion secured facility’s assets revenue connection sale kincaid notes redeemed may 2013 approximately 185 million including makewhole premium accrued interest 9 2012 included debt issued mdfa behalf brayton point connection sale brayton point three series bonds totaling approximately 257 million defeased june 2013 june 2013 brayton point delivered approximately 284 million fund irrevocable trust purpose paying maturing principal interest due including earliest redemption dates bonds 2016 2019 10 represents valuation certain fair value hedges associated dominion’s fixed rate debt 11 includes 14 million fair value hedge valuation 2013 23 million net unamortized premium fair value hedge valuation 2012 based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2013 follows dominion’s virginia power’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2013 events default covenants february 2014 virginia power issued 350 million 345 senior notes 400 million 445 senior notes mature 2024 2044 respectively convertible securities december 31 2013 dominion 43 million outstanding contingent convertible senior notes convertible holders combination cash shares dominion’s common stock certain circumstances conversion feature requires principal amount note repaid cash amounts payable excess principal amount paid common stock conversion rate subject adjustment without limitation upon certain events subdivisions splits combinations common stock issuance common stock holders certain common stock rights warrants options certain dividend increases december 31 2013 conversion rate adjusted 298780 shares common stock per 1000 principal amount senior notes represents conversion price 3347 primarily due individual dividend payments level paid issuance outstanding notes december 31 2013 converted would result issuance approximately 600 thousand additional shares common stock january 2014 dominion’s board directors declared dividends payable march 20 2014 60 cents per share common stock increase conversion rate 299961 effective february 26 2014 senior notes eligible conversion calendar quarter closing price dominion’s common stock equal higher 120 conversion price least 20 last 30 consecutive trading days preceding quarter notes called redemption dominion upon occurrence certain conditions 2013 senior notes eligible conversion approximately 39 million notes converted holders 28 million common stock senior notes eligible conversion first quarter 2014 beginning 2007 notes eligible contingent interest average trading price defined indenture equals exceeds 120 principal amount senior notes holders right require dominion purchase senior notes cash 100 principal amount plus accrued interest december 2018 dominion undergoes certain fundamental changes senior notes callable dominion since december 15 2011 junior subordinated notes payable affiliated trusts previous years dominion established several subsidiary capital trusts finance subsidiary dominion holds 100 voting interests trusts sold capital securities representing preferred beneficial interests 97 beneficial ownership assets held trusts exchange funds realized sale capital securities common securities represent remaining 3 beneficial ownership interest assets held capital trusts dominion issued various junior subordinated notes junior subordinated notes constitute 100 capital trust’s assets trust must redeem capital securities respective junior subordinated notes repaid maturity redeemed prior maturity january 2013 dominion repaid 258 million 783 unsecured junior subordinated debentures redeemed 250 thousand units 250 million 783 dominion resources capital trust capital securities due december 1 2027 securities redeemed price 101958 per capital security plus accrued unpaid distributions following table provides summary information capital securities junior subordinated notes outstanding december 31 2013 1 10 milliondominion resources inc 84 debentures due 1152031 held assets capital trust interest charges related dominion’s junior subordinated notes payable affiliated trusts 1 million year ended december 31 2013 21 million years ended december 31 2012 2011 enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids bear interest 75 per year june 30 2016 thereafter bear interest threemonth libor plus 2825 reset quarterly beginning september 30 2011 september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly previously interest fixed 63 per year june 2009 dominion issued 685 million 8375 june 2009 hybrids june 2009 hybrids listed nyse symbol dru dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion executed rccs connection issuance hybrids described terms rccs dominion covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days proceeds dominion receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price december 2011 dominion purchased canceled approximately 16 million september 2006 hybrids february 2012 dominion launched tender offer purchase 150 million additional september 2006 hybrids first quarter 2012 dominion purchased canceled approximately 86 million september 2006 hybrids primarily result tender offer expired march 2012 second quarter 2012 dominion purchased canceled approximately 2 million september 2006 hybrids purchases conducted compliance rcc time dominion may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions additional tender offers otherwise remarketable subordinated notes june 2013 dominion issued 550 million 2013 series 6125 equity units 550 million 2013 series b 6 equity units initially form corporate units corporate units listed nyse symbols dcua dcub respectively corporate unit consists stock purchase contract 120 interest rsn issued dominion stock purchase contracts obligate holders purchase shares dominion common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts dominion makes quarterly interest payments rsns quarterly contract adjustment payments stock purchase contracts rates described dominion may defer payments stock purchase contracts rsns one consecutive periods generally beyond purchase contract settlement date payments deferred dominion may make cash distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated rsns dominion recorded present value stock purchase contract payments liability offset charge additional paidin capital equity interest payments rsns recorded interest expense stock purchase contract payments charged liability accretion stock purchase contract liability recorded imputed interest expense combined notes consolidated financial statements continued calculating diluted eps dominion applies treasury stock method equity units securities effect diluted eps year ended 2013 terms stock purchase contracts assuming antidilution adjustments dominion issue 84 million 99 million shares common stock april 2016 july 2016 total 225 million shares dominion’s common stock reserved issuance connection stock purchase contracts selected information dominion’s equity units presented 1 payments 17 million made 2013 stock purchase contract liability 139 million december 31 2013 regulated natural gas financing plans september 2013 dominion announced formation dominion gas first tier whollyowned subsidiary holding company majority dominion’s regulated natural gas businesses specifically dominion transferred direct ownership east ohio dti dominion iroquois latter holds 2472 general partnership interest iroquois dominion gas september 30 2013 dominion gas issued 12 billion principal amount unsecured senior notes private placement october 2013 primary financing entity dominion’s regulated natural gas businesses dominion gas expects become sec registrant 2014 dominion gas used proceeds offering acquire intercompany longterm notes dominion repay portion intercompany revolving credit agreement balances dominion note 18 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2013 2012 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares issued outstanding december 31 2013 2012 upon involuntary liquidation dissolution windingup virginia power share would entitled receive 100 plus accrued cumulative dividends holders virginia power’s outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series virginia power preferred stock outstanding december 31 2013 1 effective march 20 2011 rate reset 612 march 20 2014 rate due reset auction process however february 2014 virginia power provided irrevocable notice redeem stock march 20 2014 price 100 per share plus accumulated unpaid dividends note 19 shareholders’ equity issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2012 dominion began issuing new common shares direct stock purchase plans january 2014 dominion began purchasing common stock open market plans 2013 dominion issued approximately 54 million shares common stock various programs dominion received cash proceeds 278 million issuance 47 million shares dominion direct employee savings plans january 2012 dominion filed new sec shelf registration sale debt equity securities including ability sell common stock market program dominion entered four separate sales agency agreements effect sales program however exception issuing approximately 317 million equity employee savings plans direct stock purchase dividend reinvestment plans converted securities employee director benefit plans dominion issue common stock 2013 virginia power 2013 2012 2011 virginia power issue shares common stock dominion shares reserved issuance december 31 2013 dominion approximately 48 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans contingent convertible senior notes issuance connection stock purchase contracts see note 17 information repurchase common stock dominion repurchase shares 2013 2012 plan repurchase shares 2014 except shares tendered employees satisfy tax withholding obligations vested restricted stock purchases common stock open market 2014 direct stock purchase plans count stock repurchase authorization accumulated comprehensive income loss presented table summary aoci component following table presents dominion’s changes aoci component net tax 1 see table details reclassifications combined notes consolidated financial statements continued following table presents dominion’s reclassifications aoci component following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications following table presents virginia power’s reclassifications aoci component stockbased awards 2005 incentive compensation plan permits stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2013 approximately 32 million shares available future grants plans dominion measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion’s results years ended december 31 2013 2012 2011 include 31 million 25 million 39 million respectively compensation costs 11 million 8 million 13 million respectively income tax benefits related dominion’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income excess tax benefits classified financing cash flow years ended december 31 2013 2012 2011 dominion realized less 1 million 10 million 2 million respectively excess tax benefits vesting restricted stock awards exercise stock options stock options following table provides summary changes amounts stock options outstanding years ended december 31 2012 2011 stock options outstanding 2013 options granted plan 2013 2012 2011 1 intrinsic value represents difference exercise price option market value dominion’s stock dominion issues new shares satisfy stock option exercises dominion received cash proceeds exercise stock options approximately 19 million 38 million years ended december 31 2012 2011 respectively restricted stock restricted stock grants made officers dominion’s ltip may also granted certain key nonofficer employees time fair value dominion’s restricted stock awards equal closing price dominion’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2013 2012 2011 december 31 2013 unrecognized compensation cost related nonvested restricted stock awards totaled 21 million expected recognized weightedaverage period 18 years fair value restricted stock awards vested 20 million 30 million 28 million 2013 2012 2011 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates goalbased stock goalbased stock awards granted dominion’s ltip officers achieved certain targeted level share ownership lieu cashbased performance grants goalbased stock awards may also made certain key nonofficer employees time current outstanding goalbased shares include awards granted officers february 2012 february 2013 issuance awards based achievement two performance metrics twoyear period tsr relative companies listed members philadelphia utility index end performance period roic actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock equal closing price dominion’s stock date grant goalbased stock awards granted key nonofficer employees convert restricted stock end twoyear performance period generally vest three years original grant date awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares performance period february 2010 grants ended december 31 2011 cgn committee determined actual performance metrics established awards officers 9 thousand shares outstanding goalbased stock awards converted 15 thousand nonrestricted shares issued officers performance period february 2011 grants ended december 31 2012 cgn committee determined actual performance metrics established awards officers 3 thousand shares outstanding goalbased stock awards converted 2 thousand nonrestricted shares issued officers combined notes consolidated financial statements continued following table provides summary goalbased stock activity years ended december 31 2013 2012 2011 december 31 2013 targeted number shares expected issued february 2012 february 2013 awards approximately 5 thousand january 2014 cgn committee determined actual performance metrics established february 2012 awards performance period ended december 31 2013 based determination total number shares issued february 2012 goalbased stock awards approximately 1 thousand december 31 2013 unrecognized compensation cost related nonvested goalbased stock awards material cashbased performance grants cashbased performance grants made dominion’s officers dominion’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved february 2010 cashbased performance grant made officers portion grant representing 14 million paid december 2011 based achievement two performance metrics 2010 2011 roic tsr relative peer group companies total amount award grant 20 million remaining 6 million grant paid february 2012 february 2011 cashbased performance grant made officers portion grant representing 6 million paid december 2012 based achievement two performance metrics 2011 2012 roic tsr relative peer group companies total amount award grant 8 million remaining 2 million grant paid february 2013 february 2012 cashbased performance grant made officers portion grant representing initial payout 8 million paid december 2013 based achievement two performance metrics 2012 2013 tsr relative companies listed members philadelphia utility index end performance period roic total expected award grant 12 million remaining portion grant expected paid march 15 2014 december 31 2013 liability 4 million accrued remaining portion award february 2013 cashbased performance grant made officers payout performance grant expected occur march 15 2015 based achievement two performance metrics 2013 2014 tsr relative companies listed members philadelphia utility index end performance period roic december 31 2013 targeted amount grant 13 million liability 6 million accrued award note 20 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2013 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s virginia power’s ability pay dividends receive dividends subsidiaries december 31 2013 see note 17 description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes equity units initially form corporate units note 21 employee benefit plans dominion provides certain retirement benefits eligible active employees retirees qualifying dependents terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension program also provides benefits certain retired executives companysponsored nonqualified employee benefit plan nonqualified plan funded contributions grantor trust dominion also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates rate compensation increases dominion uses december 31 measurement date employee benefit plans dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments aggregate actual returns dominion’s pension postretirement plan assets 959 million 2013 743 million 2012 versus expected returns 554 million 509 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans medicare act introduced federal subsidy sponsors retiree healthcare benefit plans provide prescription drug benefit least actuarially equivalent medicare part dominion determined prescription drug benefit offered postretirement benefit plans least actuarially equivalent medicare part dominion received federal subsidy 5 million 2013 2012 effective january 1 2013 dominion changed method receiving subsidy medicare part retiree prescription drug coverage retiree drug subsidy egwp change reduced postretirement benefit costs approximately 20 million annually beginning 2012 result adoption egwp dominion begin receive increased level medicare part subsidies form reduced costs rather direct reimbursement next years dominion remeasured pension postretirement benefit plans second quarter 2013 remeasurement resulted reduction pension benefit obligation approximately 354 million reduction accumulated postretirement benefit obligation approximately 78 million impact remeasurement net periodic benefit cost credit recognized prospectively remeasurement date reduced net periodic benefit cost 2013 approximately 36 million excluding impacts curtailments discount rate used remeasurement 480 pension plans 470 postretirement benefit plans assumptions used remeasurement consistent measurement december 31 2012 fourth quarter 2013 dominion remeasured postretirement benefit plans result plan amendment changed medical coverage certain medicareeligible retirees effective april 2014 remeasurement resulted reduction accumulated postretirement benefit obligation approx imately 220 million impact remeasurement net periodic benefit cost credit recognized prospectively remeasurement date reduced net periodic benefit cost 2013 approximately 8 million amendment expected reduce net periodic benefit cost 40 million 60 million next five years discount rate used remeasurement 480 assumptions used remeasurement consistent measurement december 31 2012 funded status following table summarizes changes dominion’s pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status 1 relates plan amendment changed medical coverage certain medicareeligible retirees combined notes consolidated financial statements continued 2 2013 amounts relate primarily decommissioning kewaunee 2012 amount relates sale salem harbor 3 pension rates 520 gas union plans 530 nonunion union plans opeb rates 500 gas union plans 510 nonunion union plans abo dominion’s defined benefit pension plans 51 billion 55 billion december 31 2013 2012 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time 2013 dominion made contributions qualified defined benefit pension plans contributions currently expected 2014 july 2012 moving ahead progress 21st century act signed law act includes increase interest rates used determine plan sponsors’ pension contributions required funding purposes new interest rates expected reduce required pension contributions 2015 dominion believes required pension contributions rise subsequent 2015 resulting little net impact cumulative required contributions 10year period certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion expects contribute approximately 12 million dominion vebas 2014 dominion expect pension postretirement plan assets returned company 2014 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets following table provides information abo fair value plan assets pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid plan assets dominion’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments us equity includes investments largecap midcap smallcap companies located united states nonus equity includes investments largecap smallcap companies located outside united states including developed emerging markets commoncollective trust fund pooled fund operated bank trust company investment assets various organizations individuals welldiversified portfolio fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds commoncollective trust funds grouped assets follow various investment strategies real estate includes equity reits investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 fair values dominion’s pension plan assets asset category follows fair values dominion’s postretirement plan assets asset category follows combined notes consolidated financial statements continued following table presents changes dominion’s pension postretirement plan assets measured fair value included level 3 fair value category investments commoncollective trust funds dominion’s pension postretirement plans stated fair value determined issuer commoncollective trust funds based fair value underlying investments commoncollective trusts unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment strategies commoncollective trust funds follows  wells fargo closed end bond trustthe fund invests stocks bonds combination shares fund traded stock exchange subject market risk like stocks bonds mutual funds fund may invest less liquid portfolio stocks bonds fund need sell securities meet shareholder redemptions mutual funds order keep percentage portfolio cash pay back investors withdraw shares  jpmorgan core bond trustthe fund seeks maximize total return investing primarily diversified portfolio intermediate longterm debt securities fund invests primarily investmentgrade bonds generally maintains average weighted maturity four 12 years may shorten average weighted maturity deemed appropriate temporary defensive purposes  ssga russell 2000 value index common trustthe fund measures performance smallcap value segment us equity universe russell 2000 value index constructed provide comprehensive unbiased barometer smallcap value segment index completely reconstituted annually ensure larger stocks distort performance characteristics true smallcap opportunity set represented companies continue reflect value characteristics  ssga daily msci emerging markets index nonlending fundthe fund seeks investment return approximates closely practicable expenses performance msci emerging markets index long term fund may invest directly indirectly securities instruments including pooled investment vehicles sponsored managed otherwise affiliated trustee state street bank trust company  ssga daily msci acwi exusa index nonlending fundthe fund seeks investment return approximates closely practicable expenses performance msci acwi exusa index long term fund may invest directly indirectly securities instruments including pooled investment vehicles sponsored managed otherwise affiliated trustee state street bank trust company  ssga sp 400 midcap indexthe fund seeks investment return approximates closely practicable expenses performance benchmark index long term sp midcap 400 comprised approximately 400 us midcap securities accounts approximately 7 coverage us stock market capitalization ssga typically attempt invest equity securities comprising index approximately proportions represented index  jpmorgan chase bank us active core plus equity fundthe fund seeks outperform sp 500 index benchmark gross fees market cycle fund invests primarily portfolio long short positions equity securities large mid capitalization us companies characteristics similar benchmark  mondrian international small cap equity fundthe fund’s investment objective longterm total return fund primarily invests equity securities nonus small capitalization companies investment manager’s opinion undervalued time purchase based fundamental value analysis employed investment manager net periodic benefit cost components provision net periodic benefit cost amounts recognized comprehensive income regulatory assets liabilities follows 1 2013 amount relates primarily decommissioning kewaunee 2012 amount relates sale salem harbor 2 assumptions used determine periodic cost following year components aoci regulatory assets liabilities recognized components periodic benefit credit cost follows 1 december 31 2013 17 billion 311 million related pension benefits postretirement benefits 10 billion 156 million respectively included aoci remainder included regulatory assets liabilities december 31 2012 29 billion 158 million related pension benefits postretirement benefits 18 billion 69 million respectively included aoci remainder included regulatory assets liabilities following table provides components aoci regulatory assets liabilities december 31 2013 expected amortized components periodic benefit cost 2014 dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations combined notes consolidated financial statements continued • forecasts independent investment advisor • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans one percentage point change assumed healthcare cost trend rates would following effects internal committee selects final assumptions used dominion’s pension postretirement plans including discount rates expected longterm rates return healthcare cost trend rates defined contribution plans addition dominion sponsors defined contribution employee savings plans 2013 2012 2011 dominion recognized 40 million 40 million 38 million respectively employer matching contributions plans virginia power virginia power participates dominion pension plan defined benefit pension plan sponsored dominion provides benefits multiple dominion subsidiaries retirement benefits payable plan based primarily years service age employee’s compensation participating employer virginia power subject dominion’s funding policy contribute annually amount accordance provisions erisa 2013 2012 virginia power made contributions plan contributions currently expected 2014 virginia power’s net periodic pension cost related pension plan 96 million 72 million 50 million 2013 2012 2011 respectively employee compensation basis determining virginia power’s share total pension costs virginia power also participates dominion retiree health welfare plan sponsored dominion provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service virginia power’s net periodic benefit cost related plan 5 million 13 million 23 million 2013 2012 2011 respectively employee headcount basis determining virginia power’s share total postretirement benefit costs certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power funds postretirement benefit costs veba 2013 2012 virginia power made contributions veba expect contribute veba 2014 dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power’s employees participate investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash virginia power provide dominion share employee benefit plan contributions virginia power also participates dominionsponsored defined contribution employee savings plans cover substantially employees 2013 2012 2011 virginia power recognized 16 million 15 million 14 million respectively employer matching contributions plans note 22 commitments contingencies result issues generated ordinary course business dominion virginia power involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect dominion’s virginia power’s financial position liquidity results operations environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements december 2011 epa issued mats coal oilfired electric utility steam generating units rule establishes strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases rule includes limited use provision oilfired units annual capacity factors 8 provides exemption emission limits allows compliance operational work practice standards compliance required april 16 2015 certain limited exceptions december 2011 virginia power recorded 228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain regulated coal units primarily result issuance final mats fourth quarter 2013 virginia power recorded charges totaling 26 million 16 million aftertax certain exit activities associated coal units including cost employee severance vendor contract termination inventory expected used usable stations epa established cair intent require significant reductions so2 nox emissions electric generating facilities july 2008 us court appeals dc circuit issued ruling vacating cair december 2008 court denied rehearing also issued decision remand cair epa july 2011 epa issued replacement rule cair called csapr required 28 states reduce power plant emissions cross state lines csapr established new so2 nox emissions cap trade programs completely independent current arp specifically csapr required reductions so2 nox emissions fossil fuelfired electric generating units 25 mw annual nox emissions caps nox emissions caps ozone season may 1 september 30 annual so2 emission caps differing requirements two groups affected states following numerous petitions industry participants review motions stay us court appeals dc circuit issued ruling december 2011 stay csapr pending judicial review february june 2012 epa issued technical revisions csapr material dominion august 2012 court vacated csapr entirety ordered epa implement cair valid replacement rule issued october 2012 epa filed peti tion requesting rehearing court’s decision denied january 2013 mandate vacating csapr issued february 2013 march 2013 epa several environmental groups filed petitions us supreme court requesting review decision vacate remand csapr june 2013 us supreme court granted epa’s petition seeking review dc circuit’s decision vacated remanded csapr respect dominion’s generation fleet cost comply cair expected material future outcomes litigation andor additional action issue revised rule could affect assessment regarding cost compliance may 2012 epa issued final designations 75ppb ozone air quality standard several dominion electric generating facilities located areas impacted standard part standard states required develop implement plans address sources emitting pollutants contribute formation ozone states developed implementation plans dominion unable predict whether extent new rules ultimately require additional controls february 2008 dominion received request information pursuant section 114 caa epa request concerned historical operating changes capital improvements undertaken state line kincaid april 2009 dominion received second request information dominion provided information response requests also april 2009 dominion received notice finding violations epa claiming violations caa new source review requirements nsps title v permit program stations’ respective state implementation plans may 2010 dominion received request information pursuant section 114 caa epa request concerned historical operating changes capital improvements undertaken brayton point dominion believes complied applicable laws epa regulations interpretations effect time work question took place dominion entered settlement discussions us government reached agreement settle allegations april 2013 us government lodged consent decree complaint us district court central district illinois resolves alleged violations state line kincaid brayton point settlement mandates closure state line installation certain control technology kincaid brayton point achievement certain emissions limitations payment civil penalty 3 million funding 10 million environmental mitigation projects july 2013 court entered consent decree concluding enforcement action dominion previously accrued liability 13 million related matter state line ceased operations march 2012 sold june 2012 installation pollution control technology progress kincaid completed brayton point august 2013 dominion sold kincaid brayton point terms sale transaction dominion retained 13 million liability associated settlement agreement dominion paid civil penalty implementing environmental mitigation projects combined notes consolidated financial statements continued water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply applicable aspects cwa programs operating facilities september 2010 millstone’s npdes permit reissued cwa conditions permit require evaluation control technologies could result additional expenditures future report summarizing results evaluation submitted august 2012 review connecticut department energy environmental protection dominion cannot currently predict outcome review october 2010 permit issuance appealed state court private plaintiff permit expected remain effect appeal dominion currently unable make estimate potential financial statement impacts related matter solid hazardous waste cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites jointly severally strictly liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion virginia power may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste except noted companies believe material effect results operations financial condition andor cash flows september 2011 epa issued uao virginia power 22 parties ordering specific remedial action certain areas ward transformer superfund site located raleigh north carolina virginia power believe liable party cercla based alleged connection site november 2011 virginia power number parties notified epa declining undertake work set forth uao epa may seek enforce uao court pursuant enforcement authority cercla may seek recovery costs undertaking removal remedial action court determines respondent failed comply uao without sufficient cause epa may also seek civil penalties 37500 per day violation punitive damages three times costs incurred epa result party’s failure comply uao virginia power currently unable make estimate potential financial statement impacts related ward transformer matter dominion determined associated 17 former manufactured gas plant sites three pertain virginia power studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none former sites dominion virginia power associated investigation state federal environmental agency one former sites dominion conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program dominion currently evaluating nature extent contamination site well potential remedial options preliminary costs options evaluation site range 1 million 22 million remedy selected due uncertainty surrounding sites dominion unable make estimate potential financial statement impacts climate change legislation regulation massachusetts rhode island connecticut maryland among states joined rggi multistate effort reduce co2 emissions northeast implemented state specific regulations initiative aggregate co2 emissions power plants participating states required stabilized current levels 2009 2015 reductions current levels would required phased starting 2016 2019 would 10 reduction participating state power plant co2 emissions 2012 rggi underwent program review february 2013 revisions rggi model rule issued include reduction regional co2 emissions cap 165 million tons 91 million tons beginning january 2014 additional 25 reduction per year 2020 revisions also include changes compliance demonstration requirements regulated entities offset cost containment mechanisms rggi states completed regulatory andor legislative processes required amend existing state regulations implement rggi program changes however result recent sales several power plants located states dominion expect rggi material effect operations financial condition andor cash flows december 2009 epa issued final endangerment cause contribute findings greenhouse gases section 202a clean air act finding ghgs “endanger public health public welfare current future generations” april 1 2010 epa department transportation’s national highway safety administration announced joint final rule establishing pro gram dramatically reduce ghg emissions improve fuel economy new cars trucks sold united states rules took effect january 2011 established ghg emissions regulated pollutants caa may 2010 epa issued final prevention significant deterioration title v greenhouse gas tailoring rule combined prior actions require dominion virginia power obtain permits ghg emissions new modified facilities certain size thresholds meet best available control technology ghg emissions epa issued draft guidance ghg permitting including best available control technology april 2012 epa published proposed nsps ghg emissions new electric generating units proposed rule set national emission standards new coal oil integrated gasification combined cycle units larger 25mw proposed rule covered co2 apply existing sources proposed rule also apply new existing biomass units june 2013 president us released climate action plan focusing ways meet national ghg reduction goal 17 2005 levels 2020 pursuant presidential memorandum issued conjunction climate action plan epa withdrew april 2012 proposal reproposed nsps standards new sources january 8 2014 expected finalize rule 2014 early 2015 presidential memorandum also directed epa propose rule reconstructed modified existing sources ghg emissions later june 2014 issue final rule later june 2015 provide guidelines states achieve required ghg reductions dominion currently cannot predict certainty direct indirect financial impact operations rule revisions believes expenditures comply new requirements could material october 2013 us supreme court granted petitions filed several industry groups states chamber commerce seeking review dc circuit court’s june 2012 decision upholding epa’s regulation ghg caa court’s decision could potentially impact epa’s continued implementation current prevention significant deterioration regulations applicable stationary sources relation ghg anticipated however court’s decision would affect epa’s development ghg nsps rules new sources existing sources authority rules comes different section caa issue supreme court case uncertain time whether court’s decision material impact dominion’s operations july 2011 epa signed final rule deferring need prevention significant deterioration title v permitting co2 emissions biomass projects rule temporarily deferred period 3 years consideration co2 emissions biomass projects determining whether stationary source meets prevention significant deterioration title v applicability thresholds including application best available control technology july 2013 us court appeals dc circuit vacated rule however mandate making decision effective issued virginia power converted three coalfired generating stations altavista hopewell southampton biomass co2 deferral period unclear court’s decision affect biomass sources permitted deferral period however expenditures comply new requirements could material natrium blue racer january 2011 dominion announced development natural gas processing fractionation facility natrium west virginia july 2011 executed contract construction first phase facility first phase project fully contracted placed service may 2013 august 2013 natrium natural gas processing fractionation facility contributed blue racer joint venture september 2013 natrium facility shut following fire plant returned service january 2014 material impact dominion’s financial condition results operations andor cash flows mf global prior october 31 2011 certain dominion’s subsidiaries executed certain commodity transactions exchanges using mf global fcm registered cftc order secure potential exposure commodity transactions dominion posted certain required margin collateral mf global parent company mf global mf global holdings ltd filed bankruptcy relief chapter 11 us bankruptcy code october 31 2011 date us district court southern district new york appointed trustee oversee liquidation mf global pursuant securities investor protection act accordance courtapproved procedures dominion transferred fcms open positions executed using mf global initial margin posted open positions october 31 2011 approximately 73 million dominion received approximately 17 million amount liquidation process december 31 2012 january 2013 dominion sold remaining claims approximately 56 million third party small discount nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups inpo like us nuclear operators dominion gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisting actions staff determined started without unnecessary delay december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactors construction combined notes consolidated financial statements continued permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion require implementation safety enhancements related mitigation strategies respond extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation orders require prompt implementation safety enhancements completion implementation within two refueling outages december 31 2016 whichever comes first implementation enhancements currently progress information requests issued nrc request reactor reevaluate seismic flooding hazards site using presentday methods information conduct walkdowns facilities ensure protection hazards current design basis reevaluate emergency communications systems staffing levels dominion virginia power currently expect compliance nrc’s march 2012 orders information requests materially impact financial position results operations cash flows approximately fouryear implementation period nrc staff evaluating implementation longer term tier 2 tier 3 recommendations dominion virginia power currently unable estimate potential financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2013 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 28 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2013 nrc minimum financial assurance amounts calculated using preliminary december 31 2013 us bureau labor statistics indices dominion believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover expected decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion virginia power continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial guarantees recognized nrc see note 6 consolidated financial statements additional information kewaunee nuclear insurance priceanderson amendments act 1988 provides public 136 billion liability protection per nuclear incident via obligations required owners nuclear power plants allows inflationary provision adjustment every five years dominion virginia power purchased 375 million coverage commercial insurance pools reactor site remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us companies could assessed 127 million licensed reactors exceed 19 million per year per reactor limit number incidents retrospective premium assessed effective june 7 2013 kewaunee july 1 2013 millstone virginia power’s nuclear units levels nuclear property insurance coverage reduced following 1 surry north anna share blanket property limit 450 million companies’ nuclear property insurance coverage millstone surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site kewaunee meets nrc minimum requirement 106 billion includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum retrospective premium assessment current policy period 71 million 39 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination millstone virginia power also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program companies subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum retrospective premium assessment current policy period 19 million 9 million respectively 2013 kewaunee ceased power production commenced decommissioning activities effective february 1 2013 kewaunee’s accidental outage policy replacement power costs canceled odec part owner north anna massachusetts municipal green mountain part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel dominion virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act companies’ contracts doe companies previously received damages award payments settlement payments related contracts 2012 dominion virginia power resolved additional claims damages incurred millstone kewaunee surry north anna authorized representative attorney general companies entered settlement agreements resolved claims damages incurred december 31 2010 also provide periodic payments date damages incurred december 31 2013 initial settlement payments amounts 20 million millstone 6 million kewaunee 75 million surry north anna received fourth quarter 2012 fourth quarter 2013 dominion received payment approximately 5 million resolution claims incurred millstone period january 1 2011 june 30 2012 government formally accepted offer settlement resolution claims incurred kewaunee amount approximately 2 million period january 1 2011 december 31 2012 payment expected first quarter 2014 mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 companies continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion’s receivables spent nuclear fuelrelated costs totaled 79 million 36 million december 31 2013 2012 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 50 million 26 million december 31 2013 2012 respectively pursuant november 2013 decision us court appeals district columbia circuit january 2014 secretary doe sent recommendation us congress adjust zero current fee 1 per mwh electricity paid civilian nuclear power generators disposal spent nuclear fuel government continues pursue judicial review november 2013 decision time processes specified nuclear waste policy act adjustment fee completed civilian nuclear power generators including companies required pay waste fee 2013 dominion virginia power recognized fees 44 million 27 million respectively companies continue manage spent fuel accepted doe longterm purchase agreements december 31 2013 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2013 present value virginia power’s total commitment capacity payments 11 billion capacity payments totaled 345 million 337 million 338 million energy payments totaled 236 million 214 million 275 million 2013 2012 2011 respectively lease commitments dominion virginia power lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2013 follows rental expense dominion totaled 101 million 112 million 155 million 2013 2012 2011 respectively rental expense virginia power totaled 42 million 48 million 50 million 2013 2012 2011 respectively majority rental expense reflected operations maintenance expense consolidated statements income guarantees surety bonds letters credit dominion december 31 2013 dominion issued 69 million guarantees primarily support equity method investees significant amounts related guarantees recorded december 31 2013 dominion’s exposure guarantees 39 million primarily related certain reserve requirements associated nonrecourse financing addition guarantees dominion partners shell bp may required make additional periodic equity contributions nedpower fowler ridge connection certain funding requirements associated respective nonrecourse financings december 31 2013 dominion’s maximum remaining cumulative exposure equity funding agreements 90 million 2019 maximum annual future contributions could range approximately 4 million 19 million dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate com combined notes consolidated financial statements continued mercial transactions third parties extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2013 dominion issued following subsidiary guarantees 1 represents estimated portion guarantee’s stated limit utilized december 31 2013 based upon prevailing economic conditions fact patterns specific guarantee arrangement guarantees related obligations recorded liabilities dominion’s subsidiaries value includes recorded amount 2 guarantee debt dei subsidiary event default subsidiary dominion would obligated repay amounts 3 guarantees related energy trading marketing activities commodity commitments certain subsidiaries including subsidiaries virginia power dei guarantees provided counterparties order facilitate physical financial transactions gas oil electricity pipeline capacity transportation related commodities services subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation dominion subsidiaries receive similar guarantees collateral credit extended others value provided includes certain guarantees stated limits 4 guarantees related certain dei subsidiaries’ potential retrospective premiums could assessed nuclear incident dominion’s nuclear insurance programs guarantees dei subsidiary’s virginia power’s commitment buy nuclear fuel excludes dominion’s agreement provide 150 million 60 million two dei subsidiaries pay operating expenses millstone kewaunee respectively event prolonged outage part satisfying certain nrc requirements concerned ensuring adequate funding operations nuclear power stations agreement kewaunee also provides funds completion decommissioning 5 guarantees related cove point including agreements support terminal service transportation agreements well engineering procurement construction contract new liquefaction facilities includes certain guarantees stated limits 6 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects also includes guarantees related certain dei subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower additionally december 31 2013 dominion purchased 147 million surety bonds authorized issuance letters credit financial institutions 11 million facilitate commercial transactions subsidiaries third parties terms surety bonds dominion obligated indemnify respective surety bond company amounts paid virginia power december 31 2013 virginia power issued 14 million guarantees primarily support taxexempt debt issued conduits virginia power also purchased 59 million surety bonds various purposes including providing workers’ compensation coverage authorized issuance letters credit financial institutions 1 million facilitate commercial transactions subsidiaries third parties terms surety bonds virginia power obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business dominion virginia power may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law dominion virginia power unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2013 dominion virginia power believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position note 23 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction dominion virginia power maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2013 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest regions us dominion believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include trading energyrelated commodities marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2013 dominion’s credit exposure totaled 263 million amount investment grade counterparties including internally rated represented 63 counterparty exposure exceeded 6 dominion’s total exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2013 virginia power’s exposure potential concentrations credit risk considered material creditrelated contingent provisions majority dominion’s derivative instruments contain creditrelated contingent provisions require dominion provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2013 2012 dominion would required post additional 146 million 110 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion posted 76 million collateral december 31 2013 4 million collateral december 31 2012 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2013 2012 169 million 163 million respectively include impact offsetting asset positions creditrelated contingent provisions virginia power material december 31 2013 2012 see note 7 information derivative instruments note 24 relatedparty transactions virginia power engages relatedparty transactions primarily dominion subsidiaries affiliates virginia power’s receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power included dominion’s consolidated federal income tax return participates certain dominion benefit plans discussion significant relatedparty transactions follows transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps manage commodity price risks associated purchases natural gas december 31 2013 2012 virginia power’s derivative liabilities affiliates material drs affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage presented significant transactions drs affiliates fourth quarter 2011 subsidiary virginia power purchased nuclear fuelrelated inventory affiliate 39 million future use nuclear generation stations virginia power borrowed funds dominion shortterm borrowing arrangements 97 million 243 million shortterm demand note borrowings dominion december 31 2013 2012 respectively virginia power’s outstanding borrowings net repayments dominion money pool nonregulated subsidiaries totaled 192 million december 31 2012 borrowings december 31 2013 interest charges related virginia power’s borrowings dominion immaterial years ended december 31 2013 2012 2011 issuances virginia power’s common stock dominion 2013 2012 2011 combined notes consolidated financial statements continued note 25 operating segments dominion virginia power organized primarily basis products services sold us description operations included companies’ primary operating segments follows 1 result dominion’s decision realign business units effective 2013 yearend reporting nonregulated retail energy marketing operations moved dvp dominion generation segment addition operating segments companies also report corporate segment corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments corporate segment dominion includes corporate service company functions including unallocated debt net impact operations discontinued discussed note 3 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments second quarter 2013 dominion commenced restructuring producer services business aggregates natural gas supply engages natural gas trading marketing activities natural gas supply management provides price risk management services dominion affiliates restructuring resulted termination natural gas trading certain energy marketing activities result earnings impact natural gas trading certain energy marketing activities included corporate segment dominion 2013 dominion reported aftertax net expense 452 million corporate segment 184 million net expenses attributable specific items related operating segments net expenses specific items 2013 primarily related impact following items  135 million 92 million aftertax net loss discontinued operations brayton point kincaid including debt extinguishment 64 million 38 million aftertax related sale impairment charges 48 million 28 million aftertax 17 million 18 million aftertax loss sale includes 16 million writeoff goodwill 6 million 8 million aftertax loss operations attributable dominion generation  182 million 109 million aftertax net loss including 55 million 33 million aftertax impairment charge related certain natural gas infrastructure assets 127 million 76 million aftertax loss related producer services business discussed attributable dominion energy partially offset  81 million 49 million aftertax net gain investments held nuclear decommissioning trust funds attributable dominion generation 2012 dominion reported aftertax net expense 17 billion corporate segment 15 billion net expenses attributable specific items related operating segments net expenses specific items 2012 primarily related impact following items  17 billion 11 billion aftertax net loss discontinued operations including impairment charges brayton point kincaid sold 2013 attributable dominion generation  467 million 303 million aftertax net loss including impairment charges primarily resulting management’s decision cease operations begin decommissioning kewaunee 2013 attributable dominion generation  87 million 53 million aftertax charge reflecting restoration costs associated damage caused severe storms attributable dvp  49 million 22 million aftertax loss discontinued operations state line salem harbor sold 2012 attributable dominion generation 2011 dominion reported aftertax net expense 607 million specific items corporate segment 364 million net expenses attributable specific items related operating segments net expenses specific items 2011 primarily related impact following items  228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain utility coalfired generating units attributable dominion generation  96 million 59 million aftertax charge reflecting restoration costs associated damage caused hurricane irene primarily attributable dvp  66 million 39 million aftertax loss operations kewaunee attributable dominion generation  57 million 33 million aftertax net loss discontinued operations brayton point kincaid sold 2013 attributable dominion generation  43 million 26 million aftertax charge related impairment so2 emissions allowances expected consumed due csapr attributable dominion generation  34 million 25 million aftertax loss discontinued operations state line salem harbor sold 2012 attributable dominion generation following table presents segment information pertaining dominion’s operations 1 amounts recast reflect nonregulated retail energy marketing operations dominion generation segment 2 segment information 2012 2011 recast reflect brayton point kincaid discontinued operations discussed note 3 december 31 2013 2012 2011 none dominion’s longlived assets significant percentage operating revenues associated international operations virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments 2013 virginia power reported aftertax net expenses 47 million specific items attributable operating segments corporate segment net expenses specific items 2013 primarily related impact following  40 million 28 million aftertax charge connection 2013 biennial review order attributable dominion generation 2012 virginia power reported aftertax net expenses 51 million specific items attributable operating segments corporate segment combined notes consolidated financial statements continued net expenses specific items 2012 primarily related impact following  87 million 53 million aftertax charge reflecting restoration costs associated damage caused severe storms attributable dvp 2011 virginia power reported aftertax net expenses 268 million specific items attributable operating segments corporate segment net expenses specific items 2011 primarily related impact following  228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain coalfired generating units attributable dominion generation  96 million 59 million aftertax charge reflecting restoration costs associated damage caused hurricane irene primarily attributable dvp  43 million 26 million aftertax charge related impairment so2 emissions allowances expected consumed due csapr attributable dominion generation following table presents segment information pertaining virginia power’s operations note 26 quarterly financial common stock data unaudited summary dominion’s virginia power’s quarterly results operations years ended december 31 2013 2012 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion 1 amounts attributable dominion’s common shareholders 2 recast reflect brayton point kincaid discontinued operations described note 3 dominion’s 2013 results include impact following significant items  second quarter results include 70 million aftertax net loss discontinued operations brayton point kincaid 57 million aftertax net loss including 33 million aftertax impairment charge related certain natural gas infrastructure assets 24 million aftertax loss related producer services business dominion’s 2012 results include impact following significant items  fourth quarter results include 10 billion aftertax impairment charge write brayton point’s kincaid’s longlived assets estimated fair value  third quarter results include 281 million aftertax net loss including impairment charges primarily resulting management’s decision cease operations begin decommissioning kewaunee 2013 combined notes consolidated financial statements continued virginia power virginia power’s quarterly results operations follows virginia power’s 2013 results include impact following significant item  fourth quarter results include 28 million aftertax charge resulting impacts 2013 biennial review order virginia power’s 2012 results include impact following significant item  second quarter results include 42 million aftertax charge reflecting restoration costs associated damage caused late june summer storms item 9 item 8 financial statements supplementary data index report management companys management responsible information representations contained consolidated financial statements sections companys annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent consolidated financial statements management maintains system internal accounting controls designed provide reasonable assurance reasonable cost companys assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 1997 system internal control adequate accomplish intended objective consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance generally accepted auditing standards included review companys accounting systems procedures internal controls performance tests auditing procedures sufficient provide reasonable assurance consolidated financial statements materially misleading contain material errors audit committee board directors composed entirely directors officers employees company meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time management recognizes responsibility fostering strong ethical climate companys affairs conducted according highest standards personal corporate conduct responsibility characterized reflected companys code ethics distributed throughout company code ethics addresses among things importance ensuring open communication within company potential conflicts interest compliance domestic foreign laws including relating financial disclosure confidentiality proprietary information full disclosure public information virginia electric power company report independent auditors board directors virginia electric power company audited accompanying consolidated balance sheets virginia electric power company wholly owned subsidiary dominion resources inc subsidiaries company december 31 1997 1996 related consolidated statements income earnings reinvested business cash flows three years period ended december 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 1997 1996 results operations cash flows three years period ended december 31 1997 conformity generally accepted accounting principles deloitte touche llp richmond virginia february 9 1998 virginia electric power company consolidated statements income accompanying notes integral part financial statements virginia electric power company consolidated balance sheets assets accompanying notes integral part financial statements virginia electric power company consolidated balance sheets liabilities shareholders equity described note consolidated financial statements 805 junior subordinated notes totalling 1392 million principal amount constitute 100 trusts assets accompanying notes integral part financial statements virginia electric power company consolidated statements earnings reinvested business accompanying notes integral part financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part financial statements virginia electric power company notes consolidated financial statements significant accounting policies general virginia electric power company regulated public utility engaged generation transmission distribution sale electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 percent virginias total land area accounts 80 percent population company organized wholesale power group engage offsystem wholesale purchases sales electricity purchases sales natural gas group developing trading relationships beyond geographic limits virginia powers retail service territory within document terms virginia power company shall refer entirety virginia electric power company including without limitation virginia north carolina operations subsidiaries companys accounting practices generally prescribed uniform system accounts promulgated regulatory commissions jurisdiction accordance generally accepted accounting principles applicable regulated enterprises financial statements include accounts company subsidiaries significant intercompany transactions accounts eliminated consolidation company whollyowned subsidiary dominion resources inc virginia corporation preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities date financial statements revenues expenses reporting period actual results could differ estimates revenues recorded basis services rendered commodities delivered contracts settled property plant equipment utility plant recorded original cost includes labor materials services afc permitted regulators indirect costs cost maintenance repairs charged appropriate operating expense clearing accounts cost additions replacements charged appropriate utility plant account except cost minor additions replacements provided uniform system accounts charged maintenance expense depreciation amortization depreciation utility plant nuclear fuel computed straightline method based projected useful service lives cost depreciable utility plant retired cost removal less salvage charged accumulated depreciation provision depreciation provides recovery cost assets including estimated cost removal net salvage based weighted average depreciable plant using rate 32 percent 1997 1996 1995 operating expenses include amortization nuclear fuel provided unit production basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs federal income taxes company files consolidated federal income tax return dominion resources deferred investment tax credits amortized service lives property giving rise credits allowance funds used construction applicable regulatory uniform system accounts defines afc cost construction period borrowed funds used construction purposes reasonable rate funds used pretax afc rates 1997 1996 1995 66 percent 81 percent 89 percent respectively afc accrued approximately 83 percent companys construction work progress instead included rate base cash return currently collected portion construction work progress included rate base deferred capacity deferred fuel expense approximately 80 percent capacity expenses 90 percent fuel expenses incurred part providing regulated electric service subject deferral accounting difference reasonably incurred actual expenses level expenses included current rates deferred matched future revenues amortization debt issuance costs company defers amortizes expenses incurred issuance longterm debt including premiums discounts associated debt lives respective issues gains losses resulting refinancing debt also deferred amortized lives new issues longterm debt permitted appropriate regulatory jurisdictions gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 1997 1996 companys accounts payable included net effect checks outstanding yet presented payment 558 million 648 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand temporary investments purchased initial maturity three months less commodity contracts trading activities virginia powers wholesale power group include fixedprice forward contracts purchase sale overthecounter options require physical delivery underlying commodity furthermore order manage price risk associated natural gas sales fuel requirements utility operations company uses exchangeforphysical contracts basis swaps nymex natural gas futures contracts well options natural gas futures contracts options exchangeforphysical contracts basis swaps futures contracts marked market resulting gains losses reported earnings unless instruments designated hedges accounting purposes fixed price forward contracts initiated trading purposes also marked market resulting gains losses reported earnings exchangeforphysical contracts basis swaps fixed price forward contracts options require physical delivery underlying commodity market value reflects managements best estimates considering overthecounter quotations time value volatility factors underlying commitments futures contracts options futures contracts marked market based closing exchange prices contracts designated hedges 1997 purchased options sold reported deferred debits assets deferred credits liabilities respectively exercise expiration gains losses resulting marking positions market reported income net gains losses resulting futures contracts options futures contracts settlement basis swaps included fuel net amortization option premiums associated sales purchases included revenues fuel net respectively cash flows trading activities reported net cash flow operating activities reclassification certain amounts 1996 1995 financial statements reclassified conform 1997 presentation b income taxes details income tax expense follows total federal income tax expense differs amount computed applying statutory federal income tax rate pretax income following reasons companys net accumulated deferred income taxes consist following c nuclear operations decommissioning companys nuclear units cease operations obligated decontaminate remove radioactive contaminants property require nrc oversight phase nuclear power plants life cycle termed decommissioning units operating collecting ratepayers amounts combined investment earnings used fund future obligation amount accrued decommissioning equal amount collected ratepayers included depreciation amortization expense decommissioning collections 458 million 362 million 285 million 1997 1996 1995 respectively dollars deposited external trusts funds invested net earnings trusts investments included income companys consolidated statements income 1997 1996 1995 respectively net earnings 205 million 160 million 159 million accretion decommissioning obligation equal trusts net earnings also recorded income thus net impact trusts income zero accumulated provision decommissioning included utility plant accumulated depreciation companys consolidated balance sheets includes accrued expense accretion described unrealized gains losses trusts investments december 31 1997 net unrealized gains 1495 million increase 690 december 31 1996 amount 805 million total accumulated provision decommissioning december 31 1997 5787 million including 96 million accrued 1997 deposited trusts january 1998 provision 4433 million december 31 1996 total estimated cost decommission companys four nuclear units 1 billion based upon sitespecific study completed 1994 plan update estimate 1998 cost estimate assumes method completing decommissioning activities prompt dismantlement method assumes dismantlement decommissioning activities begin shortly cessation operations current operating licenses begin 2012 detailed table financial accounting standards board fasb reviewing accounting nuclear plant decommissioning 1996 fasb tentatively determined estimated cost decommissioning reported liability rather accumulated depreciation substantial portion decommissioning obligation recognized earlier operating life nuclear unit industrys accounting changed reflect fasbs tentative proposal annual provisions nuclear decommissioning would increase deliberations fasb expanded scope project include similar unavoidable obligations perform closure postclosure activities nonnuclear power plants therefore forthcoming standard also may change industry plant depreciation practices impact related company assets cannot determined time insurance priceanderson act limits public liability owner nuclear power plant 89 billion single nuclear incident priceanderson amendments act 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risk sharing program event nuclear incident licensed nuclear reactor united states company could assessed 817 million including 3 percent insurance premium tax virginia four licensed reactors exceed 103 million including 3 percent insurance premium tax virginia per year per reactor limit number incidents retrospective premium assessed nuclear liability coverage claims made nuclear workers first hired january 1 1988 except arising extraordinary nuclear occurrence provided master worker insurance program first hired nuclear industry prior january 1 1988 covered policy discussed aggregate limit coverage industry 400 million 200 million policy limit automatic reinstatements additional 200 million companys maximum retrospective assessment approximately 123 million including 3 percent insurance premium tax virginia companys current level property insurance coverage 255 billion north anna 240 billion surry exceeds nrcs minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc companys nuclear property insurance provided nuclear mutual limited nml nuclear electric insurance limited neil two mutual insurance companies subject retrospective premium assessments policy year losses exceed funds available insurance companies maximum assessment current policy period 370 million based severity incident boards directors companys nuclear insurers discretion lower maximum retrospective premium assessment eliminate either completely losses exceed limits insurance proceeds available must first used stabilization decontamination company financial responsibility losses company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program virginia power subject retrospective premium assessment policy year losses exceed funds available neil current policy periods maximum assessment 87 million part owner north anna power station odec responsible share nuclear decommissioning obligation insurance premiums applicable station including retrospective premium assessments losses covered insurance utility plant utility plant consisted following e jointly owned plants following information relates companys proportionate share jointly owned plants december 31 1997 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest companys share operating costs classified appropriate operating expense fuel operations maintenance depreciation taxes etc consolidated statements income f regulatory assetsother certain expenses normally reflected income deferred balance sheet regulatory assets recognized income related amounts included rates recovered customers companys regulatory assets included following income taxes recoverable future rates represent principally tax effect depreciation differences normalized earlier years ratemaking purposes amounts amortized related temporary differences reverse costs decommissioning department energys doe uranium enrichment facilities deferred represent unamortized portion virginia powers required contributions fund decommissioning decontaminating uranium enrichment facilities virginia power making contributions 15year period escalation inflation costs recovered fuel rates losses gains reacquired debt deferred amortized lives new issues longterm debt gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues construction north anna unit 3 terminated november 1982 retail jurisdictions permitted recovery incurred costs virginia ferc jurisdictional customers amounts deferred amortized date termination costs first includible rates incurred costs underlying regulatory assets may represent expenditures company may represent recognition liabilities ultimately settled time future regulatory assets representing past expenditures included companys rate base used adjust companys capital structure company allowed earn return unrecovered balance 7293 million regulatory assets december 31 1997 approximately 577 million represent past expenditures effectively excluded rate base virginia state corporation commission primary jurisdiction companys rates however amount 423 million represent present value amounts recovered future rates north anna unit 3 project termination costs thus reflect reduction actual dollars recovered future rates time value money company earn return remaining 154 million regulatory assets effectively excluded rate base recovered various recovery periods 21 years depending nature deferred costs g leases plant property capital leases included following company leases principal office building parent dominion resources capitalized cost property lease net accumulated amortization represented 22 million 23 million december 31 1997 1996 respectively rental payments lease 3 million three years ended december 31 1997 1996 1995 company responsible expenses connection leases noted including maintenance future minimum lease payments noncancellable capital leases operating leases initial remaining lease terms excess one year december 31 1997 follows rents leases charged operations expense 176 million 165 million 136 million 1997 1996 1995 respectively h longterm debt longterm debt included following 1 first refunding mortgage bonds secured mortgage lien substantially companys property 2 certain pollution control facilities companys generating facilities pledged conveyed secure financings 3 interest rates vary based shortterm taxexempt market rates 1997 1996 weighted average daily interest rates 374 percent 357 percent respectively although bonds remarketed within one year period classified longterm debt company intends maintain debt supported longterm bank commitments following amounts debt mature next five years millions 1998 3335 1999 3210 2000 1955 2001 1607 2002 3150 company obligated mandatorily redeemable preferred securities subsidiary trust virginia power capital trust vp capital trust established subsidiary company sole purpose selling 135 million preferred securities 54 million shares 25 par 1995 company concurrently issued 1392 million 1995 series 805 junior subordinated notes exchange 135 million realized sale preferred securities 42 million common securities vp capital trust preferred securities common securities represent total beneficial ownership interest assets held vp capital trust notes sole assets vp capital trust preferred securities subject mandatory redemption upon repayment notes liquidation amount 25 plus accrued unpaid distributions including interest notes due september 30 2025 however date may extended additional ten years certain conditions satisfied j preferred stock subject mandatory redemption total number authorized shares preferred stock whether subject mandatory redemption 10000000 shares upon involuntary liquidation dissolution windingup company presently outstanding preferred stock entitled receive 100 per share plus accrued dividends cumulative two series preferred stock subject mandatory redemption outstanding december 31 1997 redemptions preferred stock 1997 1996 1995 company redeemed 417319 shares 730 dividend preferred stock subject mandatory redemption k preferred stock subject mandatory redemption shown series preferred stock subject mandatory redemption outstanding december 31 1997 money market preferred mmp dividend rates variable set every 49 days via auction process combined weighted average rates series 1997 1996 1995 including fees brokerdealer agreements 471 percent 448 percent 493 percent respectively 1995 company redeemed 400000 shares 745 dividend preferred stock subject mandatory redemption 450000 shares 720 dividend preferred stock subject mandatory redemption l common stock changes number authorized outstanding shares companys common stock three years ended december 31 1997 shortterm debt companys commercial paper program maximum borrowing capacity 500 million supported two credit facilities one 300 million fiveyear credit facility effective june 7 1996 expires june 7 2001 200 million credit facility originated june 7 1996 initial term 364 days provisions subsequent 364day extensions renewed june 6 1997 364 days total amount commercial paper outstanding december 31 1997 2262 million weighted average interest rate 588 percent represents decrease 862 million december 31 1996 balance 3124 million weighted average interest rate 551 percent n retirement plan postretirement benefits terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits retirement plan company participates dominion resources inc retirement plan retirement plan defined benefit pension plan benefits based years service average base compensation consecutive 60month period pay highest companys pension plan expenses 206 million 248 million 203 million 1997 1996 1995 respectively amounts funded company 270 million 284 million 427 million 1997 1996 1995 respectively postretirement benefits addition providing pension benefits dominion resources company provide certain health care life insurance benefits retired employees health care benefits provided retirees completed least 10 years service attaining age 45 similar benefits active employees provided insurance companies terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits net periodic postretirement benefit expense follows following table sets forth funded status plan one percent increase health care cost trend rate would result increase 50 million service interest cost components 395 million increase accumulated postretirement benefit obligation significant assumptions used determining postretirement benefit obligation company recovering costs rates accrual basis material respects jurisdictions funds collected postretirement benefits opeb rates excess opeb benefits actually paid year contributed external benefit trusts companys current funding policy see future issues competition exposure potentially stranded costs managements discussion analysis financial condition results operations restructuring company announced implementation phase vision 2000 program march 1995 phase company began reviewing operations objective outsourcing services economical appropriate reengineering remaining functions streamline operations reengineering process resulted outsourcing decentralization reorganization downsizing portions companys operations part process company reevaluated utilization capital resources operations company identify opportunities operational efficiencies outsourcing reengineering processes restructuring charges 184 million 649 million 1179 million 1997 1996 1995 respectively included severance costs purchased power contract restructuring negotiated settlement costs capital project cancellation costs incurred directly result vision 2000 initiatives company may incur additional charges severance 1998 amounts expected significant employee severance 1995 company established comprehensive involuntary severance package salaried employees may longer employed result initiatives company recognizing cost associated employee terminations accordance emerging issues task force consensus 943 management identifies positions eliminated severance payments made period exceed twenty months december 31 1997 management identified 1977 positions eliminated recognition severance costs resulted charges operations 1997 1996 1995 125 million 492 million 512 million respectively december 31 1997 1619 employees terminated severance payments totaling 74 million paid company estimates staffing reductions result annual savings range 80 million 90 million however savings offset salary increases outsourcing costs increased payroll costs associated staffing growth opportunities purchased power contracts effort minimize exposure potential stranded investment company evaluating longterm purchased power contracts negotiating modifications terms including cancellations determined economically advantageous company also negotiated settlements several parties terminate rights sell power company cost contract modifications contract cancellations negotiated settlements 38 million 78 million 81 million 1997 1996 1995 respectively using contract terms estimated quantities power would otherwise delivered relevant factors time transaction company estimated annual future purchased power costs including energy payments would reduced 08 million 58 million 1470 million 1997 1996 1995 transactions respectively cost alternative sources power might ultimately required result settlements expected significantly less estimated reduction purchased power costs construction project restructuring charges reported 1995 included 373 million cancellation project construct facility handle low level radioactive waste companys north anna power station result reevaluating handling low level radioactive waste company concluded facility completed due additional capital investment required decreased company volumes low level radioactive waste resulting improvements station procedures availability economical offsite processing p accelerated cost recovery increasingly competitive environment company also concluded appropriate utilize available cost reductions generated vision 2000 program see note consolidated financial statements accelerate writeoff existing unamortized regulatory assets strategically position company anticipation competition also reflects companys commitment mitigate exposure potentially stranded costs see competition managements discussion analysis financial condition results operations company identified savings 384 million 1997 267 million 1996 used establish reserve expected adjustments regulatory assets q commitments contingencies company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies regarding matters arising ordinary course business involve substantial amounts management opinion final disposition proceedings material adverse effect results operations financial position company utility rate regulation march 1997 virginia commission issued order virginia powers base rates made interim subject refund march 1 1997 order result commission staffs report review virginia powers 1995 annual informational filing concluded virginia powers present rates would cause virginia power earn excess authorized return equity staff found purposes establishing rates prospectively rate reduction 956 million including onetime adjustment 297 million virginia powers deferred capacity balance december 31 1996 may necessary order realign rates authorized level march 1997 virginia power filed alternative regulatory plan arp based 1996 financial information subsequently commission consolidated proceeding concerned 1995 annual informational filing proceeding includes arp proposed company december 1997 virginia power sought withdraw arp concluded resolution cost recovery issues raised arp unlikely without general assembly action commission agreed company may withdraw support arp reserved right continue consideration arp well regulatory alternatives addition commission continue consider issues arising 1995 annual informational filing commissions staff scheduled file testimony march 24 1998 virginia powers rebuttal filed april 27 1998 reply testimony filed may 11 1998 public hearing scheduled commence may 19 1998 virginia powers previous filings proceeding support maintaining companys rates current levels however opposing parties made filings recommending rate reductions excess 200 million time management cannot predict ultimate outcome proceeding impact companys results operations cash flows financial position retrospective premium assessments several companys nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note c consolidated financial statements construction program company made substantial commitments connection construction program nuclear fuel expenditures estimated total 5881 million excluding afc 1998 company presently estimates 1998 construction expenditures including nuclear fuel met cash flow operations purchased power contracts since 1984 company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 57 nonutility purchase contracts combined dependable summer capacity 3277 mw table reflects companys minimum commitments december 31 1997 power purchases utility nonutility suppliers payments made virginia power satisfaction minimum purchase commitments shown table subject reduction partial refund 1 nonutility suppliers fail meet performance requirements 2 changes federal state law administrative actions disallow effect disallowing virginia powers recovery costs customers amount payment reductions refunds determined administered provided individual supply contracts although 1 deferral refund obligations 2 disputes applicability payment reductions refund obligations 3 ability nonutility suppliers make refunds could limit virginia powers ability benefit contract provisions addition minimum purchase commitments table contracts company may purchase option additional power needed actual payments purchased power including economy emergency limited term shortterm purchases utility operations well trading purposes years 1997 1996 1995 1381 million 1183 million 1093 million respectively discussion companys efforts restructure certain purchased power contracts see note consolidated financial statements fuel purchase commitments companys estimated fuel purchase commitments next five years system generation follows millions 1998 293 1999 233 2000 144 2001 144 2002 127 sale power company enters agreements utilities parties purchase sell capacity energy agreements may cover current future periods forward positions volume transactions varies day based market conditions current anticipated load factors combined amounts sales purchases range 500 mw 7000 mw various times given year operations closely monitored risk management perspective environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations company costs historically recovered ratemaking process however material costs incurred recovered rates companys results operations financial condition could adversely impacted site remediation epa identified company several entities potentially responsible parties prps two superfund sites located kentucky pennsylvania estimated future remediation costs sites range 615 million 725 million companys proportionate share cost expected range 17 million 25 million based upon allocation formulas volume waste shipped sites company accrued reserve 17 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay costs apportioned company dominion resources remedial action responsibilities remaining two coal tar sites company accrued 2 million reserve meet estimated liability based site studies investigations performed sites addition two civil actions instituted city norfolk virginia power property owners allege property contaminated toxic pollutants originating one coal tar sites owned city norfolk formerly owned company first civil action reached settlement without trial september 1997 remaining plaintiff seeking compensatory damages 2 million punitive damages 1 million early case company predict outcome company filed answers denying liability trial date set company generally seeks recover costs associated environmental remediation third party insurers december 31 1997 pending possible claims recognized asset offset recorded obligations company r fair value financial instruments company used available market information appropriate valuation methodologies estimate fair value class financial instrument practicable estimate fair value estimates necessarily indicative amounts company could realize market exchange addition use different market assumptions may material effect estimated fair value amounts cash equivalents shortterm debt carrying amount items approximates fair value short maturity nuclear decommissioning trust funds fair value based available market information generally average bid asked price first refunding mortgage bonds fair value based market quotations mediumterm notes valued discounting remaining cash flows rate estimated issue yield curve rate estimated relate treasury bond rates specific issues corresponding maturities money market municipal taxexempt securities interest rates notes vary fair value approximates carrying value convertible interest rate taxexempt bonds preferred stock subject mandatory redemption fair value based market quotations estimated discounting dividend principal payments representative issue series average remaining life series preferred securities subsidiary trust fair value based market quotations quarterly financial data unaudited following amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions rate relief factors certain accruals recorded 1997 1996 ordinary recurring adjustments consisting restructuring see note consolidated financial statements accelerated cost recovery see note p consolidated financial statements restructuring company expensed 63 million 14 million 107 million second third fourth quarters 1997 respectively 54 million 193 million 46 million 356 million first second third fourth quarters 1996 accelerated cost recovery amounts reserved accelerated cost recovery 28 million 283 million 73 million second third fourth quarters 1997 respectively 267 million fourth quarter 1996 charges restructuring accelerated cost recovery reduced balance available common stock 58 million 193 million 117 million second third fourth quarters 1997 respectively 35 million 125 million 30 million 406 million first second third fourth quarters 1996 item 9 item 8 financial statements supplementary data index 2004 page 28 report management’s responsibilities company accelerated filer defined exchange act rule 12b2 required comply securities exchange commission rules implementing section 404 sarbanesoxley act 2002 december 31 2005 company’s management responsible information representations contained consolidated financial statements sections company’s annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity accounting principles generally accepted united states america financial information form 10k consistent consolidated financial statements management maintains system internal control designed provide reasonable assurance reasonable cost company’s assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal control therefore cannot provide absolute assurance objectives established internal controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 2004 system internal control adequate accomplish intended objectives consolidated financial statements audited deloitte touche llp independent registered public accounting firm engaged dominion’s audit committee comprised entirely independent directors deloitte touche llp’s audit conducted accordance standards public company accounting oversight board united states board directors also serves company’s audit committee meets periodically independent registered public accounting firm internal auditors management discuss auditing internal accounting control financial reporting matters company ensure properly discharging responsibilities management recognizes responsibility fostering strong ethical climate company’s affairs conducted according highest standards personal corporate conduct responsibility characterized reflected company’s code ethics addresses potential conflicts interest compliance domestic foreign laws confidentiality proprietary information full disclosure public information 2004 page 29 report independent registered public accounting firm board directors virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “company” december 31 2004 2003 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2004 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2004 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements 2003 company changed methods accounting adopt new accounting standards asset retirement obligations contracts involved energy trading derivative contracts held trading purposes derivative contracts price adjustment feature consolidation variable interest entities guarantees deloitte touche llp richmond virginia february 28 2005 2004 page 30 virginia electric power company consolidated statements income accompanying notes integral part consolidated financial statements 2004 page 31 virginia electric power company consolidated balance sheets 2004 page 32 virginia electric power company consolidated balance sheets accompanying notes integral part consolidated financial statements 2004 page 33 virginia electric power company consolidated statements common shareholder’s equity comprehensive income accompanying notes integral part consolidated financial statements 2004 page 34 virginia electric power company consolidated statements cash flows accompanying notes integral part consolidated financial statements 2004 page 35 virginia electric power company notes consolidated financial statements note 1 nature operations virginia electric power company virginia public service company whollyowned subsidiary dominion resources inc dominion company regulated public utility generates transmits distributes electric energy within area approximately 30000 squaremiles virginia northeastern north carolina sells electricity approximately 23 million retail customer accounts including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 virginia’s total land area accounts 80 population company trading relationships beyond geographic limits retail service territory buys sells natural gas electricity energyrelated commodities within document “company” refers entirety virginia electric power company including virginia north carolina operations consolidated subsidiaries company manages daily operations three operating segments generation energy delivery addition company reports corporate functions segment note 2 significant accounting policies general company makes certain estimates assumptions preparing consolidated financial statements accordance accounting principles generally accepted united states america estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses periods presented actual results may differ estimates consolidated financial statements included eliminating intercompany transactions balances accounts company majorityowned subsidiaries variable interest entities vies company determined primary beneficiary certain amounts 2003 2002 consolidated financial statements footnotes reclassified conform 2004 presentation operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers company’s customer accounts receivable december 31 2004 2003 included 251 million 234 million respectively accrued unbilled revenue based estimated amounts electric energy delivered yet billed utility customers company estimates unbilled utility revenue based historical usage applicable customer rates weather factors total daily electric generation supplied adjusting estimated losses energy transmission primary types sales service activities reported operating revenue include • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services subject costofservice rate regulation • nonregulated electric sales consist primarily excess generation sold marketbased rates electric trading revenue • nonregulated gas sales consist primarily sales natural gas marketbased rates brokered gas sales gas trading revenue • revenue consists primarily sales coal also includes miscellaneous service revenue electric distribution operations sales oil miscellaneous revenue see derivative instruments discussion accounting changes effective january 1 2003 october 1 2003 impacted recognition classification changes fair value including settlements contracts held energy trading purposes electric fuel purchased energydeferred costs permitted regulatory authorities differences actual electric fuel purchased energy expenses levels recovery expenses current rates deferred matched recoveries future periods deferral costs recovery fuel rate revenue excess current period expenses recognized regulatory asset liability effective january 1 2004 company’s fuel factor provisions virginia retail customers locked earlier july 1 2007 termination capped rates onetime adjustment fuel factor effective july 1 2007 december 31 2010 adjustment previously incurred overrecovery underrecovery thus eliminating deferred fuel accounting virginia jurisdiction result approximately 12 cost fuel used electric generation energy purchases used serve utility customers subject deferral accounting prior amendments virginia electric utility restructuring act virginia restructuring act virginia fuel factor statute 2004 approximately 93 cost fuel used electric generation energy purchases used serve utility customers subject deferral accounting deferred costs associated virginia jurisdictional portion expenditures incurred 2003 continue reported regulatory assets pending recovery future rates 2004 page 36 notes consolidated financial statements continued income taxes company files consolidated federal income tax return participates intercompany tax allocation agreement dominion subsidiaries company’s current income taxes based taxable income determined separate company basis december 31 2004 2003 company’s consolidated balance sheets include 24 million current taxes payable dominion recorded accrued interest payroll taxes 4 million current taxes receivable dominion recorded prepayments respectively however public utility holding company act 1935 act intercompany tax allocation agreement company’s cash payments dominion limited permitted regulatory authorities treatment temporary differences differ requirements statement financial accounting standards sfas 109 accounting income taxes accordingly regulatory asset recognized probable future revenue provided payment deferred tax liabilities company establishes valuation allowance likely portion deferred tax asset realized deferred investment tax credits amortized service lives properties giving rise credits cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 2004 2003 company’s accounts payable includes 41 million 54 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows company considers cash equivalents include cash hand cash banks temporary investments purchased remaining maturity three months less derivative instruments company uses derivative instruments futures swaps forwards options manage commodity currency exchange financial market risks business operations company also manages portfolio commodity contracts held trading purposes part strategy market energy manage related risks derivatives except exception applies reported consolidated balance sheets fair value one exceptions normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenue resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance derivative contracts subject fair value accounting including unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities derivatives designated hedging instruments changes fair value recorded earnings valuation methods fair value based actively quoted market prices available absence actively quoted market prices company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available company must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis options contracts optionlike characteristics pricing information available external sources company generally uses modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value option models used company special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics company estimates fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different valuation models assumptions could material effect contract’s estimated fair value derivative instruments designated hedging instruments company designates derivative instruments held purposes trading fair value cash flow hedges accounting purposes derivatives designated hedges relationship hedging instrument hedged item formally documented well risk management objective strategy using hedging instrument company assesses whether hedge relationship derivative hedged item highly effective offsetting changes fair value cash flows inception hedge ongoing basis change fair value derivative effective offsetting changes fair value cash flows hedged item recognized currently earnings also management may elect exclude certain gains losses hedging instruments measurement hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings company discontinues hedge accounting prospectively derivative ceases highly effective hedge cash flow hedgesa portion company’s hedge strategies represents cash flow hedges variable price risk associated purchase sale natural gas company also uses foreign currency forward contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt cash 2004 page 37 notes consolidated financial statements continued flow hedge transactions company hedging variability cash flows changes fair value derivative reported accumulated comprehensive income loss aoci extent effective offsetting changes hedging relationship earnings affected hedged item cash flow hedge transactions involve forecasted transaction company would discontinue hedge accounting occurrence forecasted transaction determined longer probable company would reclassify derivative gains losses reported aoci earnings forecasted item included earnings occur earlier becomes probable forecasted transaction would occur fair value hedgesthe company also engages fair value hedges using derivative instruments mitigate fixed price exposure inherent certain natural gas inventory addition company designated interest rate swaps fair value hedges manage interest rate exposure certain fixedrate longterm debt fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value statement income presentationgains losses derivatives designated hedges recognized included operating revenue operating expenses interest related charges consolidated statements income specific line item classification determined based nature risk underlying individual hedge strategies portion gains losses hedging instruments determined ineffective portion gains losses hedging instruments excluded measurement hedging relationship’s effectiveness gains losses attributable changes time value options changes difference spot prices forward prices included operations maintenance expense derivative instruments held trading purposes part strategy market energy manage related risks company manages portfolio commoditybased derivative instruments held trading purposes primarily natural gas electricity company uses established policies procedures manage risks associated price fluctuations energy commodities uses various derivative instruments reduce risk creating offsetting market positions company may also hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent company hold offsetting positions derivatives management believes instruments would represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates statement income presentation • derivatives held trading purposes changes fair value including amounts realized upon settlement presented revenue net basis nonregulated electric sales nonregulated gas sales revenue • financiallysettled derivativesnot held trading purposes designated hedging instruments unrealized changes fair value settlements presented operations maintenance expense net basis • physicallysettled derivativesnot held trading purposes designated hedging instruments effective october 1 2003 statement income related amounts physically settled derivative sales contracts presented revenue statement income related amounts physically settled derivative purchase contracts reported expenses periods prior october 1 2003 unrealized changes fair value physically settled derivative contracts presented operations maintenance expense net basis effective january 1 2003 company recognizes revenue expense nonderivative energyrelated contracts gross basis time contract performance settlement termination prior 2003 energy trading contracts including nonderivative contracts recorded fair value changes fair value reported revenue net basis nuclear decommissioning trust funds company analyzes securities classified availableforsale determine whether decline fair value considered otherthantemporary company uses several criteria evaluate otherthantemporary declines including length time market value lower cost percentage decline compared average cost expected fair value security market value security less cost greater nine months decline value greater 50 average cost security written expected recovery value one criteria met analysis performed evaluate expected recovery value based third party price targets third party price quotes security’s average cost one criteria met decline considered otherthantemporary security written expected recovery value property plant equipment property plant equipment including additions replacements recorded original cost including labor materials asset retirement costs direct costs capitalized interest cost repairs maintenance including minor additions replacements charged expense incurred 2004 2003 2002 company capitalized interest costs 7 million 18 million 17 million respectively electric distribution transmission property subject costofservice utility rate regulation depreciable cost property less salvage value charged accumulated depreciation retirement cost removal collections utility customers expenditures representing assets retirement obligations aros recorded regulatory liabilities regulatory assets generationrelated property cost removal associated aros charged expense incurred company 2004 page 38 notes consolidated financial statements continued records gains losses upon retirement generationrelated property based upon difference proceeds received property’s undepreciated basis retirement date depreciation property plant equipment computed straightline method based projected service lives company’s depreciation rates property plant equipment 2004 2003 2002 follows amortization nuclear fuel used electric generation provided unitofproduction basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs 2002 company extended estimated useful lives fossil fuel power stations electric transmission distribution property based depreciation studies indicated longer lives appropriate changes reduced annual depreciation expense assets approximately 64 million impairment longlived intangible assets company performs evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable assets written fair value sum expected future undiscounted cash flows less carrying amounts regulatory assets liabilities utility operations subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators allow recovery current costs future rates charged customers company defers costs regulatory assets financial statements otherwise would expensed nonregulated companies likewise company recognizes regulatory liabilities financial statements probable regulators allow customer credits future rates revenue collected customers expenditures yet incurred asset retirement obligations beginning 2003 company recognizes aros fair value incurred capitalizing amounts costs related tangible long lived assets due absence relevant market information fair value estimated using discounted cash flow analyses company reports accretion liabilities due passage time operating expense addition beginning 2003 company classifies investments held decommissioning trusts availableforsale recognizes realized gains losses income loss records unrealized gains losses aoci nuclear decommissioning2002 accordance accounting policy recognized regulatory authorities jurisdiction electric utility operations company recognized expense future cost decommissioning amounts equal sum amounts collected ratepayers earnings trust investments dedicated funding decommissioning nuclear plants trust investments reported fair value accumulated provision decommissioning reported liability net realized unrealized earnings trust investments well offsetting expense increase accumulated provision decommissioning recorded component income loss amortization debt issuance costs company defers amortizes debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issues note 3 newly adopted accounting standards fin 46r company adopted fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r interests vies considered special purpose entities march 31 2004 discussed company adopted fin 46r interests special purpose entities december 31 2003 fin 46r addresses identification consolidation vies entities controllable voting interests vies’ equity investors bear residual economic risks rewards proportion voting rights impact company’s results operations financial position related adoption company party longterm contracts purchases electric generation capacity energy qualifying facilities independent power producers certain variable pricing terms contracts cause considered potential variable interests require evaluation provisions fin 46r power generator holds one specific types contracts determined vie company determined primary beneficiary company would required consolidate entity financial statements consolidation one potential vies would primarily result addition property plant equipment longterm debt minority interest company’s consolidated balance sheets impact company’s consolidated statements income would purchased energy capacity expenses 2004 page 39 notes consolidated financial statements continued attributable longterm contract vie would replaced vie’s operations maintenance interest expenses vie’s results operations would reported income attributable minority interest would affect company’s net income debt potential vies even included company’s consolidated balance sheets would nonrecourse company march 31 2004 company determined power purchase agreements ten entities would require analysis fin 46r facilities began commercial operations service company longterm contracts prior december 31 2003 since entities established legally owned parties affiliated company submitted requests information needed evaluate entity contractual relationship entity fin 46r addition company informed entities results evaluation indicate company consolidate entity would also require periodic financial information order perform accounting required consolidate entity financial statements objectives fin 46r evaluation determine 1 whether company’s interest represented power purchase contract significant variable interest 2 whether supplier entity vie 3 supplier entity vie whether company primary beneficiary response requests five potential vie supplier entities provided limited information completing analysis information company concluded one supplier entities vie power purchase contract represented significant variable interest vie company primary beneficiary addition using limited information received company concluded hold significant variable interests two potential vie supplier entities since enactment virginia restructuring act company sought renegotiate terminate longterm power purchase contracts efforts reduce cost structure generationrelated operations november 2004 company paid 92 million terminate power purchase agreement acquire related generating facility one potential vie suppliers provided information response company’s fin 46r request company purchased 20 million 20 million 21 million electric generation capacity 4 million 7 million 3 million electric energy power purchase agreement 2004 2003 2002 respectively addition february 2005 company paid 42 million cash assumed 62 million debt terminate power purchase agreement acquire related generating facility supplier entity company determined vie power purchase agreement represented significant variable interest company purchased 23 million 23 million 24 million electric generation capacity 8 million 10 million 5 million electric energy power purchase agreement 2004 2003 2002 respectively six potential vie supplier entities provided sufficient information company continue efforts obtain information complete evaluation relationship potential vies sufficient information ultimately obtained company remaining purchase commitments six potential vie supplier entities 26 billion december 31 2004 commitments incorporated company’s disclosure unconditional purchase obligations included note 19 company paid 249 million 250 million 300 million electric generation capacity 185 million 168 million 120 million electric energy entities 2004 2003 2002 respectively company’s exposure losses involvement entities cannot determined since losses would represented either 1 difference amount payable company energy capacity longterm contract b amounts recoverable sales retail electric customers service territory wholesale market transactions 2 potential vie supplier fails perform amount paid company obtain replacement energy capacity excess amounts otherwise payable longterm contract potential vie supplier entity emerging issues task force eitf added project agenda consider variability considered determining whether interest variable interest uncertain eitf project future efforts interpret fin 46r could impact company’s conclusions based use information received sfas 143 effective january 1 2003 company adopted sfas 143 provides accounting requirements recognition measurement liabilities associated retirement tangible longlived assets effect adopting sfas 143 2003 compared estimate net income reflecting continuation former accounting policies increase net income 160 million increase comprised 139 million aftertax gain representing cumulative effect change accounting principle increase income cumulative effect change accounting principle 21 million eitf 023 january 1 2003 company adopted eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities rescinded eitf issue 9810 accounting contracts involved energy trading risk management activities adopting eitf 023 resulted discontinuance fair value accounting nonderivative contracts held trading purposes contracts recognized revenue expense time contract performance settle 2004 page 40 notes consolidated financial statements continued ment termination eitf 9810 rescission effective nonderivative energy trading contracts initiated october 25 2002 nonderivative energy trading contracts initiated prior october 25 2002 company recognized loss 90 million 55 million aftertax cumulative effect change accounting principle january 1 2003 eitf 0311 october 1 2003 company adopted eitf issue 0311 reporting realized gains losses derivative instruments subject fasb statement 133 “held trading purposes” defined issue 023 october 1 2003 eitf 0311 addresses classification income statement related amounts derivative contracts income statement amounts related periods prior october 1 2003 presented originally reported see note 2 statement 133 implementation issue c20 connection request reconsider interpretation sfas 133 accounting derivative instruments hedging activities fasb issued statement 133 implementation issue c20 interpretation meaning ‘not clearly closely related’ paragraph 10b regarding contracts price adjustment feature issue c20 establishes criteria determining whether contract’s pricing terms contain broad market indices eg consumer price index could qualify normal purchase sale therefore subject fair value accounting company several contracts qualify normal purchase sales contracts issue c20 guidance however adoption issue c20 required contracts initially recorded fair value october 1 2003 resulting recognition aftertax charge 101 million representing cumulative effect change accounting principle normal purchase sales contracts subject fair value accounting fin 46r december 31 2003 company adopted fin 46r interests special purpose entities resulting consolidation special purpose lessor entity company constructed financed leased power generation project result consolidated balance sheet december 31 2003 reflects additional 364 million net property plant equipment deferred charges 370 million related debt resulted additional depreciation expense approximately 10 million 2004 cumulative effect 2003 adopting fin 46r company’s interests special purpose entity aftertax charge 4 million representing depreciation amortization expense associated consolidated assets 2002 company established virginia power capital trust ii sold trust preferred securities third party investors company received proceeds sale trust preferred securities exchange junior subordinated notes issued company held trust upon adoption fin 46r company began reporting longterm debt junior subordinated notes held trust rather trust preferred securities result 2004 company reported interest expense junior subordinated notes rather preferred distribution expense trust preferred securities pro forma information reflecting adoption new standards disclosure requirements associated adoption fin 46r sfas 143 require disclosure pro forma net income 2002 company applied provisions standards january 1 2002 company applied standards 2002 net income would 778 million standards adopted 2004 2003 require pro forma information excluded amount note 4 recently issued accounting standards eitf 031 accordance fsp eitf 0311 company delayed adoption recognition measurement provisions eitf 031 meaning otherthan temporary impairment application certain investments provides guidance evaluating recognizing otherthantemporary impairments certain investments debt equity securities delay effect fasb reaches final conclusion issues raised proposed fsp 031a relates primarily implementation issues concerning certain types debt securities pending adoption new guidance may finalized future company continued evaluate availableforsale securities otherthantemporary impairment based upon accounting policy described note 2 addition issues addressed fasb fsp 031a company entities electric industry sought additional guidance fasb concerning proper application eitf 031 debt equity securities held nuclear decommissioning trusts given delayed effective date request additional guidance described company cannot predict initial ongoing impact applying eitf 031 nuclear decommissioning trust investments may results operations financial condition time sfas 151 november 2004 fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 clarifies abnormal amounts idle facility expense handling costs freight wasted materials spoilage recognized current period charges requires manufacturing operations allocation fixed production overheads costs conversion based normal capacity production facility company adopt provisions standard prospectively beginning january 1 2006 expect adoption material impact results operations financial condition 2004 page 41 notes consolidated financial statements continued sfas 153 december 2004 fasb issued sfas 153 exchanges nonmonetary assetsan amendment apb opinion 29 requires commercially substantive exchange transactions fair value assets exchanged reliably determinable recorded fair value whether exchanges similar productive assets amends exception fair value measurements apb 29 accounting nonmonetary transactions nonmonetary exchanges similar productive assets replaces exception exchanges commercial substance company adopt provisions standard prospectively beginning july 1 2005 expect adoption material impact results operations financial condition note 5 operating revenue company’s operating revenue consists following note 6 income taxes details income tax expense follows statutory us federal income rate reconciles effective income tax rates follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes company’s net deferred income taxes consist following 1 december 31 2004 2003 total net deferred income tax liabilities include 112 million 54 million respectively current deferred tax assets reported current assets matter course company regularly audited federal state tax authorities company establishes liabilities probable taxrelated contingencies reviews light changing facts circumstances although results audits uncertain company believes ultimate outcome material adverse effect company’s financial position company significant taxrelated contingent liabilities december 31 2004 december 31 2004 company following loss credit carryforwards • federal loss carryforwards 18 million expire unutilized period 2023 2024 • state net operating loss carryforwards 216 million expire unutilized period 2021 2024 • federal state minimum tax credits 19 million expire 2004 page 42 notes consolidated financial statements continued american jobs creation act 2004 act signed law october 22 2004 several provisions energy companies including deduction related taxable income derived qualified production activities act qualified production activities include company’s electric generation activities act limits deduction lesser taxable income derived qualified production activities consolidated federal taxable income dominion subsidiaries time company believe qualified production activities deduction material impact company’s results operations financial position 2005 note 7 hedge accounting activities company exposed impact market fluctuations price natural gas electricity energyrelated commodities marketed purchased well currency exchange interest rate risks business operations company uses derivative instruments mitigate exposure risks designates derivative instruments fair value cash flow hedges accounting purposes 2004 connection fair value hedges natural gas inventory company recognized net income 1 million losses hedge ineffectiveness 3 million gains attributable differences spot prices forward prices excluded measurement effectiveness hedge strategy following table presents selected information related cash flow hedges included aoci consolidated balance sheet december 31 2004 actual amounts reclassified earnings 2005 vary expected amounts presented result changes market prices interest rates foreign exchange rates effect amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies note 8 nuclear decommissioning trust funds company holds marketable debt equity securities nuclear decommissioning trust funds investments classified availableforsale described prior adopting sfas 143 company record unrealized gains losses aoci rather earnings offset provision future decommissioning costs company’s decommissioning trust funds december 31 2004 summarized 1 2004 approximately 1 million unrealized losses relate primarily equity securities loss position greater 1 year securities unrealized loss position greater 1 year 2003 fair value debt securities december 31 2004 contractual maturity follows 2004 proceeds sale availableforsale securities totaled 237 million gross realized gains totaled 27 million gross realized losses totaled 24 million determining realized gains losses cost securities determined specific identification basis decommissioning trust investments2002 prior adopting sfas 143 company recognized expense future cost decommissioning nuclear plants equal amounts collected ratepayers earnings trust investments dedicated funding decommissioning plants trusts reported fair value realized unrealized earnings trust investments well offsetting expense increase accumulated provision decommissioning recorded component income loss 2002 company recognized net realized gains interest income 11 million net unrealized losses 67 million related trusts 2004 page 43 notes consolidated financial statements continued note 9 property plant equipment major classes property plant equipment respective balances jointlyowned utility plants company’s proportionate share jointlyowned utility plants december 31 2004 follows coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest company reports share operating costs appropriate operating expense fuel operations maintenance depreciation amortization taxes etc consolidated statements income note 10 intangible assets company’s intangible assets subject amortization expense intangible assets 27 million 25 million 24 million 2004 2003 2002 respectively material acquisitions intangible assets 2004 2003 intangible assets included assets consolidated balance sheets components intangible assets december 31 2004 2003 follows annual amortization expense intangible assets estimated 32 million 2005 27 million 2006 23 million 2007 14 million 2008 11 million 2009 note 11 regulatory assets liabilities company’s regulatory assets liabilities include following 1 income taxes recoverable future rates resulted recognition additional deferred income taxes previously recorded past ratemaking practices 2 cost decommissioning department energy’s doe uranium enrichment facilities represents unamortized portion company’s required contributions fund decommissioning decontaminating doe’s uranium enrichment facilities contributions began 1992 continue 15year period escalation inflation costs currently recovered fuel rates 3 deferred fuel accounting provides difference 1 reasonably incurred actual cost fuels used electric generation energy purchases 2 recovery costs included current rates deferred matched future revenue deferred fuel costs historically recovered within two years however connection settlement 2003 virginia fuel rate proceeding company agreed recover 307 million previously incurred costs june 30 2007 without return unrecovered balances 4 federal energy regulatory commission ferc authorized deferral startup costs incurred transmission owning companies joining regional transmission organization rto company deferred 4 million startup costs associated alliance regional transmission organization arto 24 million associated pjm rto associated carrying costs 3 million company expects recovery virginia jurisdictional retail customers commence end virginia retail rate cap period subject regulatory approval 5 rates charged customers company’s regulated business include provision cost future activities remove assets expected incurred time retirement 6 company’s regulatory liability represents excess accumulated provision nuclear decommissioning accrued prior accounting policy decommissioning based amounts collected company’s north carolina jurisdictional customers fund future decommissioning activities amounts recognized sfas 143 december 31 2004 approximately 282 million company’s regulatory assets represented past expenditures earn return expenditures consist 2004 page 44 notes consolidated financial statements continued primarily regional transmission organization startup integration costs portion deferred fuel costs note 12 asset retirement obligations company’s aros primarily associated decommissioning nuclear generation facilities changes company’s aros 2004 follows company established trusts dedicated funding future decommissioning nuclear plants december 31 2004 2003 aggregate fair value trusts consisting primarily debt equity securities totaled 11 billion 10 billion respectively note 13 shortterm debt credit agreements may 2004 2002 dominion consolidated natural gas company cng whollyowned subsidiary dominion company entered two joint credit facilities allow aggregate borrowings 225 billion facilities include 15 billion threeyear revolving credit facility terminates may 2007 750 million threeyear revolving credit facility terminates may 2005 expected 750 million credit facility renewed prior maturity credit facilities used working capital support combined commercial paper programs dominion cng company general corporate purposes 15 billion 750 million credit facilities also used support issuance 500 million 200 million letters credit respectively december 31 2004 total outstanding commercial paper supported joint credit facilities 573 million company’s borrowings 267 million weighted average interest rate 235 december 31 2003 total outstanding commercial paper supported previous credit agreements 144 billion company’s borrowings 717 million weighted average interest rate 117 december 31 2004 total outstanding letters credit supported joint credit facilities 183 million total 104 million issued behalf unregulated subsidiary company december 31 2003 total outstanding letters credit supported joint credit facilities 85 million total 62 million issued behalf unregulated subsidiary company 2004 page 45 notes consolidated financial statements continued note 14 longterm debt longterm debt consists following 1 represents weightedaverage coupon rates debt outstanding december 31 2004 2 substantially company’s property subject lien mortgage securing mortgage bonds 3 december 15 2008 225 million 410 callable puttable enhanced securitiessm due 2038 subject redemption par plus accrued interest unless holders related options exercise rights purchase remarket notes 4 certain pollution control equipment company’s generating facilities pledged support financings variable rate taxexempt financings supported standalone 200 million threeyear credit facility terminates may 2006 5 represents debt associated special purpose lessor entity consolidated accordance fin 46r debt nonrecourse company secured entity’s property plant equipment 346 million 359 million december 31 2004 2003 respectively 6 represents changes fair value certain fixed rate longterm debt associated fair value hedging relationships based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2004 follows millions company’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2004 events default company’s covenants junior subordinated notes payable affiliated trust 2002 company established subsidiary capital trust virginia power capital trust ii trust finance subsidiary company holds 100 voting interests sold 16 million 7375 trust preferred securities 400 million representing preferred beneficial interests 97 beneficial ownership assets held trust exchange 400 million realized sale trust preferred securities 12 million common securities represent remaining 3 beneficial ownership interest assets held capital trust company issued 412 million 2002 7375 junior subordinated notes junior subordinated notes due july 30 2042 junior subordinated notes constitute 100 trust’s assets trust must redeem trust preferred 2004 page 46 notes consolidated financial statements continued securities junior subordinated notes repaid maturity redeemed prior maturity previous accounting guidance company consolidated trust preferred securities subsidiary trust preparation consolidated financial statements accordance fin 46r company ceased consolidate trust december 31 2003 instead reports longterm debt consolidated balance sheet junior subordinated notes issued company held trust distribution payments trust preferred securities held trust considered fully unconditionally guaranteed company related agreements taken consideration guarantee agreement provides guarantee distribution payments trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon company’s payment amounts due junior subordinated notes payment junior subordinated notes deferred company may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period company may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes note 15 preferred stock company authorized issue 10 million shares preferred stock 100 liquidation preference upon involuntary liquidation dissolution windingup company share entitled receive 100 per share plus accrued dividends cumulative holders outstanding preferred stock company entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock 2002 company issued 1250 units consisting 1000 shares per unit cumulative preferred stock 125 million preferred stock dividend rate 550 end initial dividend period december 20 2007 dividend rate subsequent periods determined according periodic auctions except initial dividend period noncall period preferred stock redeemable whole part dividend payment date option company may also redeem preferred stock whole part certain changes made federal tax law reduce dividends received deduction percentage presented series preferred stock subject mandatory redemption outstanding december 31 2004 1 73105 10282 commencing 8105 amounts decline steps thereafter 10000 2 83105 10280 commencing 9105 amounts decline steps thereafter 10000 note 16 shareholder’s equity common stock 2004 approved virginia state corporation commission virginia commission dominion made equity investment company purchase company’s common stock company issued 20115 shares common stock dominion cash consideration 500 million paidin capital 2004 2003 company recorded 11 million 21 million respectively paidin capital connection reduction amounts payable dominion accumulated comprehensive income presented table summary aoci component note 17 dividend restrictions 1935 act related regulations issued securities exchange commission sec impose restrictions transfer receipt funds registered holding company like dominion subsidiaries including company restrictions include general prohibition loans advances made subsidiaries benefit registered holding company 1935 act registered holding companies subsidiaries may pay dividends 2004 page 47 notes consolidated financial statements continued retained earnings unless sec specifically authorizes payments capital accounts 2004 sec granted relief authorizing company’s nonutility subsidiaries pay dividends capital unearned surplus situations subsidiary received excess cash asset sale engaged restructuring returning capital associate company virginia commission may prohibit public service company declaring paying dividend affiliate found public interest december 31 2004 virginia commission restricted payment dividends company certain agreements associated company’s joint credit facilities dominion cng contain restrictions ratio debt total capitalization limitations restrict company’s ability pay dividends dominion receive dividends subsidiaries december 31 2004 see note 14 description potential restrictions dividend payments company connection deferral distribution payments trust preferred securities note 18 employee benefit plans company participates defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer company subject dominion’s funding policy generally contribute annually amount accordance provisions employment retirement income security act 1974 company’s net periodic pension cost 40 million 23 million 7 million 2004 2003 2002 respectively company’s contributions pension plan 108 million 37 million 2003 2002 respectively company contribute pension plan 2004 company participates plans provide certain retiree health care life insurance benefits multiple dominion subsidiaries annual premiums based several factors age retirement date years service company’s net periodic benefit cost 44 million 44 million 34 million 2004 2003 2002 respectively certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly company funds postretirement benefit costs voluntary employees’ beneficiary associations company’s contributions health care life insurance plans 34 million 31 million 17 million 2004 2003 2002 respectively company also participates dominionsponsored employee savings plans cover substantially employees employer matching contributions 11 million 10 million 10 million incurred 2004 2003 2002 respectively note 19 commitments contingencies result issues generated ordinary course business company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money management believes final disposition proceedings material effect company’s financial position liquidity results operations longterm purchase agreements unconditional purchase obligations defined accounting standards longterm commitments noncancelable cancelable certain conditions third parties used secure financing provide contracted goods services presented summary company’s agreements december 31 2004 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices payments energy based applicable pricing times units electrical energy delivered december 31 2004 present value total commitment capacity payments 34 billion capacity payments totaled 570 million 611 million 661 million energy payments totaled 293 million 289 million 219 million 2004 2003 2002 respectively 2004 company paid 153 million cash assumed 213 million debt connection termination three longterm power purchase agreements acquisition related generating facilities used nonutility generators provide electricity company connection termination agreements company recorded aftertax charges totaling 43 million charges include reversal 167 million pretax contract liability associated one terminated agreements contract liability represented remaining balance fair value recorded october 2003 upon adoption sfas 133 implementation issue c20 interpretation meaning “not clearly closely related” paragraph 10b regarding contracts price adjustment feature issue c20 power purchase agreement contained pricing terms linked broad market index recorded fair value upon adoption issue c20 however since qualified normal purchase sale contract changes fair value recognized 2003 company paid 154 million purchase generating facility termination two longterm power purchase agreements nonutility generators company recorded aftertax charges totaling 65 million termination longterm power purchase agreements company allocates purchase price assets liabilities 2004 page 48 notes consolidated financial statements continued acquired terminated agreements based estimated fair values date acquisition fourth quarter 2004 company recorded 112 million aftertax charge related interest longterm power tolling contract 551 megawatt combined cycle facility located batesville mississippi company decided divest interest longterm power tolling contract connection dominion’s reconsideration scope certain activities clearinghouse including conducted behalf company’s business segments dominion’s ongoing strategy focus business activities within main maine region charge based company’s evaluation preliminary bids received third parties reflecting expected amount consideration would required third party assumption company’s interest contract first quarter 2005 lease commitments company leases various facilities vehicles equipment operating capital leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2004 follows millions rental expense totaled 40 million 49 million 52 million 2004 2003 2002 respectively majority reflected operations maintenance expense environmental matters company subject costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2010 excess level currently included virginia jurisdictional electric retail rates company’s results operations decrease date company may seek recovery rates environmental costs related regulated electric transmission distribution operations superfund sites time company may identified potentially responsible party superfund site environmental protection agency epa state either allow party conduct pay remedial investigation feasibility study remedial action b conduct remedial investigation action seek reimbursement parties party held jointly severally strictly liable costs parties also bring contribution actions seek reimbursement insurance companies result company may responsible costs remedial investigation actions superfund act laws regulations regarding remediation waste company believe currently identified sites result significant liabilities 1987 epa identified company number entities potentially responsible parties prps two superfund sites located kentucky pennsylvania 2003 epa issued certificate completion remediation kentucky site future costs kentucky site limited minor operations maintenance expenditures remediation design ongoing pennsylvania site total remediation costs expected range 13 million 25 million based allocation formulas volume waste shipped site company accrued reserve 2 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay share costs company generally seeks recover costs associated environmental remediation third party insurers december 31 2004 pending possible claims recognized asset offset obligations epa matters relation notice violation received company 2000 epa company entered consent decree settlement 2003 committed improve air quality company already incurred certain capital expenditures environmental improvements coalfired stations virginia west virginia company continues commit additional measures current financial plans capital budget satisfy requirements consent decree nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities company’s 2004 nrc minimum financial assurance amount aggregated nuclear units 13 billion satisfied combination guarantees funds collected deposited trusts nuclear insurance priceanderson act provides public 108 billion protection per nuclear incident via obligations required owners nuclear power plants priceanderson act amendment 1988 allows inflationary provision adjustment every five years company purchased 300 million coverage commercial insurance pools remainder provided 2004 page 49 notes consolidated financial statements continued mandatory industry risksharing program event nuclear incident licensed nuclear reactor united states company could assessed 1006 million four licensed reactors exceed 10 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed three timesin 1967 1975 1998 priceanderson act expired august 31 2002 operating nuclear reactors continue covered law congress currently holding hearings reauthorize legislation company’s current level property insurance coverage 255 billion north anna surry exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc company’s nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 52 million based severity incident board directors company’s nuclear insurer discretion lower eliminate maximum retrospective premium assessment company financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program company subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 20 million north anna power station jointly owned old dominion electric cooperative discussed note 9 coowner responsible share nuclear decommissioning obligation insurance premiums including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 company entered contract doe disposal spent nuclear fuel doe failed begin accepting spent nuclear fuel january 31 1998 date provided nuclear waste policy act company’s contract doe january 2004 dominion company filed lawsuit united states court federal claims doe connection failure commence accepting spent nuclear fuel company continue safely manage spent fuel accepted doe litigation company dominion telecom inc dominion telecom defendants class action lawsuit whereby plaintiffs claimed company dominion telecom strung fiberoptic cable across land along electric transmission corridor without paying compensation plaintiffs sought damages trespass “unjust enrichment” well punitive damages defendants april 2004 parties entered settlement agreement subsequently approved court july 2004 terms settlement fund 20 million established company pay claims current former landowners well fees lawyers class costs notice class administration claims borne separately company settlement agreement resulted aftertax charge 7 million first quarter 2004 guarantees surety bonds december 31 2004 company issued 16 million guarantees support commodity transactions subsidiaries company also purchased 11 million surety bonds various purposes including providing worker compensation coverage obtaining licenses permits rightsofway terms surety bonds company obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business company may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law company unable develop estimate maximum potential amount future payments contracts events would obligate company yet occurred event occurred company notified occurrence however december 31 2004 management believes future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position stranded costs 1999 virginia enacted virginia restructuring act established detailed plan restructure virginia’s electric utility industry virginia restructuring act generation portion company’s virginia jurisdictional operations longer subject costbased regulation legislation’s deregulation generation event required discontinuance sfas 71 accounting effects certain types regulation virginia jurisdictional portion company’s generation operations 1999 april 2004 governor virginia signed law amendments virginia restructuring act virginia fuel factor statute amend 2004 page 50 notes consolidated financial statements continued ments extend capped base rates three onehalf years december 31 2010 unless modified terminated earlier virginia restructuring act addition extending capped rates amendments • lock company’s fuel factor provisions earlier july 1 2007 termination capped rates • provide onetime adjustment company’s fuel factor effective july 1 2007 december 31 2010 unless capped rates terminated earlier virginia restructuring act adjustment previously incurred overrecovery underrecovery thus eliminating deferred fuel accounting virginia jurisdiction • end wires charges earlier july 1 2007 termination capped rates consistent virginia restructuring act’s original timetable wires charges also known competitive transition charges permitted collected utilities july 1 2007 virginia restructuring act company agreed forego collection wires charges 2005 virginia customers pay fee switch company different service provider company believes capped electric retail rates applicable wires charges provided virginia restructuring act provide opportunity recover portion potentially stranded costs depending market prices electricity factors stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market capped rate environment company remains exposed numerous risks including among others exposure potentially stranded costs future environmental compliance requirements changes tax laws inflation increased capital costs december 31 2004 company’s exposure potentially stranded costs included longterm power purchase contracts could ultimately determined market generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements note 20 fair value financial instruments substantially company’s financial instruments recorded fair value exception instruments described reported based historical cost fair values determined using available market information valuation methodologies considered appropriate management financial instruments’ carrying amounts fair values december 31 2004 2003 follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues shortterm maturities variable rates repriced current market rates reasonable estimate fair value note 21 credit risk credit risk financial loss company counterparties fail perform contractual obligations order minimize overall credit risk dominion subsidiaries including company maintain credit policies including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction amounts reported margin deposit liabilities represent funds held company resulted various trading counterparties exceeding agreedupon credit limits established company amounts reported margin deposit assets represent funds held deposit various trading counterparties resulted company exceeding agreedupon credit limits established counterparties december 31 2004 2003 company margin deposit assets reported current assets 54 million 41 million respectively margin deposit liabilities reported current liabilities 19 million 1 million respectively company maintains provision credit losses based factors surrounding credit risk customers historical trends information management believes based company’s credit policies december 31 2004 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance 2004 page 51 notes consolidated financial statements continued company sells electricity provides distribution transmission services diverse group customers including residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers addition company enters contracts various companies energy industry purchases sales energyrelated commodities including natural gas electricity energy trading risk management activities transactions principally occur northeast midwest midatlantic regions united states however management believe geographic concentration contributes significantly company’s overall exposure credit risk company’s exposure credit risk concentrated primarily within energy trading risk management activities company transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices december 31 2004 gross credit exposure related transactions totaled 695 million reflecting unrealized gains contracts carried fair value plus outstanding receivables net payables netting agreements exist prior application collateral application collateral company’s credit exposure totaled 677 million amount investment grade counterparties represent 97 single counterparty exceeded 10 credit exposure amounts exclude amounts receivable affiliated companies note 22 related party transactions company engages related party transactions primarily affiliates dominion subsidiaries company’s accounts receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions company included dominion’s consolidated federal income tax return participates certain dominion benefit plans significant related party transactions disclosed transactions affiliates company unregulated subsidiary transacts affiliates certain quantities natural gas commodities market prices ordinary course business unregulated subsidiary company also involved facilitating dominion’s enterprise risk management entering certain financial derivative commodity contracts affiliates contracts principally comprised commodity swaps used dominion subsidiaries manage commodity price risks associated purchases sales natural gas part dominion’s enterprise risk management company generally manages risk exposures entering offsetting derivative instruments third parties company reports affiliated third party derivative instruments fair value related changes included earnings except extent designated cash flow hedges presented affiliated transactions recorded operating revenue operating expenses company’s consolidated balance sheets include derivative assets affiliates 84 million 86 million december 31 2004 2003 respectively derivative liabilities affiliates 34 million 65 million december 31 2004 2003 respectively dominion resources services inc dominion services provides accounting legal certain administrative technical services company provides certain services affiliates including charges facilities equipment usage cost services follows company assigned energy contracts dominion subsidiary 2003 regulatory approval connection dominion’s plan transfer certain wholesale power marketing activities occur outside company’s service territory company received 13 million representing net fair value contracts transferred contracts involve delivery electric energy physical power purchases 17 million megawatthours sales 19 million megawatthours 2003 2006 company assigned sales contract dominion subsidiary 2003 involving delivery approximately 6 million megawatthours wholesale electric energy 2003 declining approximately 05 million megawatthours annually 2004 2006 4000 megawatthours 2008 transactions dominion company leases principal office building dominion agreement expires 2008 lease agreement approved virginia commission accounted capital lease capitalized cost property lease net accumulated amortization approximately 8 million 10 million december 31 2004 2003 2004 page 52 notes consolidated financial statements continued respectively rental payments lease 3 million 2004 2003 2002 company subsidiaries borrowed funds dominion december 31 2004 2003 outstanding borrowings net repayments shortterm demand note totaled 645 million 154 million respectively longterm note totaled 220 million periods interest charges incurred company related borrowings 11 million 1 million 2004 2003 respectively 2004 approved virginia commission dominion made equity investment company purchase company’s common stock company issued 20115 shares common stock dominion cash consideration 500 million company used proceeds part pay 345 million shortterm demand note dominion 2004 2003 company recorded 11 million 21 million respectively paidin capital connection reduction amounts payable dominion related party transactions upon adoption fin 46r interests special purpose entities december 31 2003 company ceased consolidate virginia power capital trust ii finance subsidiary company junior subordinated notes issued company held trust reported longterm debt company reported 31 million interest expense junior subordinated notes payable affiliated trust 2004 30 million distributions mandatorily redeemable trust preferred securities 2003 note 23 operating segments company organized primarily basis products services sold united states company manages operations three operating segments generation includes company’s portfolio electric generating facilities power purchase agreements marketing excess generation resources coal trading marketing activities energy includes company’s electric transmission operations energy trading risk management activities delivery includes company’s electric distribution system customer service operations energy segment’s electric transmission operations delivery segment continue subject requirements sfas 71 majority company’s revenue provided tariff rates generally revenue allocated among three segments management reporting based unbundled rate methodology addition company also reports corporate functions segment contribution net income company’s operating segments determined based measure profit executive management believes representative segments’ core earnings result certain specific items attributable segments included profit measures evaluated executive management assessing segment’s performance allocating resources among segments specific items reported corporate segment 2004 include • charges reflecting company’s valuation interest longterm power tolling contract termination three longterm power purchase agreements • charge related class action lawsuit settlement • benefit adjust restoration expenses accrued 2003 associated hurricane isabel 2003 specific items include • cumulative effect changes accounting principles • incremental restoration expenses associated hurricane isabel • charges termination two longterm power purchase agreements restructuring certain electric sales contracts • severance costs workforce reduction company reported specific items corporate attributable operating segments 2002 fourth quarter 2004 company performed evaluation clearinghouse trading marketing operations resulted decision exit certain energy trading activities instead focus optimization company assets beginning 2005 revenue expenses clearinghouse’s optimization company assets reported part results business segments operating related assets order better reflect performance underlying assets result changes 2004 2003 results reflect revenue expenses associated clearinghouse’s coal trading marketing activities generation segment intersegment sales transfers based underlying contractual arrangements agreements may result intersegment profit loss 2004 page 53 notes consolidated financial statements continued following table presents segment information pertaining company’s operations note 24 quarterly financial data unaudited summary quarterly results operations years ended december 31 2004 2003 follows amounts reflect adjustments consisting normal recurring accruals necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors 2004 results include impact following significant item • fourth quarter results include 112 million aftertax charge reflecting company’s valuation interest longterm power tolling contract subject planned divestiture first quarter 2005 2003 results include impact following significant items • first quarter results include 84 million net aftertax gain representing cumulative effect adopting sfas 143 eitf 023 described note 3 2004 page 54 notes consolidated financial statements continued • third quarter results include 80 million aftertax incremental restoration expenses associated hurricane isabel • fourth quarter results include 105 million aftertax loss representing cumulative effect adopting issue c20 fin 46r described note 3 42 million aftertax incremental restoration expenses associated hurricane isabel item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2009 2008 related consolidated statements income common shareholders’ equity comprehensive income cash flows three years period ended december 31 2009 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2009 2008 results operations cash flows three years period ended december 31 2009 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements dominion changed methods accounting adopt new accounting standards impairment framework oil gas properties 2009 fair value measurements 2008 also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 26 2010 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 26 2010 dominion resources inc consolidated statements income 1 net income tax expense benefit 3 million 115 million 2008 2007 respectively 2007 expense includes 76 million 56 million us federal canadian taxes respectively related gain sale canadian ep operations 2 reflects 259 million 158 million aftertax extraordinary charge connection reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 billion shares authorized 599 million shares 583 million shares outstanding december 31 2009 2008 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements common shareholders’ equity 1 includes net income attributable dominion deduction subsidiary preferred dividends 2 includes 256 million accrued dividends due early declaration first quarter 2009 common dividend december 2008 3 see note 3 additional information 4 includes atthemarket issuances debt common stock exchange see note 20 additional information accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income 1 comprehensive income year ended december 31 2009 excludes 20 million 12 million aftertax adjustment aoci representing cumulative effect change accounting principle related recognition presentation otherthantemporary impairments accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows 1 discussed note 3 2008 2007 amounts recast due dominion’s adoption new accounting guidance noncontrolling interests 2 2009 2008 2007 amounts include 2 million 5 million 4 million respectively cash classified held sale dominion’s consolidated balance sheets accompanying notes integral part dominion’s consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2009 2008 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2009 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2009 2008 results operations cash flows three years period ended december 31 2009 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements virginia power changed methods accounting adopt new accounting standard fair value measurements 2008 deloitte touche llp richmond virginia february 26 2010 virginia electric power company consolidated statements income 1 reflects 259 million 158 million aftertax extraordinary charge connection reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 300000 shares authorized 241710 shares 209833 shares outstanding december 31 2009 2008 respectively accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity 1 see note 3 additional information accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income 1 comprehensive income year ended december 31 2009 excludes 3 million 2 million aftertax adjustment aoci representing cumulative effect change accounting principle related recognition presentation otherthantemporary impairments accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s common stock owned dominion’s operations also include regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states lng import storage facility maryland regulated gas transportation distribution operations ohio pennsylvania west virginia discussed note 4 dominion completed sale pennsylvania gas distribution operations february 2010 dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations natural gas oil exploration production appalachian basin us dominion manages daily operations three primary operating segments dvp dominion generation dominion energy addition dominion reports corporate segment includes corporate service company functions net impact certain operations disposed discussed note 4 corporate also includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments prior fourth quarter 2009 hope included dominion’s corporate segment assets liabilities classified held sale fourth quarter 2009 following dominion’s decision retain subsidiary hope transferred dominion energy operating segment assets liabilities reclassified held sale virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 27 discussion dominion’s virginia power’s operating segments term “dominion” used throughout report depending context use may represent following legal entity dominion resources inc one dominion resources inc’s consolidated subsidiaries virginia power operating segments entirety dominion resources inc consolidated subsidiaries term “virginia power” used throughout report depending context use may represent following legal entity virginia electric power company one consolidated subsidiaries operating segments entirety virginia power consolidated subsidiaries note 2 significant accounting policies general dominion virginia power make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates dominion’s virginia power’s consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries dominion virginia power report certain contracts instruments fair value see note 7 information fair value measurements certain amounts 2008 2007 consolidated financial statements footnotes recast conform 2009 presentation amounts disclosed dominion inclusive virginia power applicable accounting effects certain types regulation march 1999 virginia power discontinued application accounting guidance costbased regulation majority generation operations upon enactment deregulation legislation virginia power’s electric utility transmission distribution operations continued apply guidance since remained subject costofservice rate regulation april 2007 virginia general assembly passed legislation returned virginia jurisdiction virginia power’s generation operations costofservice rate regulation result virginia power reapplied accounting guidance costbased regulation operations april 2007 legislation enacted connection reapplication guidance operations virginia power prospectively changed certain accounting policies used costofservice rateregulated entities items discussed overall impact changes material virginia power’s results operations financial condition 2007 policy changes discussed derivative instruments investments property plant equipment asset retirement obligations operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers companies collect sales consumption consumer utility taxes however amounts excluded revenue dominion’s customer receivables december 31 2009 2008 included 409 million 401 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2009 2008 included 355 million 341 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers primary types sales service activities reported operating revenue dominion follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity  regulated gas sales consist primarily stateregulated retail natural gas sales related distribution services  nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties sales require delivery product purchaser passage title probability collection purchaser amounts owed revenue sales gas production includes sale company produced gas recognition revenue vpp transactions described note 11  gas transportation storage consists primarily regulated sales gathering transmission distribution storage services associated derivative activity also included regulated gas distribution charges retail distribution service customers opting alternate suppliers  revenue consists primarily sales oil ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily excess generation sold marketbased rates miscellaneous service revenue electric distribution operations miscellaneous revenue electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences virginia power’s actual electric fuel purchased energy expenses dominion’s purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability electric fuel purchased energy expenses effective january 1 2004 fuel factor provisions virginia power’s virginia retail customers fixed july 1 2007 beginning july 1 2007 fuel factor adjusted annually dis cussed electric regulation virginia note 14 cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed dominion also filed federal provincial income tax returns certain former subsidiaries canada virginia power participates intercompany tax sharing agreement dominion subsidiaries current income taxes based taxable income loss determined separate company basis accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities dominion virginia power recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements majority dominion’s virginia power’s unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility unrecognized tax benefits may also include amounts uncertainty exists whether amounts deductible ordinary deductions capital losses unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities current payables included accrued interest payroll taxes except amounts presented net amounts receivable amounts prepaid tax authorities dominion virginia power recognize changes estimated interest payable net underpayments overpayments income taxes interest expense estimated penalties may result settlement uncertain tax positions income consolidated statements income 2009 2008 2007 dominion recognized reduction interest expense combined notes consolidated financial statements continued 19 million reduction penalties 2 million less 1 million interest expense penalties reduction interest expense 19 million penalties respectively dominion accrued interest receivable 26 million interest penalties payable 4 million december 31 2009 interest receivable 2 million interest penalties payable 5 million december 31 2008 virginia power’s interest penalties immaterial 2009 2008 2007 december 31 2009 virginia power’s consolidated balance sheet included 21 million prepaid federal income taxes 3 million current state income taxes payable 45 million noncurrent federal state income taxes payable december 31 2008 virginia power’s consolidated balance sheet included 3 million prepaid state income taxes 6 million current federal state income taxes payable 106 million noncurrent federal state income taxes payable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment december 31 2009 2008 dominion’s accounts payable included 55 million 60 million respectively checks outstanding yet presented payment december 31 2009 2008 virginia power’s accounts payable included 22 million 23 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion virginia power use derivative instruments futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations derivatives except exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accountingnormal purchases normal salesmay elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance dominion virginia power offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 149 million margin liabilities 114 million virginia power margin assets 4 million margin liabilities associated cash collateral december 31 2009 dominion margin assets 168 million margin liabilities 406 million virginia power margin assets 18 million margin liabilities 4 million associated cash collateral december 31 2008 manage price risk dominion virginia power hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates part dominion’s strategy market energy manage related risks also manages portfolio commoditybased financial derivative instruments held trading purposes dominion uses established policies procedures manage risks associated price fluctuations energy commodities uses various derivative instruments reduce risk creating offsetting market positions statement income presentation  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges based nature underlying risk following reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments dominion virginia power designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges dominion virginia power formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges cash flow hedgesa portion dominion’s hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas energyrelated products portion virginia power’s hedge strategies represents cash flow hedges variable price risk associated purchase electricity natural gas energyrelated products companies also use foreign currency forward option contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions dominion virginia power hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable fair value hedgesdominion virginia power also use fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition designated interest rate swaps fair value hedges certain fixedrate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value derivative gains losses hedged item reclassified earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting hedge accounting discontinued hedged item longer qualifies hedge accounting see note 7 information fair value measurements associated valuation methods derivatives property plant equipment property plant equipment including additions replacements recorded original cost consisting labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements charged expense incurred 2009 2008 2007 dominion capitalized interest costs afudc property plant equipment 76 million 88 million 102 million respectively 2009 2008 2007 virginia power capitalized interest costs afudc property plant equipment 47 million 21 million 27 million respectively upon reapplication accounting guidance costbased regulation virginia jurisdiction generation operations april 2007 virginia power discontinued capitalizing interest generationrelated construction projects since virginia commission previously allowed current recovery construction financing costs current virginia legislation certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2009 2008 2007 virginia power recorded 34 million 18 million 1 million afudc related projects respectively virginia power property subject costofservice rate regulation including electric distribution electric transmission generation property effective april 2007 certain dominion natural gas property undepreciated cost property less salvage value charged accumulated depreciation retirement gains losses recorded sales property cost removal collections utility customers representing aros recorded regulatory liabilities dominion virginia power property subject costofservice rate regulation including nonutility property utility generation property prior reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations april 2007 cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives dominion’s virginia power’s depreciation rates utility property plant equipment follows 1 october 2007 depreciation rates utility generation assets revised reflect results new depreciation study incorporates property plant equipment accounting policy changes made upon reapplication accounting guidance costbased regulation well updates assumptions change increased annual depreciation expense approximately 54 million 33 million aftertax dominion’s nonutility property plant equipment excluding ep properties depreciated using straightline method following estimated useful lives nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows combined notes consolidated financial statements continued dominion follows full cost method accounting gas oil ep activities prescribed sec full cost method direct costs property acquisition exploration development activities capitalized costs subject quarterly ceiling test ceiling test amounts capitalized limited present value estimated future net revenues derived anticipated production proved gas oil reserves discounted 10 using trailing twelve month average natural gas oil prices adjusted cash flow hedges place prior adoption sec’s final rule modernization oil gas reporting effective december 31 2009 periodend gas oil prices used performing full cost ceiling test calculation however subsequent commodity price increases could utilized reduce eliminate impairment accordance sec guidelines net capitalized costs exceed ceiling test end quarterly period permanent writedown assets must recognized period approximately 3 dominion’s anticipated production hedged qualifying cash flow hedges hedgeadjusted prices used calculate estimated future net revenue using trailing twelve month average prices adjusted cash flow hedges place ceiling test impairment december 31 2009 excluding effects hedgeadjusted prices calculating ceiling test limitation would resulted approximately 41 million 25 million aftertax ceiling test impairment 2009 dominion recorded ceiling test impairment charge 455 million 281 million aftertax operations maintenance expense consolidated statement income excluding effects hedgeadjusted prices calculating ceiling limitation impairment would 631 million 387 million aftertax future cash flows associated settling aros accrued dominion’s consolidated balance sheets excluded dominion’s calculations full cost ceiling test decreases commodity prices well changes production levels reserve estimates future development costs lifting costs factors could result future ceiling test impairments depletion dominion’s gas oil producing properties computed using unitsofproduction method full cost method depletable base costs subject depletion also includes estimated future costs incurred developing proved gas oil reserves well capitalized asset retirement costs net projected salvage values costs investments unproved properties including associated explorationrelated costs initially excluded depletable base properties evaluated ratable portion capitalized costs periodically reclassified depletable base determined property basis terms underlying leases property evaluated remaining capitalized costs transferred depletable base addition gains losses sale disposition gas oil properties recognized unless gain loss would significantly alter relationship capitalized costs proved reserves natural gas oil attributable cost pool 2007 dominion recognized gains sales canadian us nonappalachian ep businesses discussed note 4 emissions allowances emissions allowances permit holder allowance emit certain gaseous byproducts fossil fuel combustion including so2 nox co2 so2 nox emissions allowances issued dominion virginia power epa co2 emissions allowances available purchase dominion quarterly auctions held participating rggi states first rggi auctions co2 allowances conducted 2008 used compliance period beginning 2009 extending 2011 compliance rggi requirements applies certain dominion’s merchant power stations located northeast allowances held may transacted third parties consumed emissions generated allowances allocated acquired companies’ generation operations held primarily consumption allowances held consumption classified intangible assets consolidated balance sheets carrying amounts based cost acquire allowances case business combination fair values assigned allocation purchase price acquired business allowances issued directly dominion virginia power epa carried zero cost allowances amortized periods emissions generated amortization reflected dda consolidated statements income purchases sales allowances reported investing activities consolidated statements cash flows gains losses resulting sales reported operations maintenance expense consolidated statements income longlived intangible assets dominion virginia power perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives consumed regulatory assets liabilities accounting dominion’s regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs deferred regulatory assets otherwise would expensed nonregulated companies likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator asset retirement obligations dominion virginia power recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses reapplication accounting guidance costbased regulation virginia jurisdiction generation operations april 2007 virginia power reports accretion aros associated nuclear decommissioning nuclear power stations due passage time adjustment related regulatory liability certain jurisdictions consistent practice costofservice rate regulated operations previously virginia power reported expense operations maintenance expense consolidated statements income dominion virginia power report accretion aros operations maintenance expense consolidated statements income amortization debt issuance costs dominion virginia power defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities  trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income  availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets upon reapplication accounting guidance costbased regulation april 2007 virginia jurisdiction virginia power’s generation operations net realized unrealized gains losses including otherthantemporary impairments investments held nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci net tax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments dominion virginia power account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include  equity method investments dominion virginia power ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets dominion virginia power record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method  cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered temporary decline fair value security determined temporary security written fair value end reporting period decommissioning rabbi trust investmentsspecial considerations  debt securitiesthe fasb amended guidance recognition presentation otherthantemporary impairments dominion virginia power adopted effective april 1 2009 recognition provisions guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities prior adoption guidance dominion virginia power considered debt securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired ability ensure investments held anticipated recovery period effective adoption guidance using information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell combined notes consolidated financial statements continued debt security recovery fair value cost basis debt security deemed experienced credit loss companies record credit loss earnings remaining portion unrealized loss comprehensive income evaluate credit losses primarily considering credit ratings issuer prior instances nonperformance issuer factors investments virginia power’s nuclear decommissioning trusts net realized unrealized gains losses debt securities including otherthantemporary impairments continue recorded regulatory liability certain jurisdictions subject costbased regulation  equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since companies limited ability oversee daytoday management nuclear decommissioning rabbi trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts rabbi trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory used dominion’s local gas distribution operations valued using lifo method lifo method inventories valued 30 million 8 million december 31 2009 2008 respectively increase inventory 2008 2009 reflects reclassification hope’s inventory assets held sale due dominion’s decision retain subsidiary based average price gas purchased 2009 2008 cost replacing current portion stored gas inventory exceeded amount stated lifo basis approximately 172 million 208 million respectively stored gas inventory held certain nonregulated gas operations valued using weightedaverage cost method gas imbalances transportation natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion values imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion parties reported current assets imbalances dominion owes parties reported current liabilities consolidated balance sheets production dominion uses sales method accounting gas imbalances related natural gas production imbalance created company volumes gas sold pertaining property equate volumes dominion entitled based interest property liability recognized dominion’s excess sales entitled volumes exceeds net remaining property reserves goodwill dominion evaluates goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount note 3 newly adopted accounting standards noncontrolling interests consolidated financial statements effective january 1 2009 dominion adopted new accounting guidance noncontrolling interests requires retrospective application presentation disclosure changes including noncontrolling interests reported component equity net income attributable parent noncontrolling interests separately identified income statement discussed note 25 dominion previously consolidated investment subordinated notes thirdparty cdo entity held dci deconsolidated march 31 2008 noncontrolling interest income cdo entity previously reported minority interest dominion’s consolidated statements income operating activities consolidated statements cash flows dominion’s subsidiary preferred dividends previously included interest related charges consolidated statements income operating activities consolidated statements cash flows due application new accounting guidance noncontrolling interests dominion reflects interest previously held cdo entity’s income subsidiary preferred dividends adjustment noncontrolling interests arrive net income attributable dominion consolidated statements income reflects subsidiary preferred dividends financing activities consolidated statements cash flows since dominion’s subsidiary preferred stock qualify permanent equity dominion continues report amounts mezzanine equity consolidated balance sheets recognition presentation otherthantemporary impairments fasb amended guidance recognition presentation otherthantemporary impairments dominion virginia power adopted effective april 1 2009 recognition provisions guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities prior adoption guidance described note 2 companies considered debt securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired ability ensure investments held anticipated recovery period upon adoption guidance debt investments held april 1 2009 dominion recorded 20 million 12 million aftertax virginia power recorded 3 million 2 million aftertax cumulative effect change accounting principle reclassify noncredit related portion previously recognized otherthantemporary impairments retained earnings aoci reflecting fixedincome investment managers’ intent ability hold debt securities amortized cost bases recovered sec final rule modernization oil gas reporting effective december 31 2009 dominion adopted sec final rule modernization oil gas reporting revised existing regulation sk regulation sx reporting requirements new requirements ceiling test calculated using average price based prior 12month period rather periodend prices going forward dominion less likely experience ceiling test impairment based solely sudden decrease gas oil prices fair value measurements dominion virginia power adopted new fasb guidance effective january 1 2008 defines fair value establishes framework measuring fair value expands disclosures related fair value measurements guidance applies broadly financial nonfinancial assets liabilities measured fair value authoritative accounting pronouncements expand application fair value accounting new circumstances generally provisions guidance applied prospectively certain situations however required retrospective application beginning year adoption recognition cumulative effect accounting change retrospective application required financial instruments including derivatives certain hybrid instruments limitations initial gains losses retrospective application resulted immaterial amount recognized cumulative effect accounting change adjustment retained earnings january 1 2008 dominion adjustment virginia power february 2008 fasb amended fair value measurements guidance exclude leasing transactions however exclusion apply fair value measurements assets liabilities recorded result lease transaction measured pursuant pronouncements within scope fair value measurements guidance see note 7 information fair value measurements endorsement splitdollar life insurance arrangements effective january 1 2008 dominion adopted new accounting guidance deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements guidance specifies employer provides benefit employee endorsement splitdollar life insurance arrangement extends postretirement periods recognize liability future benefits based substantive agreement employee dominion’s adoption guidance resulted immaterial amount recognized cumulative effect accounting change adjustment retained earnings january 1 2008 accounting uncertainty income taxes effective january 1 2007 dominion virginia power adopted new fasb guidance accounting uncertainty income taxes result implementation guidance dominion recorded 58 million charge virginia power recorded 5 million benefit beginning retained earnings representing cumulative effect change accounting principle january 1 2007 dominion virginia power unrecognized tax benefits 625 million 225 million respectively majority unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility note 4 dispositions sale nonappalachian natural gas oil ep operations assets 2007 dominion completed sale nonappalachian natural gas oil ep operations received approximately 133 billion us nonappalachian ep operations approximately 624 million canadian ep operations due sale dominion’s entire canadian cost pool results operations dominion’s canadian ep business reported discontinued operations consolidated statements income results operations dominion’s us nonappalachian ep business reported discontinued operations consolidated statements income since dominion sell entire us cost pool includes retained appalachian assets dominion used aftertax proceeds dispositions reduce outstanding debt repurchase shares common stock canadian operations sale dominion’s canadian ep operations resulted aftertax gain 59 million 008 per share following table presents selected information regarding results operations dominion’s canadian ep operations reported discontinued operations consolidated statements income 1 amount reflects net effect contractual postclosing adjustments sale 2 amount includes pretax gain 191 million recognized sale combined notes consolidated financial statements continued costs associated disposal nonappalachian ep operations sales dominion’s us nonappalachian ep operations resulted discontinuance hedge accounting certain cash flow hedges since became probable forecasted sales gas oil would occur connection discontinuance hedge accounting contracts dominion recognized charges recorded operating revenue consolidated statement income predominantly reflecting reclassification losses aoci earnings subsequent changes fair value contracts 541 million 342 million aftertax 2007 dominion terminated gas oil derivatives subsequent disposal nonappalachian ep business dominion recognized similar charge 15 million 9 million aftertax 2007 related canadian operations reflected discontinued operations consolidated statement income 2007 dominion also recorded charge operating revenue consolidated statement income approximately 171 million 108 million aftertax recognition certain forward gas contracts previously qualified normal purchase sales exemption 171 million charge included 139 million associated vpp agreements dominion party dominion paid 250 million terminate vpp agreements retained vpp royalty interests formerly associated agreements additionally dominion recognized expenses employee severance retention costs 91 million 56 million aftertax 2007 related sale us nonappalachian ep business reflected operations maintenance expense consolidated statement income dominion also recognized expenses employee severance retention legal investment banking costs 30 million 18 million aftertax 2007 related sale canadian ep operations reflected discontinued operations consolidated statement income dominion recognized gain approximately 36 billion 21 billion aftertax disposition us nonappalachian ep operations gain net expenses related disposition plan transaction costs including audit legal investment banking costs 48 million 30 million aftertax excludes severance retention costs associated discontinuance hedge accounting recognition forward gas contracts 2008 net effect contractual postclosing adjustments resulted 42 million 26 million aftertax reduction gain recognized 2007 total impact net income sale dominion’s canadian us nonappalachian ep operations benefit 15 billion 2007 benefit net expenses transaction costs severance retention costs associated discontinuance hedge accounting recognition forward gas contracts costs associated dominion’s debt tender offer completed july 2007 using portion proceeds received sale discussed dominion completed debt tender offer repurchasing 25 billion debt securities july 2007 dominion recognized charges 242 million 148 million aftertax primarily connection early redemption debt amount 234 million 143 million aftertax recorded interest related charges consolidated statement income disposition partially completed generation facility september 2007 dominion completed sale dresden aep generating company 85 million 2007 dominion recorded 387 million 252 million aftertax impairment charge operations maintenance expense reduce dresden’s carrying amount estimated fair value based aep generating company’s purchase price sale certain dci operations may 2007 dominion committed plan dispose certain dci operations including substantially assets gichner llc issued outstanding shares capital stock gichner inc affiliate gichner llc well membership interests dallastown consideration received indicated goodwill associated operations impaired dominion recorded goodwill impairment charge 8 million operations maintenance expense consolidated statement income august 2007 dominion completed sale gichner llc dallastown approximately 30 million sale resulted aftertax loss 4 million included 10 million goodwill year ended december 31 2007 operating revenue loss income taxes gichner llc dallastown 29 million 7 million respectively reported discontinued operations dominion’s consolidated statements income sale merchant generation facilities 2007 dominion sold three peaker facilities net cash proceeds 254 million sale resulted 24 million aftertax loss 003 per share peaker facilities included  armstrong 625 mw station shelocta pennsylvania  troy 600 mw station luckey ohio  pleasants 313 mw station st mary’s west virginia year ended december 31 2007 operating revenue loss income taxes peaker facilities 5 million 31 million respectively reported discontinued operations dominion’s consolidated statements income sale peoples march 1 2006 dominion entered agreement equitable sell two whollyowned regulated gas distribution subsidiaries peoples hope peoples serves approximately 358000 customer accounts pennsylvania hope serves approximately 114000 customer accounts west virginia sale subject regulatory approvals states companies operate well antitrust clearance hsr act january 2008 dominion equitable announced termination agreement sale peoples hope primarily due continued delay achieving final regulatory approval dominion continued seek offers purchase utilities july 2008 dominion entered agreement indirect subsidiary bbifna sell peoples hope may 2009 following change ownership general partner bbifna related transactions bbifna renamed “steelriver infrastructure fund north america lp” sale peoples hope steelriver buyer indirect subsidiary steelriver fund expected close 2009 subject state regulatory approvals pennsylvania west virginia november 2009 pennsylvania commission approved settlement entered among dominion peoples steelriver buyer two active intervenors peoples sale proceeding thereby approving sale peoples steelriver buyer december 2009 west virginia commission denied application sale hope dominion decided retain hope continue sale peoples sales price peoples approximately 780 million subject changes working capital expenditures affiliated borrowings february 2010 dominion completed sale peoples netted aftertax proceeds approximately 542 million dominion expects recognize aftertax loss approximately 140 million including 79 million goodwill well aftertax expenses approximately 50 million including transaction benefitrelated costs connection sale peoples carrying amounts major classes assets liabilities classified held sale dominion’s consolidated balance sheets follows results operations component entity disposed classified held sale required reported discontinued operations following conditions met operations cash flows components eliminated ongoing operations entity result disposal transaction b entity significant continuing involvement operations component disposal transaction dominion expect significant continuing involvement peoples disposal expect continuing cash flows related primarily sale peoples natural gas production dominion’s appalachian ep operations well natural gas transportation storage services provided peoples dominion’s gas transmission operations due expected significant continuing cash flows results peoples reported discontinued operations consolidated statements income dominion continue assess level involvement continuing cash flows peoples one year date sale circumstances change dominion may required reclassify results peoples discontinued operations consolidated statements income following table presents selected information regarding results operations peoples 1 year ended december 31 2008 includes 47 million benefit related reestablishment certain regulatory assets expected recovered future rates terms sale agreement year ended december 31 2009 includes impact 22 million charge due reduction previously established regulatory asset note 5 operating revenue dominion’s virginia power’s operating revenue consists following note 6 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently dominion virginia power routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material american recovery reinvestment act 2009 includes provisions stimulate economic growth including combined notes consolidated financial statements continued incentives increased capital investment businesses incentives promote renewable energy act dominion virginia power claimed bonus tax depreciation 2009 qualifying expenditures reduced income taxes payable increased deferred tax liabilities details income tax expense continuing operations including noncontrolling interests follows continuing operations including noncontrolling interests statutory us federal income tax rate reconciles dominion’s virginia power’s effective income tax rate follows 2008 dominion’s effective tax rate reflected reversal 136 million deferred tax liabilities recognized 2006 associated excess financial reporting basis tax basis stock peoples hope 2006 based intended form sale peoples hope equitable dominion recognized deferred tax liabilities since difference financial reporting basis tax basis stock subsidiaries expected reverse upon closing sale january 2008 dominion equitable agreed terminate agreement sale peoples hope time based expectation form future disposal subsidiaries would structured taxable gain would instead determined reference basis subsidiaries’ underlying assets dominion reversed related deferred tax liabilities recognized 2006 discussed note 4 dominion executed new agreement july 2008 sell peoples hope decided december 2009 sell peoples dominion determine taxable gain reference basis subsidiary’s underlying assets 2007 dominion’s effective tax rate reflected effects sale us nonappalachian ep operations including impact goodwill deductible tax purposes reduced book gain sale addition dominion recognized tax benefit eliminating 126 million valuation allowances deferred tax assets relate federal state loss carryforwards utilized partially offset taxes otherwise payable gain sale deferred income taxes reflect net tax effects temporary differences carrying amount assets liabilities financial reporting purposes amounts used income tax purposes companies’ deferred income taxes consist following december 31 2009 dominion following loss credit carryforwards  federal loss carryforwards 38 million expire unutilized period 2014 2021  state loss carryforwards 1 billion expire unutilized period 2011 2028 valuation allowance 725 million carryforwards established  state minimum tax credits 93 million expire loss credit carryforwards virginia power december 31 2009 positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information amount tax return positions recognized financial statements disclosed unrecognized tax benefits unrecognized tax benefits may impact financial statements increasing taxes payable reducing tax refunds receivable changing deferred taxes also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits resulted claims tax benefits portions thereof may realized remeasurement amounts expected realized settlements tax authorities expiration statute limitations dominion subsidiaries unrecognized tax benefits 95 million 121 million 101 million december 31 2009 2008 2007 respectively dominion change unrecognized tax benefits decreased income tax expense 26 million 2009 increased tax expense 25 million 2008 2007 virginia power unrecognized tax benefits 14 million 21 million 8 million december 31 2009 2008 2007 respectively virginia power change unrecognized tax benefits decreased income tax expense 7 million 2009 increased tax expense 13 million 3 million 2008 2007 respectively however majority dominion’s virginia power’s unrecognized tax benefits ultimate deductibility highly certain uncertainty timing deductibility uncertainty deductibility amounts limited timing deductibility tax liabilities recognized prior periods would subject offset availability refundable amounts later periods deductions could otherwise taken prior year unrecognized tax benefits involved uncertainty whether amounts deductible ordinary deductions capital losses however realization gains nonappalachian ep sales prior year amounts would become fully deductible federal income tax purposes 2007 pending resolution uncertainties interest accrued period amounts would become deductible dominion subsidiaries us federal statute limitations expired years prior 2002 except right pursue refunds related certain deductions reserved years 1995 2001 2009 us congressional joint committee taxation completed review dominion’s settlement appellate division irs tax years 1999 2001 dominion entitled 60 million refund 20 million applied estimated payment 2009 taxes 40 million paid dominion october 2009 addition dominion received 5 million refund 1998 due carryback adjustments virginia power entitled 39 million refund 20 million applied estimated payment 2009 taxes 19 million paid virginia power october 2009 refunds impact earnings 2007 irs completed examination dominion’s 2002 2003 consolidated returns 2002 2003 returns certain affiliated partnerships dominion filed protests certain proposed adjustments appellate division irs july october 2007 currently engaged settlement negotiations regarding adjustments addition irs completed audit tax years 2004 2005 june 2009 dominion filed protests certain proposed adjustments appellate division irs july 2009 dominion’s appeals assessments received tax authorities including amounts subject settlement negotiations appellate division irs reasonably possible dominion’s unrecognized tax benefits could decrease 2010 30 million including decrease 25 million virginia power addition dominion’s unrecognized tax benefits could reduced 2010 18 million including 6 million virginia power recognize prior period amounts becoming otherwise deductible current period since uncertainty majority unrecognized tax benefits involves timing deductions dominion anticipates impact earnings limited revisions accrual interest tax underpayments overpayments otherwise regard tax years 2004 2009 dominion cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2010 combined notes consolidated financial statements continued major states dominion operates earliest tax year remaining open examination follows 1 virginia state considered major virginia power’s operations dominion virginia power also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes state net operating losses tax credits generated years statute limitations expired amounts subject examination note 7 fair value measurements described note 3 dominion virginia power adopted new fasb guidance fair value measurements effective january 1 2008 fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact dominion’s virginia power’s nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion virginia power apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments including held dominion’s rabbi pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices seek price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions options contracts optionlike characteristics observable pricing information available external sources companies generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value companies use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels • level 1 quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments majority exchangetraded derivatives exchangelisted equities mutual funds treasury securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion • level 2 inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include nonexchange traded derivatives overthecounter commodity forwards swaps interest rate swaps foreign currency forwards options commingled funds corporate state municipal debt securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion • level 3 unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 dominion virginia power consist longdated commodity derivatives ftrs modeled commodity derivatives additional instruments categorized level 3 dominion include ngls natural gas peaking options investments partnerships held benefit plan trust funds fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ngl derivatives market illiquidity requires valuation based proxy markets always correlate actual instrument therefore also categorized level 3 illiquidity reason natural gas peaking options nonhenry hub locations valued using henry hub nymex natural gas delivery point volatilities may identical volatilities transacted locations therefore considered observable inputs ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions accurate dayone valuation generally considered representative ultimate settlement values modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets investments partnerships categorized level 3 due absence quoted market prices illiquidity longterm nature assets investments generally valued using net asset value based proportionate share held partnership’s fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date december 31 2009 dominion’s virginia power’s net balance commodity derivatives categorized level 3 fair value measurements net liability 66 million 10 million respectively hypothetical 10 increase commodity prices would increase dominion’s virginia power’s net liability 32 million 2 million respectively hypothetical 10 decrease commodity prices would decrease dominion’s virginia power’s net liability 33 million 2 million respectively nonrecurring fair value measurements partnership investments held virginia power’s nuclear decommissioning trust funds dominion’s rabbi trust funds accounted cost method investments subject fair value measurement nonrecurring basis experienced impairment categorized level 3 fair value measurements 2009 substantially partnership investments experienced impairments connection partnership investments dominion virginia power limited partner make capital commitments called time general partner makes investments investment strategies companies’ partnership investments primarily real estate private equity based typical term partnership investments 1015 years companies limited withdrawal redemption rights term partnership general rule limited partner’s interest sold secondary markets subject approval general partner secondary market tends illiquid especially periods market stress funds returned dominion virginia power income profits capital distributed term partnership presented fair values unfunded commitments estimated liquidation periods partnership investments held virginia power’s decommissioning trust funds dominion’s rabbi trust funds 2009 dominion evaluated equity method investment impairment recorded 30 million impairment income consolidated statement income resulting fair value 4 million estimated using discounted cash flow model considered level 3 fair value measurement due use significant unobservable inputs related timing amount future equity distributions based investee’s future financing structure contractual marketbased revenues operating costs recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s pension postretirement benefit plans presented note 22 combined notes consolidated financial statements continued dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category 1 represents derivative assets liabilities presented net basis following table presents dominion’s gains losses included earnings level 3 fair value category virginia power following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category 1 represents derivative assets liabilities presented net basis gains losses included earnings level 3 fair value category including attributable change unrealized gains losses relating assets still held reporting date classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2009 2008 fair value financial instruments substantially dominion’s virginia power’s financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents customer receivables shortterm debt accounts payable representative fair value shortterm nature instruments dominion’s virginia power’s financial instruments’ carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues short term maturities variable rates refinanced current market rates reasonable estimate fair value 2 includes amounts represent unamortized discount premium december 31 2009 2008 includes valuation certain fair value hedges associated dominion’s fixed rate debt approximately 23 million 15 million respectively 1 million 2008 associated virginia power’s fixed rate debt 3 includes issuance expenses 2 million december 31 2009 2008 note 8 derivatives hedge accounting activities dominion virginia power exposed impact market fluctuations price electricity natural gas energyrelated products marketed purchased well currency exchange interest rate risks business operations use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased regulation changes fair value derivatives designated hedges deferred regulatory assets regulatory liabilities related transactions impact earnings see note 7 information fair value measurements associated valuation methods derivatives dominion following table presents volume dominion’s derivative activity december 31 2009 volumes based open derivative positions represent combined absolute value long short positions except case offsetting deals represent absolute value net volume long short positions 1 includes options 2 includes ngls oil combined notes consolidated financial statements continued selected information dominion’s hedge accounting activities follows 1 year ended december 31 2009 includes 5 million recorded purchased gas 1 million recorded operating revenue dominion’s consolidated statements income 2 2007 represents hedge ineffectiveness primarily due changes fair value differential delivery location commodity specifications derivatives held dominion’s ep operations delivery location commodity specifications forecasted gas oil sales 3 amounts excluded measurement ineffectiveness related cash flow hedges years ended december 31 2009 2008 2007 material 4 year ended december 31 2009 includes 22 million recorded operating revenue 1 million recorded electric fuel energyrelated purchases dominion’s consolidated statements income see note 4 discussion discontinuance hedge accounting nonappalachian ep gas oil derivatives 2007 result termination longterm power sales agreement associated state line dominion discontinued applying normal purchase normal sale exception agreement recorded 231 million 137 million aftertax charge operating revenue consolidated statement income fourth quarter 2007 dominion paid approximately 229 million primarily exchange termination power sales agreement acquisition coal inventory assignment certain coal supply transportation railcar lease contracts following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2009 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign exchange rates fair value gains losses derivative instruments following table presents fair values dominion’s derivatives december 31 2009 presented consolidated balance sheet 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheet 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheet following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheet statement income december 31 2009 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 4 amounts recorded dominion’s consolidated statements income classified electric fuel energyrelated purchases derivatives designated hedging instruments amount gain loss recognized income derivatives1 millions derivative type location gains losses commodity operating revenue 105 purchased gas 66 electric fuel energyrelated purchases 163 total 124 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income virginia power following table presents volume virginia power’s derivative activity december 31 2009 volumes based open derivative positions represent combined absolute value long short positions except case offsetting deals represent absolute value net volume long short positions current noncurrent natural gas bcf fixed price 60 basis 30 electricity mwh fixed price 488800 ftrs 45055471 3541577 capacity mw 462462 364200 interest rate 850000000 75000000 foreign currency euros 24665541 years ended december 31 2009 2008 2007 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci virginia power’s consolidated balance sheet december 31 2009 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign exchange rates combined notes consolidated financial statements continued fair value gains losses derivative instruments following table presents fair values virginia power’s derivatives december 31 2009 presented consolidated balance sheet 1 noncurrent derivative assets presented deferred charges assets virginia power’s consolidated balance sheet 2 current derivative liabilities presented current liabilities virginia power’s consolidated balance sheet 3 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheet following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheet statement income december 31 2009 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 4 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded electric fuel energyrelated purchases virginia power’s consolidated statements income note 9 earnings per share following table presents calculation dominion’s basic diluted eps 1 potentially dilutive securities consist options goalbased stock contingently convertible senior notes potentially dilutive securities right acquire approximately 12 million common shares year ended december 31 2009 included calculation diluted eps exercise purchase prices instruments greater average market price dominion’s common shares potentially dilutive securities excluded calculation diluted eps years ended december 31 2008 2007 note 10 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 96 million 95 million december 31 2009 2008 respectively costmethod investments held dominion’s rabbi trusts totaled 17 million 21 million december 31 2009 2008 respectively decommissioning trust securities dominion holds marketable equity debt securities cash equivalents classified availableforsale cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes net assets related pending sales purchases securities 11 million 8 million december 31 2009 2008 respectively 3 fair value securities unrealized loss position 169 million december 31 2009 fair value dominion’s marketable debt securities december 31 2009 contractual maturity follows combined notes consolidated financial statements continued presented selected information regarding dominion’s marketable equity debt securities 1 increase proceeds 2009 primarily reflects changes asset allocation liquidation positions connection changes fund managers 2 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 dominion recorded otherthantemporary impairment losses investments follows 1 amounts include otherthantemporary impairment losses debt securities 13 million 28 million 7 million december 31 2009 2008 2007 respectively equity method investments dominion accounts equity method accounting follows 1 september 2009 dominion received 123 million distribution fowler ridge based proceeds received connection nonrecourse permanent financing first phase project dominion’s equity earnings investments totaled 42 million 52 million 35 million 2009 2008 2007 respectively excluding 2009 distribution fowler ridge dominion received distributions investments 63 million 12 million 16 million 2009 2008 2007 respectively december 31 2009 2008 carrying amount dominion’s investments exceeded dominion’s share underlying equity net assets approximately 19 million 45 million respectively excluding impairment losses discussed differences relate dominion’s investments wind projects primarily reflect capitalized interest construction excess cash contributions book value development assets contributed dominion’s partners projects differences generally amortized useful lives underlying assets 2009 dominion recognized total impairment losses 30 million connection decline estimated fair value one equity method investments discussed note 7 2008 dominion recognized 7 million gain sale one equity method investments 2007 dominion recognized impairment loss 11 million connection expected sale one equity method investments virginia power virginia power holds marketable equity debt securities cash equivalents classified availableforsale cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes net assets related pending sales purchases securities 6 million december 31 2009 2008 3 fair value securities unrealized loss position 88 million december 31 2009 fair value virginia power’s debt securities december 31 2009 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities 1 increase proceeds 2009 primarily reflects changes asset allocation liquidation positions connection changes fund managers 2 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments follows 1 amounts include otherthantemporary impairment losses debt securities 7 million 5 million 1 million december 31 2009 2008 2007 respectively note 11 property plant equipment major classes property plant equipment respective balances companies follows following sale dominion’s nonappalachian ep operations costs unproved properties capitalized full cost method accounting excluded amortization december 31 2009 2008 material significant properties development defined sec excluded amortization december 31 2009 2008 gas oil reserves proved drilling properties deemed impaired excluded costs related reserves transferred ongoing wellbywell basis amortization calculation amortization rates capitalized costs full cost method accounting dominion’s us canadian cost centers follows 1 reflects amortization rate capitalized costs dominion’s canadian cost center june 2007 result sale dominion’s canadian ep operations june 2007 discontinued amortization capitalized unproved property costs canadian cost center combined notes consolidated financial statements continued volumetric production payment transactions dominion previously entered vpp transactions 2005 2004 2003 approximately 76 bcf period march 2005 february 2009 83 bcf period may 2004 april 2008 66 bcf period august 2003 july 2007 respectively cash proceeds received vpp transactions recorded deferred revenue dominion recognized revenue natural gas produced delivered purchaser remaining deferred revenue amount 248 million december 31 2006 2007 conjunction sale dominion’s nonappalachian ep operations dominion paid 250 million terminate agreements retained vpp royalty interests formerly associated agreements production vpp royalty interests declined significantly 2009 reflecting expiration interests february 2009 assignment marcellus acreage 2008 dominion completed transaction antero assign drilling rights approximately 117000 acres marcellus shale formation located west virginia pennsylvania dominion received proceeds approximately 347 million net proceeds credited dominion’s full cost pool reducing property plant equipment consolidated balance sheet transaction significantly alter relationship capitalized costs proved reserves natural gas oil agreement dominion receives 75 overriding royalty interest future natural gas production assigned acreage dominion retained drilling rights traditional formations marcellus shale interval continues conventional drilling program acreage sale ep properties 2007 dominion sold nonappalachian natural gas oil ep operations assets approximately 139 billion included sale portion us full cost pool entire canadian full cost pool jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2009 follows 1 station jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective owner ship interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income note 12 goodwill intangible assets goodwill changes dominion’s carrying amount segment allocation goodwill presented 1 goodwill amounts contain accumulated impairment losses intangible assets dominion’s virginia power’s intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 155 million 95 million 115 million 2009 2008 2007 respectively 2009 dominion acquired 196 million intangible assets primarily representing software emissions allowances estimated weightedaverage amortization periods approximately 6 years 1 year respectively amortization expense virginia power’s intangible assets 26 million 28 million 46 million 2009 2008 2007 respectively 2009 virginia power acquired 22 million intangible assets primarily representing software estimated weightedaverage amortization period 5 years components intangible assets follows annual amortization expense intangible assets estimated follows note 13 regulatory assets liabilities regulatory assets liabilities include following 1 primarily reflects prior period unrecovered gas costs dominion’s regulated gas operations recovered quarterly filings ohio commission 2 primarily reflects deferred fuel expenses virginia jurisdiction virginia power’s generation operations see note 14 information 3 amounts recovered surcharge reimburse virginia power incremental sales taxes incurred due repeal public service company sales tax exemption virginia combined notes consolidated financial statements continued 4 discussed derivative instruments note 2 jurisdictions subject costbased regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers without interest 5 reported current assets 6 represents unrecognized pension postretirement benefit costs expected recovered future rates certain dominion’s rateregulated subsidiaries 7 ohio percentage income payment plan pipp eligible customers receive energy assistance based ability pay difference customer’s total bill pipp plan amount deferred collected pipp rider according dominion east ohio tariff provisions although current rider rate designed recover deferred costs three year period unrecovered costs increased accordingly dominion east ohio filed approval increase recovery rate december 31 2009 ruling ohio commission expected end first quarter 2010 8 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 9 reflects annual true electric transmission rates deferral transmissionrelated costs associated rider see note 14 information 10 costs recognized excess amounts included regulated rates charged dominion’s regulated gas operations rates updated reflect new method accounting cost related accrued benefit obligation recognized part accounting dominion’s acquisition cng 11 see note 14 regarding writeoff substantially amounts since recovery longer probable based proposed settlement virginia power’s rate case proceedings 12 reflects reserve associated proposed settlement virginia power’s 2009 rate case proceedings see note 14 information 13 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 14 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aro december 31 2009 approximately 266 million dominion’s 172 million virginia power’s regulatory assets represented past expenditures earn return companies’ expenditures consist primarily virginia sales taxes deferred fuel costs deferred transmission costs addition dominion’s expenditures include unrecovered gas costs expenditures expected recovered within next two years note 14 regulatory matters following discussion dominion’s virginia power’s pending regulatory matters electric regulation virginia march 2009 virginia power filed virginia commission pursuant regulation act petition recover virginia jurisdictional customers annual net increase approximately 78 million costs related fercapproved transmission charges pjm demand response programs amount also included portion rto startup costs administrative fees discussed federal regulation final order june 2009 virginia commission approved recovery approximately 218 million rider includes approximately 150 million transmissionrelated costs traditionally incorporated base rates plus incremental increase approximately 68 million virginia commission also ruled approximately 10 million company proposed collect rider would appropriately recovered base rates costs incorporated company’s revised base rate filing submitted july 2009 rider became effective september 1 2009 increased typical 1000 kwh virginia jurisdictional residential customer’s bill approximately 111 per month virginia power also filed virginia commission application approval cost recovery eleven dsm programs including one peakshaving program ten energy efficiency programs virginia power plans use dsm along traditional renewable supplyside resources meet projected load growth next 15 years dsm programs provide first steps toward achieving virginia’s goal reducing 2022 electric energy consumption company’s retail customers ten percent consumed 2006 february 2010 virginia commission concluded evidentiary hearing consider dsm programs related recovery company requested approval two rate adjustment clauses associated cost recovery effective april 1 2010 specifically two rate adjustment clauses recovery virginia jurisdictional customers represent annual net increase costs approximately 48 million period april 1 2010 march 31 2011 approved virginia commission rate adjustment clauses expected combined basis increase typical 1000 kwh residential bill approximately 091 per month regulation act gives virginia commission end march 2010 act virginia power’s application march 2009 virginia power filed virginia commission first annual update rate adjustment clause virginia city hybrid energy center requesting increase approximately 99 million financing costs recovered rates 2010 part filing virginia power requested 135 roe proposed march 31 2009 base rate filing applied rider plus 100 basis point enhancement construction new coalfired generation facility requested total roe 145 evidentiary hearing held hearing examiner august 2009 virginia power presented proposed stipulation recommendation among things would reduce increase revenue requirement approximately 8 million 91 million december 2009 hearing examiner’s report issued recommending approval rider increase set forth proposed stipulation thereafter virginia commission approved rider increase consistent recommendation rider revenue requirement approved 2010 remains subject revision reflect virginia commission’s roe determination pending base rate proceeding march 2009 virginia power filed petition virginia commission recovery approximately 77 million constructionrelated financing costs associated bear garden initiation rider r part filing virginia power requested 135 roe proposed march 31 2009 base rate filing applied bear garden facility rate adjustment clause 100 basis point enhancement construction combinedcycle facility authorized regulation act requested total roe 145 evidentiary hearing held hearing examiner august 2009 virginia power’s posthearing brief unilaterally agreed reduce revenue requirement 4 million 73 million december 2009 virginia commission approved rider r 73 million revenue requirement 2010 rider r revenue requirement approved 2010 remains subject revision reflect virginia commission’s roe determination pending base rate proceeding accordance virginia commission’s approval rider r enhanced return apply bear garden facility construction first ten years facility’s service life march 2009 virginia power filed virginia fuel factor application virginia commission application requested annual decrease fuel expense recovery approximately 236 million period july 1 2009 june 30 2010 decrease 3893 cents per kwh 3529 cents per kwh approximately 364 per month typical 1000 kwh virginia jurisdictional residential customer’s average bill proposed fuel factor went effect july 1 2009 interim basis evidentiary hearing company’s application held september 1 2009 consistent proposal made company hearing september 2009 virginia commission issued interim fuel order effective october 1 2009 reducing fuel factor approximately 103 million period july 1 2009 june 30 2010 decrease 3529 cents per kwh 3310 cents per kwh approximately 219 per month typical 1000 kwh virginia jurisdictional residential customer’s bill cumulative decrease fuel factor period july 1 2009 june 30 2010 reflects lower projected fuel expenses prospective credit fuel expenses certain ftrs allocated company december 2009 virginia commission issued another interim order decreasing virginia power’s fuel factor approximately 119 million 3310 cents per kwh 2927 cents per kwh reduction approximately 383 per month typical 1000 kwh virginia jurisdictional residential customer’s average bill service rendered january 1 2010 virginia commission yet issued final order pursuant regulation act virginia commission entered order january 2009 initiating reviews base rates terms conditions investorowned electric utilities virginia response virginia power submitted base rate filings accompanying schedules 2009 virginia commission amended propose increase virginia jurisdictional base rates approximately 250 million annually virginia power’s initial march 2009 filing proposed 125 roe plus additional 100 basis point performance incentive pursuant regulation act based virginia power’s generating plant performance customer service operating efficiency resulting total roe request 135 july 2009 response rulings virginia commission relating appropriate rate year capital structure used virginia power’s base rate review company submitted revised filing reflecting number adjustments including upward adjustment 50 basis points proposed roe base rate increase became effective interim basis september 1 2009 subject refund adjustment virginia commission increased typical 1000 kwh virginia jurisdictional residential customer’s bill approximately 522 per month november 2009 virginia power office attorney general virginia division consumer counsel certain interested parties filed stipulation recommendation consideration requested approval virginia commission would resolve pending proceeding set base rates virginia fuel case proceeding authorized roe rate adjustment clauses virginia city hybrid energy center bear garden dsm programs november 2009 stipulation entails among things partial refund 2008 earnings amounts authorized roe applicable base rates 119 authorized roe applicable virginia city hybrid energy center bear garden rate adjustment clauses 123 continuation virginia power’s base rates existence prior september 1 2009 evidentiary hearing base rate review completed evidence relating virginia power’s request base rate increase november 2009 stipulation presented parties base rate review related proceedings supported november 2009 stipulation february 2010 virginia power filed revised stipulation recommendation virginia commission compared november 2009 stipulation february 2010 stipulation support parties including staff virginia commission reflects increase amounts refunded customers virginia power’s 2009 results include charge 782 million 477 million aftertax representing best estimate probable outcome matter amount 700 million 427 million aftertax represents partial refund 2008 revenues amounts 82 million 50 million aftertax represents expected refund 2009 revenues collected customers result implementation base rate increase became effective interim basis september 1 2009 total 782 million pretax charge 523 million recorded operating revenue 129 million recorded electric fuel energyrelated purchases expense 130 million recorded operations maintenance expense virginia power’s consolidated statement income charge resulted 259 million decrease regulatory assets reflecting write 129 million previously deferred fuel costs 130 million previously deferred rto costs since recovery longer probable based proposed february 2010 stipulation well 473 million increase regulatory liabilities remainder recorded receivables payables virginia power’s consolidated balance sheet dominion’s 2009 results include additional charge 12 million 8 million aftertax recorded operations maintenance expense reflecting writeoff previously deferred rto costs since recovery longer probable based proposed february 2010 stipulation outcomes base rate review could include adoption terms february 2010 stipulation alternatively rate increase rate decrease partial refund 2008 earnings deemed 50 basis points authorized roe combined notes consolidated financial statements continued virginia commission’s future rate actions including actions relating virginia power’s 2009 base rate review dsm programs recovery virginia fuel expenses additional rate adjustment clause filings differ materially virginia power’s expectations could adversely affect results operations financial condition cash flows october 2008 virginia commission authorized construction meadow brooktoloudoun line affirmed 65mile route proposed line adjacent within existing transmission line rightofways virginia commission’s approval meadow brooktoloudoun line conditioned respective state commission approvals west virginia pennsylvania portions transmission line west virginia commission’s approval transallegheny interstate line company’s application became effective february 2009 pennsylvania commission granted approval december 2008 march 2009 sierra club filed appeal request stay west virginia commission’s approval subsequently denied supreme court west virginia april 2009 appeal pennsylvania commission’s approval energy conservation council pennsylvania pending february 2009 petitions appeal virginia commission’s approval meadow brooktoloudoun line filed supreme court virginia piedmont environmental council others november 2009 virginia supreme court affirmed virginia commission’s approval meadow brooktoloudoun line meadow brooktoloudoun line expected cost approximately 255 million subject receipt regulatory approvals expected completed june 2011 north carolina regulation 2004 north carolina commission commenced review virginia power’s north carolina base rates subsequently ordered virginia power file general rate case show cause north carolina jurisdictional base rates reduced rate case filed september 2004 march 2005 north carolina commission approved settlement included prospective 12 million annual reduction base rates fiveyear base rate moratorium effective april 2005 fuel rates still subject annual fuel rate adjustments deferred fuel accounting underrecoveries fuel costs february 2010 virginia power filed application north carolina commission increase electric retail rates north carolina approximately 46 million effective january 2011 requested rate increase would consist base rate increase approximately 29 million approximately 17 million purchased power costs recovered means existing passthrough fuel adjustment charge purchased power costs previously considered part company’s cost service recovery base rates application entails proposed roe 119 proposed base rate increase 29 million would increase typical 1000 kwh north carolina jurisdictional customer’s bill approximately 9 896 per month compared residential bills currently approved rates entire 17 million increase related purchased power costs approved recovery 2011 fuel adjustment charge none costs offset reductions costs fuel types additional impact residential customer bills would approximately 5 494 per month anticipated public hearing proposed base rate increase consolidated company’s annual fuel adjustment proceeding fourth quarter 2010 facilitate north carolina commission order matters end 2010 federal regulation may 2005 ferc issued order finding pjm’s existing transmission service rate design may reasonable ordered investigation hearings matter january 2008 ferc affirmed earlier decision pjm transmission rate design existing facilities become unjust unreasonable recovery costs investments new pjmplanned transmission facilities operate 500 kv ferc established regional rate design customers pay uniform rate based costs investment recovery costs investment new pjmplanned transmission facilities operate 500 kv ferc affirmed earlier decision allocate costs beneficiary pays approach notice appeal decision filed february 2008 us court appeals seventh circuit august 2009 court denied petition review concerning rate design existing facilities granted petition concerning rate design new facilities operate 500 kv remanded issue back ferc proceedings dominion virginia power cannot predict outcome ferc proceedings remand july 2008 virginia power filed application ferc requesting revision cost service reflect additional roe incentive adder eleven electric transmission enhancement projects proposal cost transmission service would increase include roe incentive adder eleven projects beginning date project enters commercial operation january 1 2009 virginia power proposed incentive 150 basis points 15 four projects including meadow brooktoloudoun line carsontosuffolk line incentive 125 basis points 125 seven projects august 2008 ferc approved proposal effective september 1 2008 total cost eleven projects estimated 877 million projects currently expected completed 2012 numerous parties sought rehearing ferc order august 2008 rehearing pending virginia power cannot predict outcome rehearing may 2008 maryland public service commission delaware public service commission pennsylvania commission new jersey board public utilities several organizations representing consumers pjm region rpm buyers filed complaint ferc claiming pjm’s reliability pricing model’s transitional auctions produced unjust unreasonable capacity prices rpm buyers requested refund effective date june 1 2008 established ferc provide appropriate relief unjust unreasonable capacity charges within 15 months september 2008 ferc dismissed complaint rpm buyers requested rehearing ferc order october 2008 rehearing denied june 2009 notice appeal filed august 2009 maryland public service commission new jersey board public utilities us court appeals fourth circuit dominion virginia power cannot predict outcome appeal december 2008 ferc approved companies’ drc request become effective january 1 2009 would allow recovery approximately 153 million dominion’s rto costs including 140 million virginia power deferred due statutory base rate cap established virginia law june 2009 virginia commission approved full recovery drc virginia power’s retail customers rider recovery drc began september 1 2009 july 2009 ferc issued order denying office attorney general virginia commission’s requests rehearing december 2008 order notices appeal filed september 2009 us court appeals fourth circuit appeal currently pending fourth quarter 2009 dominion recorded charge 142 million 87 million tax including 130 million 79 million tax virginia power write substantially regulatory assets since recovery longer probable based proposed settlement virginia power’s rate case proceedings discussed electric regulation virginia dominion transmission rates december 2007 dti independent oil gas association west virginia inc reached settlement agreement dti’s gathering processing rates period january 1 2009 december 31 2011 settlement maintained gas retainage fee structure dti since 2001 rates 105 gathering 05 processing settlement dti continues retain revenues liquids sales thus maintaining cash flow liquids business connection settlement dti committed invest least 20 million annually appalachian gatheringrelated assets new rates approved ferc negotiated rates note 15 asset retirement obligations dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities addition dominion’s aros include plugging abandonment gas oil wells interim retirements natural gas gathering transmission distribution storage pipeline components obligations result certain safety environmental activities dominion required perform pipeline abandoned asbestos disturbed also aros related retirement dominion’s lng facility gas storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements right ways franchises leases agreements virginia power’s hydroelectric generation facilities addition dominion’s virginia power’s aros include future abatement asbestos generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2009 follows 1 includes 20 million 9 million reported current liabilities december 31 2008 2009 respectively 2 primarily reflects updated decommissioning cost studies applicable escalation rates received companies’ nuclear facilities second quarter 2009 dominion also includes 103 million 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service 3 includes 2 million 1 million reported current liabilities december 31 2008 2009 respectively dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2009 2008 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 26 billion 22 billion respectively december 31 2009 2008 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 12 billion 11 billion respectively note 16 variable interest entities entity considered vie sufficient equity finance activities without assistance variable interest holders equity investors lack following characteristics controlling financial interest  control voting rights  obligation absorb expected losses  right receive expected residual returns primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity receives majority vie’s expected losses expected residual returns virginia power longterm power capacity contracts four nonutility generators aggregate generation combined notes consolidated financial statements continued capacity approximately 940 mw contracts contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion based primarily qualitative assessment variable interests compared operations commodity price risks retained equity debt holders remaining terms virginia power’s contracts years entities expected operate contractual relationships expire contracts expire various dates ranging 2015 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 17 billion december 31 2009 virginia power paid 210 million 205 million 211 million electric capacity 117 million 196 million 160 million electric energy entities years ended december 31 2009 2008 2007 respectively discussed note 25 dci held investment subordinated notes thirdparty cdo entity dominion previously concluded cdo entity vie dci primary beneficiary cdo entity dominion consolidated december 31 2007 march 2008 dominion entered agreement sell remaining interest subordinated notes effectively eliminating variability interest therefore deconsolidated cdo entity march 31 2008 virginia power purchased shared services drs affiliated vie approximately 416 million 397 million 344 million years ended december 31 2009 2008 2007 respectively virginia power determined closely associated entity drs therefore primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power virginia power obligation absorb allocated share drs costs note 17 shortterm debt credit agreements dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financing bridge financing acquisitions applicable levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements commodities hedging program collateral requirements impacted commodity prices hedging levels dominion’s credit quality credit quality counterparties virginia power’s shortterm financing supported fiveyear joint revolving credit facility dominion credit facility used working capital support combined commercial paper programs dominion virginia power general corporate purposes commercial paper bank loans letters credit outstanding well capacity available credit facilities follows 1 2008 amounts exclude commitments provided lehman 2 credit facility entered february 2006 terminates february 2011 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit december 31 2009 total outstanding commercial paper 442 million virginia power’s borrowings weightedaverage interest rate 028 december 31 2008 total outstanding commercial paper 297 million virginia power’s borrowings weightedaverage interest rate 592 december 31 2009 total outstanding letters credit 153 million 104 million issued virginia power’s behalf december 31 2008 total outstanding letters credit 187 million less 86 million issued virginia power’s behalf 3 credit facility entered august 2005 terminates august 2010 facility used support bank borrowings issuance letters credit commercial paper weightedaverage interest rates outstanding bank borrowings supported facility 033 395 december 31 2009 2008 respectively 4 facility entered december 2005 terminates december 2010 credit facility used support commercial paper letter credit issuances 5 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 030 587 december 31 2009 2008 respectively 6 credit facility entered july 2008 terminated july 2009 addition credit facility commitments disclosed virginia power also fiveyear 120 million credit facility terminates february 2011 supports certain taxexempt financings dominion virginia power plan replace existing credit facilities second third quarter 2010 expect operate credit facilities ranging 30 35 billion companies expect reduction size credit facilities negatively impact ability fund operations combined notes consolidated financial statements continued note 18 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2009 2 financings relate certain pollution control equipment virginia power’s generating facilities variable rate taxexempt financings supported 120 million fiveyear credit facility terminates february 2011 3 60 million taxexempt bonds due 2040 issued industrial development authority wise county behalf virginia power september 2009 included upon consolidation bonds temporarily purchased held virginia power 4 represents valuation certain fair value hedges associated virginia power’s dominion’s fixedrate debt 5 includes 1 million unamortized discount 1 million fair value hedge valuation 2009 2008 respectively 6 option holders 510 million dominion’s 525 senior notes due 2033 600 million dominion’s 8875 senior notes due 2019 subject redemption 100 principal amount plus accrued interest august 2015 january 2014 respectively 7 convertible combination cash shares dominion’s common stock time closing price common stock equals 120 applicable conversion price higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter option holders december 15 2011 2013 2018 securities subject redemption 100 principal amount plus accrued interest securities currently noncallable dominion december 15 2011 8 represents debt assumed dominion merger former cng subsidiary 9 represents debt associated dominion’s kincaid power station debt nonrecourse dominion secured facility’s assets 623 million december 31 2009 revenue 10 includes 2 million net unamortized discount fair value hedge valuation 9 million fair value hedge valuation 2009 2008 respectively based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2009 follows dominion’s virginia power’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2009 events default covenants convertible securities december 31 2009 dominion 202 million outstanding contingent convertible senior notes convertible holders combination cash shares dominion’s common stock certain circumstances conversion feature requires principal amount note repaid cash amounts payable excess principal amount paid common stock issuance notes valued conversion rate 27173 shares common stock per 1000 principal amount senior notes represented conversion price 3680 conversion rate subject adjustment upon certain events subdivisions splits combinations common stock issuance common stock holders certain common stock rights warrants options certain dividend increases december 31 2009 conversion rate adjusted 281237 shares primarily due individual dividend payments level paid issuance january 2010 dominion’s board directors declared dividends payable march 20 2010 4575 cents per share common stock increase conversion rate 2822 effective february 24 2010 number shares included denominator diluted eps calculation calculated net shares issuable reporting period based upon average market price period results increase average shares outstanding used calculation dominion’s diluted eps conversion price 3680 lower average market price dominion’s common stock period results adjustment conversion price exceeds average market price senior notes convertible holders combination cash shares dominion’s common stock following circumstances 1 closing price dominion’s common stock exceeds applicable conversion price 4252 february 24 2010 least 20 last 30 consecutive trading days ending last trading day previous calendar quarter 2 senior notes called redemption dominion 3 occurrence specified corporate transactions 4 credit rating assigned senior notes moody’s baa3 standard poor’s bbb ratings discontinued reason senior notes eligible conversion 2009 december 31 2009 closing price dominion’s common stock equal 4267 per share higher least 20 last 30 consecutive trading days therefore senior notes eligible conversion first quarter 2010 2008 approximately 18 million contingent convertible senior notes converted holders beginning 2007 notes eligible contingent interest average trading price defined indenture equals exceeds 120 principal amount senior notes december 2008 dominion amended terms series c 2125 convertible senior notes related twentyseventh supplemental indenture amendment eliminates dominion’s ability redeem notes december 2011 amendment also establishes new repurchase date december 2011 holders right require dominion purchase senior notes cash 100 principal amount plus accrued interest december 2011 2013 2018 dominion undergoes certain fundamental changes junior subordinated notes payable affiliated trusts previous years dominion virginia power established several subsidiary capital trusts finance subsidiary respective parent company holds 100 voting interests trusts sold trust preferred securities representing preferred beneficial interests 97 beneficial ownership assets held trusts exchange funds realized sale trust preferred securities common securities represent remaining 3 beneficial ownership interest assets held capital trusts dominion virginia power issued various junior subordinated notes junior subordinated notes constitute 100 capital trust’s assets combined notes consolidated financial statements continued trust must redeem trust preferred securities respective junior subordinated notes repaid maturity redeemed prior maturity may 2008 virginia power repaid 412 million 7375 unsecured junior subordinated notes redeemed 16 million units 400 million 7375 virginia power capital trust ii preferred securities due july 30 2042 securities redeemed price 25 per preferred security plus accrued unpaid distributions july august 2007 dominion repaid 248 million 84 unsecured junior subordinated notes redeemed approximately 240 thousand units 250 million 84 dominion resources capital trust iii preferred securities due january 15 2031 securities redeemed average price 1209 per preferred security plus accrued unpaid distributions july 2007 dominion repaid 206 million 78 unsecured junior subordinated notes redeemed 8 million units 200 million 78 dominion cng capital trust preferred securities due october 31 2041 securities redeemed price 25 per preferred security plus accrued unpaid distributions following table provides summary information trust preferred securities junior subordinated notes outstanding december 31 2009 junior subordinated notesdebentures held assets capital trust follows 1 258 milliondominion resources inc 783 debentures due 1212027 2 10 milliondominion resources inc 84 debentures due 1152031 following table presents interest charges related companies’ junior subordinated notes payable affiliated trusts distribution payments trust preferred securities considered fully unconditionally guaranteed respective parent company issued debt instruments held trust related agreements taken consideration guarantee agreement provides guarantee distribution payments relevant trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon payment amounts dominion due junior subordinated notes dominion may defer interest payments junior subordinated notes one occasions five consecutive years related trusts must also defer distributions payment junior subordinated notes deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million 2006 series enhanced junior subordinated notes due 2066 june 2006 hybrids 500 million 2006 series b enhanced junior subordinated notes due 2066 september 2006 hybrids respectively june 2006 hybrids bear interest 75 per year june 30 2016 thereafter bear interest threemonth libor plus 2825 reset quarterly september 2006 hybrids bear interest 63 per year september 30 2011 thereafter bear interest threemonth libor plus 23 reset quarterly june 2009 dominion issued 685 million including 60 million related underwriter’s option purchase additional notes cover overallotments 8375 series enhanced junior subordinated notes june 2009 hybrids mature 2064 subject extensions later 2079 june 2009 hybrids listed new york stock exchange symbol dru dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids note 19 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2009 2008 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares issued outstanding december 31 2009 2008 upon involuntary liquidation dissolution windingup virginia power share would entitled receive 100 plus accrued dividends cumulative holders virginia power’s outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series virginia power preferred stock subject mandatory redemption outstanding december 31 2009 1 7312010 10106 commencing 812010 amounts decline steps thereafter 10000 812013 2 8312010 10105 commencing 912010 amounts decline steps thereafter 10000 912013 3 dividend rate 550 12202007 dividend rate 625 3202011 rate determined according periodic auctions periods established virginia power time auction process note 20 shareholders’ equity issuance common stock dominion january 2009 dominion entered sales agency agreements pursuant dominion may offer time 400 million aggregate amount common stock sales common stock made means privately negotiated transactions new york stock exchange market prices transactions agreed upon dominion sales agents conformance applicable securities laws 2009 dominion issued 14 million shares common stock cash proceeds 456 million dominion issued 62 million shares atthemarket issuances sales agency agreements received cash proceeds 191 million net fees commissions paid 2 million following issuances dominion ability issue 207 million stock sales agency agreements dominion also issued 76000 shares common stock officers directors private placement program aggregate consideration approximately 2 million remainder shares issued cash proceeds received 2009 dominion direct® employee savings plans exercise employee stock options february 2010 dominion began purchasing common stock open market proceeds received dominion direct® employee savings plans rather additional new common shares issued additionally february 2009 dominion issued approximately 16 million shares common stock existing holder senior notes privately negotiated transaction exchange approximately 56 million principal two series outstanding senior notes retired transaction exempt registration pursuant section 3a9 securities act commission remuneration paid connection exchange virginia power 2009 virginia power issued 31877 shares common stock dominion reflecting conversion 1 billion shortterm demand note borrowings dominion equity shares reserved issuance december 31 2009 dominion approximately 62 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans contingent convertible senior notes accumulated comprehensive income loss presented table summary aoci component stockbased awards april 2005 dominion’s shareholders approved 2005 incentive compensation plan 2005 incentive plan employees nonemployee directors compensation plan nonemployee directors plan may 2009 dominion’s shareholders approved amendment restatement 2005 incentive plan 2005 incentive plan amended permits stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2009 approximately 34 million shares available future grants plans prior april 2005 dominion incentive compensation plan provided stock options restricted stock awards directors executives key employees vesting periods one five years stock options generally contractual terms six one half ten years length combined notes consolidated financial statements continued dominion measures recognizes compensation expense relating sharebased payment transactions based fair value equity liability instruments issued dominion’s results years ended december 31 2009 2008 2007 include 44 million 46 million 57 million respectively compensation costs 17 million 17 million 21 million respectively income tax benefits related dominion’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income benefits tax deductions excess compensation cost recognized stockbased compensation excess tax benefits classified financing cash flow years ended december 31 2009 2008 2007 dominion realized 5 million 7 million 46 million respectively excess tax benefits vesting restricted stock awards exercise stock options stock options following table provides summary changes amounts stock options outstanding years ended december 31 2009 2008 2007 options granted plan 2009 2008 2007 1 intrinsic value represents difference exercise price option market value dominion’s stock dominion issues new shares satisfy stock option exercises dominion received cash proceeds exercise stock options approximately 49 million 43 million 226 million years ended december 31 2009 2008 2007 respectively restricted stock fair value dominion’s restricted stock awards equal market price dominion’s stock date grant restricted stock awards generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2009 2008 2007 december 31 2009 unrecognized compensation cost related nonvested restricted stock awards totaled 21 million expected recognized weightedaverage period 14 years fair value restricted stock awards vested 29 million 40 million 30 million 2009 2008 2007 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates shares tendered taxes added shares remaining issued become available reissuance incentive awards goalbased stock recent years goalbased stock awards granted key contributors nonofficer employees goalbased stock awards also granted lieu cashbased performance grants certain officers achieved certain targeted level share ownership current outstanding goalbased shares include awards granted april 2008 february 2009 april 2009 issuance awards based achievement multiple performance metrics twoyear period including return invested capital book value per share total shareholder return relative peer group companies actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock equal market price dominion’s stock date grant goalbased stock awards granted key nonofficer employees convert restricted stock end twoyear performance period generally vest three years original grant date awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares performance period april 2006 grants ended december 31 2007 cgn committee determined actual performance metrics established awards 130 thousand shares outstanding goalbased stock awards granted april 2006 converted 200 thousand shares restricted stock remaining term vesting period ending april 2009 performance period april 2007 grants ended december 31 2008 cgn committee determined actual performance metrics established awards key nonofficer employees 127 thousand shares outstanding goalbased stock awards granted april 2007 converted 185 thousand shares restricted stock remaining term vesting period ending april 2010 awards officers 27 thousand shares outstanding goalbased stock awards converted 38 thousand nonrestricted shares issued officers following table provides summary goalbased stock activity years ended december 31 2009 2008 2007 december 31 2009 targeted number shares expected issued april 2008 february 2009 april 2009 awards approximately 323 thousand january 2010 cgn committee determined actual performance metrics established april 2008 awards performance period ended december 31 2009 based determination total number shares issued goalbased stock awards approximately 365 thousand december 31 2009 unrecognized compensation cost related nonvested goalbased stock awards totaled 7 million expected recognized weightedaverage period 15 years cashbased performance grant cashbased performance grants made dominion’s officers dominion’s longterm incentive program actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved targeted amount cashbased performance grant made officers april 2006 13 million actual payout award february 2008 determined cgn committee 18 million based level performance metrics achieved december 31 2007 liability 18 million accrued award targeted amount cashbased performance grant made officers april 2007 11 million actual payout award february 2009 determined cgn committee 16 million based level performance metrics achieved december 31 2008 liability 16 million accrued award april 2008 cashbased performance grant made officers payout performance grant occurred february 2010 based achievement three performance metrics 2008 2009 return invested capital book value per share total shareholder return relative peer group companies december 31 2009 targeted amount grant 12 million based achievement performance metrics payout 2008 cashbased performance grants 15 million december 31 2009 liability 15 million accrued award february 2009 cashbased performance grant made officers payout performance grant occur march 15 2011 based achievement three performance metrics 2009 2010 return invested capital book value per share total shareholder return relative peer group companies december 31 2009 targeted amount grant 11 million liability 5 million accrued award note 21 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2009 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s virginia power’s ability pay dividends receive dividends subsidiaries december 31 2009 see note 18 description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes combined notes consolidated financial statements continued note 22 employee benefit plans dominion provides certain benefits eligible active employees retirees qualifying dependents terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension program also provides benefits certain retired executives companysponsored nonqualified employee benefit plan nonqualified plan funded contributions grantor trust dominion provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates rate compensation increases dominion uses december 31 measurement date employee benefit plans dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments aggregate actual returns dominion’s pension postretirement plan assets 777 million 2009 negative 14 billion 2008 versus expected returns 462 million 484 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts experienced 2008 result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans december 2003 medicare prescription drug improvement modernization act 2003 medicare act signed law medicare act introduces prescription drug benefit medicare part well federal subsidy sponsors retiree healthcare benefit plans provide benefit least actuarially equivalent medicare part dominion determined prescription drug benefit offered postretirement benefit plans least actuarially equivalent medicare part 2009 2008 dominion received federal subsidy 4 million 3 million respectively expects continue receive subsidy offered medicare act following table summarizes changes dominion’s pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status 1 represents splitdollar life insurance liability resulting adoption new accounting guidance deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements january 1 2008 accounting guidance requires employer recognize liability future obligations employee benefits related endorsement splitdollar life insurance plans benefits extend postretirement periods 2 represents pension plan assets classified assets held sale peoples december 31 2009 peoples hope december 31 2008 postretirement benefit plan obligations classified liabilities held sale peoples december 31 2009 peoples hope december 31 2008 dominion’s consolidated balance sheets accumulated benefit obligation abo dominion’s defined benefit pension plans 36 billion 34 billion december 31 2009 2008 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time contributions pension plans currently expected 2010 certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion expects contribute 56 million dominion vebas 2010 dominion expect pension postretirement plan assets returned company 2010 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets following table provides information abo fair value plan assets pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid benefit payments postretirement benefit plans expected offset medicare part subsidies approximately 5 million 2010 6 million annually period 2011 2013 7 million 2014 44 million period 2015 2019 dominion’s overall objective investing pension postretirement plan assets achieve best possible longterm rates return commensurate prudent levels risk minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations pension funds 34 us equity 12 nonus equity 22 fixed income 7 real estate 25 private equity investments us equity includes investments largecap midcap smallcap companies located united states nonus equity includes investments largecap companies located outside united states including developed emerging markets fixed income includes corporate debt securities companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds commingled funds real estate includes equity real estate investment trusts reits investments commingled funds partnerships investments include partnership investments private equity funds follow several different strategies dominion maximizes use observable inputs minimizes use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices dominion seeks price information external sources including broker quotes industry publications pricing information external sources available dominion believes observable pricing indicative fair value judgment required develop estimates fair value plan’s investments valued based values investments underlying investments determined follows  securities mutual funds reitsinvestments us government securities corporate debt instruments common preferred stock registered investment companies mutual funds presented fair value using quoted market prices active markets including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets  commingled fundsinvestments commingled funds stated fair value determined based unit value fund unit values determined dividing net asset value fund based fair value underlying investments total number units outstanding  partnershipsinvestments partnerships generally valued using net asset value based dominion’s proportionate share partnership’s fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s dominion’s measurement date combined notes consolidated financial statements continued dominion also utilizes following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels  level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date  level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means  level 3unobservable inputs asset liability including situations little market activity asset liability fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability fair values dominion’s pension plan assets asset category follows 1 excludes net assets related cash pending sales purchases securities 14 million 17 million december 31 2009 2008 respectively fair values dominion’s postretirement plan assets asset category follows 1 excludes net assets related cash pending sales purchases securities 1 million december 31 2009 2008 following table presents changes dominion’s pension plan postretirement plan assets measured fair value included level 3 fair value category strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target financial derivatives may used obtain manage market exposures hedge assets liabilities combined notes consolidated financial statements continued components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities follows 1 relates sale dominion’s nonappalachian ep operations impact distributions retired executives 2 represents onetime benefit enhancement certain employees connection disposition dominion’s nonappalachian ep business components aoci regulatory assets liabilities recognized components periodic benefit credit cost follows 1 december 31 2009 18 billion 235 million related pension benefits postretirement benefits 1 billion 87 million respectively included aoci remainder included regulatory assets liabilities december 31 2008 2 billion 431 million related pension benefits postretirement benefits 11 billion 228 million respectively included aoci remainder included regulatory assets liabilities following table provides components aoci regulatory assets liabilities december 31 2009 expected amortized components periodic benefit cost 2010 dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • historical return analysis determine expected future risk premiums asset volatilities correlations • forwardlooking return expectations derived yield longterm bonds price earnings ratios major stock market indices • expected inflation riskfree interest rate assumptions • types investments expected held plans dominion develops assumptions compared forecasts independent investment advisors ensure reasonableness internal committee selects final assumptions dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans one percentage point change assumed healthcare cost trend rates would following effects addition dominion sponsors defined contribution thrifttype savings plans 2009 2008 2007 dominion recognized 42 million 39 million 37 million respectively contributions plans virginia power virginia power participates defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer virginia power subject dominion’s funding policy contribute annually amount accordance provisions erisa virginia power’s net periodic pension cost related plan 48 million 32 million 37 million 2009 2008 2007 respectively employee compensation basis determining virginia power’s share total pension costs virginia power contribute pension plan 2009 2008 2007 virginia power participates plan provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service virginia power’s net periodic benefit cost related plan 55 million 33 million 24 million 2009 2008 2007 respectively employee headcount basis determining virginia power’s share total benefit costs certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power funds postretirement benefit costs veba virginia power’s contributions veba 34 million 15 million 7 million 2009 2008 2007 respectively virginia power expects contribute 35 million veba 2010 dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power’s employees participate investmentrelated declines trusts experienced 2008 result future increases periodic cost recognized employee benefit plans included determination amount cash virginia power provide dominion share employee benefit plan contributions virginia power also participates dominionsponsored employee savings plans cover substantially employees employer matching contributions 14 million 14 million 12 million incurred 2009 2008 2007 respectively note 23 commitments contingencies result issues generated ordinary course business dominion virginia power involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money ultimate outcome proceedings cannot predicted time however current proceedings specifically reported herein management anticipate liabilities arising proceedings would material effect dominion’s virginia power’s financial position liquidity results operations longterm purchase agreements december 31 2009 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2009 present value virginia power’s total commitment capacity payments 2 billion capacity payments totaled 356 million 379 million 410 million energy payments totaled 254 million 372 million 360 million 2009 2008 2007 respectively combined notes consolidated financial statements continued lease commitments dominion virginia power lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2009 follows rental expense dominion totaled 172 million 160 million 185 million 2009 2008 2007 respectively rental expense virginia power totaled 49 million 39 million 37 million 2009 2008 2007 respectively majority rental expense reflected operations maintenance expense dominion leases fairless power station began commercial operations june 2004 construction dominion acted construction agent lessor controlled design construction facility since reimbursed project costs 898 million advanced lessor dominion makes annual lease payments 53 million reflected lease commitments table lease expires 2013 time dominion may renew lease negotiated amounts based original project costs current market conditions subject lessor approval purchase fairless original construction cost sell fairless behalf lessor independent third party fairless sold proceeds sale less original construction cost dominion would required make payment lessor amount 7075 original project costs adjusted certain costs specified lease agreement contain provisions involve credit rating stock price trigger events environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements march 2005 epa administrator signed cair camr february 2008 dominion received request information pursuant section 114 caa epa request concerns historical operating changes capital improvements undertaken dominion’s state line kincaid power stations april 2009 dominion received second request information dominion provided information response requests also april dominion received notice finding violations epa claiming new source review violations new source performance standards violations title v permit program violations pursuant caa respective state implementation plans dominion currently evaluating impact notice cannot predict outcome matter february 2008 dc appeals court issued ruling vacates camr promulgated epa administration announced epa proceed maximum achievable control technology rulemaking coal oilfired electric utility steam generating units rules could require significant reductions mercury hazardous air pollutants electric generation facilities noted dominion continues governed individual state mercury emission reduction regulations massachusetts illinois largely unaffected camr ruling july 2008 dc appeals court issued ruling vacating cair promulgated epa december 2008 court denied rehearing also issued decision remand cair epa cair rules remain effect remand allows cair remain place time epa develops implements new rulemaking addressing issues identified court dominion virginia power cannot predict new rulemaking impact future so2 nox emission reduction requirements beyond cair january 2010 epa proposed new stringent national ambient air quality standard ozone could require additional nox controls certain areas companies operate june 2005 epa finalized amendments regional haze rule also known clean air visibility rule although dominion virginia power anticipate emission reductions achieved compliance caa required programs generally address clean air visibility rule rules proceed additional emission reduction requirements may imposed companies’ facilities implementation projects comply so2 x mercury limitations state emission control programs ongoing influenced changes regulatory environment availability emission allowances emission control technology response federal caa state regulatory requirements dominion virginia power estimate make capital expenditures affected generating facilities approximately 597 million 159 million respectively period 2010 2014 december 2009 epa issued final endangerment cause contribute findings greenhouse gases section 202a clean air act finding ghgs “endanger public health public welfare current future generations” ghgs become regulated pollutants caa dominion virginia power required obtain permits ghg emissions new modified facilities amend operating permits major sources ghg emissions actions occur epa establishes guidance ghg permitting including best available control technology possible determine impact dominion’s virginia power’s facilities emit ghgs water clean water act comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply aspects clean water act programs operating facilities july 2004 epa published regulations clean water act section 316b govern existing utilities employ cooling water intake structure flow levels exceeding minimum threshold epa’s rule presented several compliance options however january 2007 us court appeals second circuit issued decision appeal regulations remanding rule epa july 2007 epa suspended regulations pending rulemaking consistent decision issued us court appeals second circuit november 2007 number industries appealed lower court decision us supreme court april 2008 us supreme court granted industry request review question whether section 316b clean water act authorizes epa compare costs benefits determining best technology available minimizing “adverse environmental impact” cooling water intake structures us supreme court ruled april 2009 epa authority consider costs versus environmental benefits selecting best technology available reducing impacts cooling water intakes power stations currently unknown epa interpret ruling ongoing rulemaking activity addressing cooling water intakes well states implement decision dominion sixteen facilities including eight virginia power likely subject regulations dominion virginia power cannot predict outcome judicial epa regulatory processes determine certainty specific controls may required august 2006 connecticut department environmental protection issued notice tentative determination renew national pollutant discharge elimination system permit dominion’s millstone power station included draft copy revised permit october 2007 connecticut department environmental protection issued report hearing officer tentative determination stating agency’s intent revise draft permit december 2007 connecticut department environmental protection issued new draft permit administrative hearing draft permit began january 2009 completed february 2009 february 2010 hearing officer issued proposed final decision recommending connecticut department environmental protection commissioner issue revised draft permit without change final determination expected issued connecticut department environmental protection 2010 final permit reissued possible predict financial impact may result october 2003 epa massachusetts department environmental protection issued new national pollutant discharge elimination system permits dominion’s brayton point power station new permits contained identical conditions effect require installation cooling towers address concerns withdrawal discharge cooling water currently dominion estimates total cost install cooling towers approximately 650 million included planned capital expenditures 2014 october 2007 virginia state water control board issued renewed water discharge vpdes permit virginia power’s north anna power station blue ridge environmental defense league persons appealed virginia state water control board’s decision richmond circuit court challenging several permit provisions related north anna’s discharge cooling water february 2009 court ruled virginia state water control board required regulate thermal discharge north anna waste heat treatment facility virginia power filed motion reconsideration court february 2009 denied final order issued court september 2009 court’s order allows north anna continue operate pursuant currently issued vpdes permit october 2009 virginia power filed notice appeal court’s order richmond circuit court initiating appeals process virginia court appeals process complete revised permit issued possible predict financial impact may result solid hazardous waste comprehensive environmental response compensation liability act 1980 amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation comprehensive environmental response compensation liability act 1980 amended generators transporters hazardous substances well past present owners operators contaminated sites strictly jointly severally liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion virginia power may identified potentially responsible parties superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power may responsible costs remedial investigation actions superfund law laws regulations regarding combined notes consolidated financial statements continued remediation waste companies believe currently identified sites result significant liabilities dominion determined associated 17 former manufactured gas plant sites studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none 17 former sites dominion associated investigation state federal environmental agency one former sites dominion conducting state approved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program dominion yet estimated future remediation costs known degree former sites may contain environmental contamination dominion able estimate cost may required possible remediation sites epa announced propose regulations management coal combustion byproducts power plants resource conservation recovery act expected regulations address ash impoundments ash landfills ash handling practices regulations adopted significant expenditures could required facilities generate coal combustion byproducts due uncertain nature content timing regulations dominion virginia power cannot predict financial impact time climate change legislation regulation june 2009 us house representatives passed comprehensive legislation titled “american clean energy security act 2009” encourage development clean energy sources reduce ghg emissions legislation contains provisions establishing federal renewable energy standards electric suppliers legislation also includes capandtrade provisions reduction ghg emissions similar legislation introduced us senate addition epa proposed one rule finalized another rule together hold ghgs air pollutants subject provisions caa epa final endangerment cause contribute findings greenhouse gases section 202a clean air act proposed rulemaking establish lightduty vehicle greenhouse gas emission standards corporate average fuel economy standards proposed september 2009 possible outcomes actions include regulation ghg emissions various sources including electric generation gas transmission distribution facilities dominion virginia power currently support enactment federal legislation regulates ghg emissions economywide establishes system tradable allowances slows growth ghg emissions near term reduces ghg emissions long term addition companies support legislation sets realistic baseline year schedule designed way limit potential harm economy competitive businesses addition possible federal action regions states dominion virginia power operate already adopted may adopt ghg emission reduction programs example virginia energy plan released governor virginia september 2007 includes goal reducing ghg emissions statewide back 2000 levels 2025 governor formed commission climate change develop plan achieve goal november 2008 commission climate change formulated recommendations governor july 2008 massachusetts passed global warming solutions act among provisions global warming solutions act sets economywide ghg emissions reduction goals massachusetts including reductions 10 25 1990 levels 2020 interim goals 2030 2040 reductions 80 1990 levels 2050 regulations requiring implementation global warming solutions act yet proposed dominion operates two coaloilfired generating power stations massachusetts subject implementation global warming solutions act additionally massachusetts rhode island connecticut among states joined rggi multistate effort reduce co2 emissions northeast implemented state specific regulations initiative aggregate co2 emissions power plants participating states required stabilized current levels 2009 2015 reductions current levels would required phased starting 2016 2019 would 10 reduction participating state power plant co2 emissions december 31 2008 two dominion’s facilities massachusetts brayton point salem harbor subject existing regulations co2 massachusetts regulation 310 cmr 729 facilities could comply regulations either procurement ghg emission credits payment massachusetts ghg expendable trust combined 2008 co2 compliance obligation two power stations 474687 tons co2 settled september 1 2009 dominion procured 381864 tons ghg emissions credits combination dominion’s ghg emission credit projects 251582 tons well procurement third party projects 130282 tons payment ghg expendable trust two power stations covered remainder dominion’s compliance obligation massachusetts co2 program superseded rggi three dominion’s facilities brayton point salem harbor manchester street subject rggi beginning calendar year 2009 rggi requires dominion cover ton co2 direct stack emissions facilities either allowance offset allowances purchased auction secondary market dominion participated rggi allowance auctions date procured allowances meet estimated compliance requirements rggi 2009 2010 partially 2011 dominion expect allowances material impact results operations financial condition december 2009 governors 11 northeast midatlantic states including connecticut maryland massachusetts new york pennsylvania rhode island rggi states plus pennsylvania signed memorandum understanding committing states toward developing low carbon fuel standard reduce ghg emissions vehicles memorandum understanding establishes process develop regional framework 2011 examine economic impacts low carbon fuel standard program us currently party kyoto protocol united nations framework convention climate change became effective signatories february 16 2005 kyoto protocol process generally requires developed countries cap ghg emissions certain levels 20082012 time period conclusion december 2009 united nations climate change conference copenhagen denmark copenhagen accord adopted includes collection nonbinding voluntary actions various countries including us keep increase global mean temperature 2 degrees celsius include specific emissions targets calls industrial nations offer emissions reduction targets 2020 developing nations commit “national appropriate mitigation actions” us expected participate process cost compliance future ghg emission reduction programs could significant given highly uncertain outcome timing future action us federal government states issue dominion virginia power cannot predict financial impact future ghg emission reduction programs operations customers time nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities 2009 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units 26 billion 15 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc dominion believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns units decommissioned decades dominion virginia power continue monitor trusts ensure meet minimum financial assurance requirement may include use parent company guarantees surety bonding financial guarantees recognized nrc nuclear insurance priceanderson act provides public 125 billion liability protection per nuclear incident via obligations required owners nuclear power plants priceanderson act amendment 1988 allows inflationary provision adjustment every five years dominion virginia power purchased 300 million coverage commercial insurance pools reactor site remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor us companies could assessed 118 million licensed reactors exceed 18 million per year per reactor limit number incidents retrospective premium assessed current level property insurance coverage dominion’s virginia power’s nuclear units follows 1 coverage unit exceeds nrc minimum requirement companies’ coverage exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum assessment current policy period 95 million 49 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination dominion virginia power purchase insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program companies subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum assessment current policy period 33 million 19 million respectively odec part owner north anna massachusetts municipal wholesale electric company central vermont public service corporation part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 dominion virginia power entered contracts doe disposal spent nuclear fuel doe failed begin accepting spent fuel january 31 1998 date pro combined notes consolidated financial statements continued vided nuclear waste policy act companies’ contracts doe january 2004 dominion virginia power filed lawsuits us court federal claims doe requesting damages connection failure commence accepting spent nuclear fuel trial occurred may 2008 posttrial briefing argument concluded july 2008 october 15 2008 court issued opinion order dominion amount approximately 155 million includes approximately 112 million damages incurred virginia power spent fuelrelated costs surry north anna power stations approximately 43 million damages incurred spent nuclear fuelrelated costs dominion’s millstone power station june 30 2006 judgment entered court october 28 2008 december 2008 government appealed judgment u court appeals federal circuit appeal docketed march 2009 federal circuit granted government’s request stay appeal exception one case federal circuit issued stays currently pending appeals spent fuel damage awards november 2009 dominion virginia power filed motion lift stay government opposed motion stay lifted briefing appeal take place payment damages occur appeal process resolved dominion virginia power cannot predict outcome matter however event recover damages recovery including amounts attributable joint owners expected material impact results operations lawsuit also filed dominion’s kewaunee power station lawsuit presently stayed march 15 2010 companies continue manage spent fuel accepted doe guarantees surety bonds letters credit dominion december 31 2009 dominion issued 261 million guarantees support third parties equity method investees issued guarantees includes 182 million guarantees support dominion’s investment joint venture shell develop nedpower guarantees primarily comprised limitedscope guarantee indemnification onehalf projectlevel financing phases one two nedpower wind farm would require dominion pay onehalf nedpower’s debt unable direct result unfavorable ruling associated current litigation seeking halt project february 2010 underlying litigation dismissed applicable court pursuant agreed dismissal order dominion process seeking formal acknowledgement nedpower’s lenders termination provisions dominion’s litigation guaranty agreement satisfied significant amounts recorded dominion’s exposure litigationrelated guarantee totaled 156 million december 31 2009 shell provided identical guarantee onehalf nedpower’s borrowings issued guarantees also include 21 million guarantees support dominion’s investment joint venture bp develop fowler ridge guarantees primarily relate certain reserve requirements associated fowler ridge’s nonrecourse financing dominion’s exposure guarantees 21 million december 31 2009 bp provided identical guarantees onehalf joint venture commitments addition guarantees dominion partners shell bp may required make additional periodic equity contributions nedpower fowler ridge connection certain funding requirements associated respective nonrecourse financings december 31 2009 dominion’s maximum remaining cumulative exposure equity funding agreements 156 million 2019 maximum annual future contributions could range approximately 14 million 19 million dominion expects operating cash flows projects sufficient meet financing requirements dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees dominion believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2009 dominion issued following subsidiary guarantees 1 represents estimated portion guarantee’s stated limit utilized december 31 2009 based upon prevailing economic conditions fact patterns specific guarantee arrangement guarantees related obligations recorded liabilities dominion’s subsidiaries value includes recorded amount 2 guarantees debt certain dei subsidiaries event default subsidiaries dominion would obligated repay amounts 3 guarantees related energy trading marketing activities commodity commitments certain subsidiaries including subsidiaries virginia power dei guarantees provided counterparties order facilitate physical financial transactions gas oil electricity pipeline capacity transportation related commodities services subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation dominion subsidiaries receive similar guarantees collateral credit extended others value provided includes certain guarantees stated limits 4 guarantee dei subsidiary’s leasing obligation fairless 5 guarantees related certain dei subsidiaries’ potential retrospective premiums could assessed nuclear incident dominion’s nuclear insurance programs guarantees dei subsidiary’s virginia power’s commitment buy nuclear fuel excludes dominion’s agreement provide 150 million 60 million two dei subsidiaries pay operating expenses millstone kewaunee respectively event prolonged outage part satisfying certain nrc requirements concerned ensuring adequate funding operations nuclear power stations additionally december 31 2009 dominion purchased 151 million surety bonds authorized issuance standby letters credit financial institutions 204 million facilitate commercial transactions subsidiaries third parties terms surety bonds dominion obligated indemnify respective surety bond company amounts paid virginia power december 31 2009 virginia power issued 16 million guarantees primarily support tax exempt debt issued conduits virginia power also purchased 89 million surety bonds various purposes including providing workers’ compensation coverage terms surety bonds virginia power obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business dominion virginia power may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law dominion virginia power unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2009 dominion virginia power believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position litigation gas oil operations dominion involved litigation since 2006 certain royalty owners seeking recover damages result dominion allegedly underpaying royalties improperly deducting postproduction costs paying fair market value gas produced leases plaintiffs sought class action status behalf west virginia residents others parties beneficiaries oil gas leases dominion 2008 court preliminarily approved settlement class action conditionally certified temporary settlement class following preliminary approval court settlement notices sent potential class members 2009 court entered memorandum opinion final order approving settlement certifying settlement class final judgment order 2007 dominion established litigation reserve representing best estimate probable loss related matter believe final resolution matter material adverse effect results operations financial condition electric utility operations virginia power coowner odec clover power station virginia power litigation norfolk southern railway company norfolk southern regarding long term coal transportation agreement delivery coal facility trial court agreed norfolk southern’s interpretation agreement specifies use index ns index norfolk southern claims applied adjust base rate applied going forward trial court assessed damages approximately 78 million contract period december 1 2003 november 30 2007 imposed prejudgment interest approximately 9 million virginia power’s share would onehalf total judgment approximately 44 million appeal supreme court virginia september 2009 affirmed decisions trial court issues except calculation damages supreme court virginia remanded case trial court recalculate damages accordance opinion november 2009 circuit court halifax county virginia entered final order calculating damages prejudgment interest september 30 2009 approximately 11 million virginia power paid onehalf share note 24 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction dominion virginia power maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2009 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest regions us texas dominion believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing combined notes consolidated financial statements continued price risk management activities include trading energyrelated commodities marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2009 dominion’s gross credit exposure totaled 753 million application collateral credit exposure reduced 650 million amount investment grade counterparties including internally rated represented 94 two counterparty exposures greater 10 dominion’s total exposure one representing 13 10 large financial institutions rated investment grade virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2009 virginia power’s gross credit exposure totaled 39 million application collateral credit exposure reduced 28 million amount investment grade counterparties including internally rated represented 82 single counterparty exceeded 33 creditrelated contingent provisions majority dominion’s certain virginia power’s derivative instruments contain creditrelated contingent provisions require companies provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2009 dominion virginia power would required post additional 36 million 2 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms december 31 2009 dominion posted 62 million collateral including 48 million letters credit virginia power posted collateral related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2009 181 million dominion 2 million virginia power include impact offsetting asset positions see note 8 information derivative instruments note 25 dominion capital inc december 31 2007 dci held investment subordinated notes thirdparty cdo entity cdo entity’s primary focus purchase origination middle market senior secured first second lien commercial industrial loans primary secondary loan markets dominion concluded previously cdo entity vie dci primary beneficiary cdo entity therefore dominion consolidated cdo entity december 31 2007 march 2008 dominion reached agreement sell remaining interest subordinated notes third party effectively eliminating variability interest therefore deconsolidated cdo entity march 31 2008 recognized impairment losses 62 million 38 million aftertax recorded operations maintenance expense consolidated statement income connection sale subordinated notes april 2008 dominion received proceeds 54 million including accrued interest sale concluded dominion’s efforts divest dci since remaining assets aligned dominion’s core business 2007 dci impairment losses associated dci operations 98 million 67 million aftertax related investments retained interests cmo securitizations loans held resale venture capital equity investments note 26 relatedparty transactions virginia power engages relatedparty transactions primarily dominion subsidiaries affiliates virginia power’s receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power included dominion’s consolidated federal income tax return participates certain dominion benefit plans discussion significant related party transactions follows transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps options manage commodity price risks associated purchases natural gas virginia power designates majority contracts cash flow hedges accounting purposes drs provides accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage presented significant transactions drs affiliates 2009 virginia power purchased turbines affiliate 58 million used bear garden power station currently construction september 2008 virginia power purchased gasfired turbine affiliate 36 million part expansion ladysmith power station unit 5 supply electricity periods peak demand following table presents virginia power’s borrowings dominion shortterm arrangements 2008 virginia power merged dominion nuclear north anna part continued development efforts associated possible construction third nuclear unit north anna merger approved virginia north carolina commissions became effective december 2008 result merger virginia power recorded assets liabilities 48 million primarily reflecting acquisition early site permit inprocess col payable affiliate settled 2009 virginia power incurred interest charges related borrowings dominion 5 million 10 million 27 million 2009 2008 2007 respectively 2009 virginia power issued 31877 shares common stock dominion reflecting conversion 1 billion shortterm demand note borrowings dominion equity 2008 virginia power issued 11786 shares common stock dominion reflecting conversion 350 million shortterm demand note borrowings dominion equity 2007 virginia power recorded contributed capital 220 million reflecting conversion 220 million note payable dominion equity note 27 operating segments dominion virginia power organized primarily basis products services sold us description operations included companies’ primary operating segments follows addition operating segments companies also report corporate segment corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments corporate segment dominion includes corporate service company functions including unallocated debt net impact certain operations disposed discussed note 5 consolidated financial statements operations disposed december 31 2009 include peoples dominion sold february 2010 operations disposed 2008 included certain dci operations disposed 2007 included dominion’s nonappalachian ep operations three natural gasfired merchant generation peaker facilities certain dci operations addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments prior fourth quarter 2009 hope included dominion’s corporate segment assets liabilities classified held sale fourth quarter 2009 following dominion’s decision retain subsidiary hope transferred dominion energy operating segment assets liabilities reclassified held sale segment information prior years recast conform new segment structure combined notes consolidated financial statements continued dominion 2009 dominion reported net expenses 677 million corporate segment attributable operating segments net expenses 2009 primarily related impact following items  455 million 281 million aftertax ceiling test impairment charge related carrying value dominion’s ep properties attributable dominion energy  712 million 435 million aftertax charge connection proposed settlement virginia power’s 2009 rate case proceedings attributable  dominion generation 257 million aftertax  dvp 178 million aftertax  103 million 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service attributable dominion generation 2008 dominion reported net expenses 137 million corporate segment attributable operating segments net expenses 2008 primarily related impact following items attributable dominion generation  180 million 109 million aftertax certain impairment charges reflecting otherthantemporary declines fair value securities held investments nuclear decommissioning trusts december 31 2008  39 million 24 million aftertax impairment charges related nonrefundable deposits certain generationrelated vendor contracts 2007 dominion reported net expenses 618 million corporate segment attributable dominion’s operating segments net expenses 2007 primarily related impact following items attributable dominion generation  387 million 252 million aftertax charge related impairment dresden  259 million 158 million aftertax extraordinary charge due reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s utility generation operations  231 million 137 million aftertax charge resulting termination longterm power sales agreement associated state line intersegment sales transfers based underlying contractual arrangements agreements may result intersegment profit loss following table presents segment information pertaining dominion’s operations december 31 2009 2008 2007 none dominion’s longlived assets significant percentage operating revenues associated international operations virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments 2009 virginia power’s corporate segment included 430 million net aftertax expenses attributable operating segments net expenses 2009 primarily related 700 million 427 million aftertax charge connection proposed settlement 2009 rate case proceedings attributable dominion generation 257 million aftertax dvp 170 million aftertax 2008 virginia power’s corporate segment included 23 million net aftertax expenses attributable dominion generation segment net expenses 2008 primarily related impairment charges 18 million 11 million aftertax related nonrefundable deposits certain generationrelated vendor contracts 8 million 5 million aftertax reflecting otherthantemporary declines fair value securities held investments nuclear decommissioning trusts combined notes consolidated financial statements continued 2007 virginia power’s corporate segment included 166 million net aftertax expenses attributable dominion generation segment net expenses 2007 largely resulted 259 million 158 million aftertax extra ordinary charge connection reapplication accounting guidance costbased regulation virginia jurisdiction virginia power’s generation operations following table presents segment information pertaining virginia power’s operations note 28 gas oil producing activities unaudited 2007 dominion sold nonappalachian ep operations dominion’s remaining appalachian ep operations qualify significant gas oil producing activities 2009 2008 result following information details dominion’s gas oil operations 2007 total costs incurred following costs incurred gas oil producing activities 1 development costs incurred proved undeveloped reserves 445 million 2007 results operations dominion cautions following standard disclosures required fasb represent results operations based historical financial statements addition requiring different determinations revenue costs disclosures exclude impact interest expense corporate overhead companyowned reserves estimated net quantities proved gas oil including condensate reserves us canada december 31 2007 changes reserves year shown two schedules follow 1 natural gas liquids revisions primarily result additional contractual changes thirdparty gas processors dominion takes title processed ngls residue gas liquids reserve amounts recognized contracts oilcondensate revisions primarily result positive performance revisions gulf mexico deepwater locations 2 ending reserves included 03 million barrels oilcondensate 123 million barrels ngls standardized measure discounted future net cash flows changes therein following tabulation prepared accordance fasb’s rules disclosure standardized measure discounted future net cash flows relating proved gas oil reserve quantities dominion owns 1 amounts exclude effect derivative instruments designated hedges future sales production december 31 2007 foregoing determination future cash inflows sales prices gas oil based contractual arrangements market prices december 31 2007 future costs developing producing proved gas oil reserves reported based costs determined december 31 2007 assuming continuation existing economic conditions future income taxes computed applying december 31 2007 statutory tax rate future pretax net cash flows less tax basis properties involved giving effect tax deductions permanent differences tax credits intended fasb’s standardized measure discounted future net cash flows represent fair market value dominion’s proved reserves dominion cautions disclosures shown based estimates proved reserve quantities future production schedules inherently imprecise subject revision 10 discount rate arbitrary addition costs prices measurement date used determinations value may assigned probable possible reserves combined notes consolidated financial statements continued following tabulation summary changes total standardized measure discounted future net cash flows beginning end 2007 note 29 quarterly financial common stock data unaudited summary dominion’s virginia power’s quarterly results operations years ended december 31 2009 2008 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion 1 amounts attributable dominion’s common shareholders 2 loss discontinued operations impact basic diluted eps dominion’s 2009 results include impact following significant items  first quarter results include 272 million aftertax ceiling impairment charge related carrying value ep properties 50 million aftertax net loss investments held nuclear decommissioning trust funds  second quarter results include 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service  third quarter results include 34 million aftertax net gain investments held nuclear decommissioning trust funds  fourth quarter results include 435 million aftertax charge connection proposed settlement virginia power’s 2009 rate case proceedings dominion’s 2008 results include impact following significant items  first quarter results include 136 million aftertax benefit due reversal deferred tax liabilities associated planned sale peoples hope results also include 38 million aftertax charge resulting impairment dci investment  third quarter results include 26 million aftertax adjustment gain disposition dominion’s us nonappalachian ep operations  fourth quarter results include aftertax charges 58 million reflecting otherthantemporary declines fair value certain securities held investments nuclear decommissioning trusts 24 million aftertax impairment charge related nonrefundable deposits certain generationrelated vendor contracts virginia power virginia power’s quarterly results operations follows virginia power’s 2009 results include impact following significant item  fourth quarter results include 427 million aftertax charge connection proposed settlement 2009 rate case proceedings item 9 item 8 financial statements supplementary data index report management company’s management responsible information representations contained consolidated financial statements sections company’s annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity accounting principles generally accepted united states america financial information form 10k consistent consolidated financial statements management maintains system internal controls designed provide reasonable assurance reasonable cost company’s assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal control therefore cannot provide absolute assurance objectives established internal controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 2002 system internal control adequate accomplish intended objectives consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance auditing standards generally accepted united states america included review company’s accounting systems procedures internal controls extent necessary purpose report audit committee board directors dominion resources inc company’s parent composed entirely directors officers employees dominion resources inc subsidiaries meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters company ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time virginia electric power company g scott hetzer steven rogers g scott hetzer senior vice president treasurer principal financial officer steven rogers vice president principal accounting officer independent auditors’ report board directors virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries december 31 2002 2001 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2002 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2002 2001 results operations cash flows three years period ended december 31 2002 conformity accounting principles generally accepted united states america discussed note 9 consolidated financial statements effective january 1 2001 company adopted statement financial accounting standards 133 accounting derivative instruments hedging activities amended also discussed note 3 consolidated financial statements company changed method accounting used develop marketrelated value pension plan assets 2000 deloitte touche llp richmond virginia january 21 2003 virginia electric power company consolidated statements income accompanying notes integral part consolidated financial statements virginia electric power company consolidated balance sheets accompanying notes integral part consolidated financial statements virginia electric power company consolidated balance sheets continued 1 described note 16 consolidated financial statements debt securities issued virginia electric power company constitute 100 percent trust’s assets accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements comprehensive income company’s net income 579 million 2000 company comprehensive income reportable year accordance sfas 130 reporting comprehensive income accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part consolidated financial statements virginia electric power company notes consolidated financial statements note 1 nature operations virginia electric power company virginia power company virginia public service company whollyowned subsidiary dominion resources inc dominion company regulated public utility generates transmits distributes electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity approximately 22 million retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 percent virginia’s total land area accounts 80 percent population company trading relationships beyond geographic limits retail service territory buys sells wholesale electricity natural gas offsystem within document term “company” refers entirety virginia electric power company including virginia north carolina operations subsidiaries company manages daily operations along two operating segments energy delivery energy segment encompasses company’s portfolio generating facilities power purchase contracts trading marketing activities delivery segment includes bulk power transmission distribution metering services customer service delivery segment subject costofservice rate regulation statement financial accounting standards sfas 71 accounting effects certain types regulation sfas 71 effective january 1 2003 company’s electric transmission operations managed energy segment instead delivery segment note 2 significant accounting policies general company makes certain estimates assumptions preparing consolidated financial statements accordance accounting principles generally accepted united states america generally accepted accounting principles estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates consolidated financial statements represent company’s accounts elimination intercompany transactions certain amounts 2001 2000 consolidated financial statements reclassified conform 2002 presentation use fair value measurements company reports certain contracts instruments fair value accordance applicable generally accepted accounting principles fair value based actively quoted market prices available absence actively quoted market prices company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available company must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis options contracts optionlike characteristics pricing information available external sources company uses modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value contracts unique characteristics company estimates fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different assumptions could material effect contract’s estimated fair value operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers revenue energy trading activities includes realized commodity contract revenue net related cost sales unrealized gains losses marking market commodity contracts yet settled see note 5 beginning october 25 2002 january 1 2003 accordance new accounting requirements virginia electric power company notes consolidated financial statementscontinued discussed note 4 company discontinued marking market unsettled commodity contracts otherwise accounted derivatives sfas 133 accounting derivative instruments hedging activities electric fuel purchased energydeferred costs permitted regulatory authorities differences actual electric fuel purchased energy levels recovery expenses current rates deferred matched recoveries future periods approximately 94 percent rate regulated fuel costs subject deferral accounting see regulatory assets liabilities note 10 income taxes company files consolidated federal income tax return participates intercompany tax allocation agreement dominion subsidiaries company’s current income taxes based taxable income determined separate company basis however public utility holding company act 1935 act intercompany tax allocation agreement company’s cash payments dominion reduced portion income tax benefits realized dominion result filing consolidated returns permitted regulatory authorities treatment temporary differences differ requirements sfas 109 accounting income taxes accordingly regulatory asset recognized probable future revenues provided payment deferred tax liabilities deferred investment tax credits amortized service lives property giving rise credits stockbased compensation employees company may receive stockbased awards stock options restricted stock granted dominionsponsored stock plans company measures compensation cost stockbased awards issued employees accordance accounting principles board opinion 25 accounting stock issued employees related interpretations compensation expense measured based intrinsic value difference fair market value dominion common stock exercise price underlying award date price number shares recipient entitled receive known generally grant date compensation expense recognized straightline basis stated vesting period award compensation expense associated awards material 2002 2001 2000 pro forma impact net income company measured compensation expense based fair value options date grant would material 2002 2001 2000 cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 2002 2001 company’s accounts payable included net effect checks outstanding yet presented payment 39 million 100 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand cash banks temporary investments purchased remaining maturity three months less margin deposit assets liabilities amounts reported margin deposit assets represent funds held deposit various trading counterparties resulted company exceeding agreedupon credit limits established counterparties amounts reported margin deposit liabilities represent funds held company resulted various trading counterparties exceeding agreedupon credit limits established company credit limits mechanism calculating amounts held deposit determined international swap dealers association master agreements master power purchase sale agreement edison electric institute place company counterparties december 31 2002 december 31 2001 company margin deposit assets 52 million 10 million respectively margin deposit liabilities 22 million december 31 2002 margin deposit liabilities december 31 2001 amounts reflected current assets current liabilities property plant equipment property plant equipment including additions replacements recorded original cost including labor materials direct costs capitalized interest costs repairs maintenance including minor additions replacements charged expense incurred 2002 2001 2000 company capitalized interest costs 17 million 20 million 18 million respectively electric distribution transmission property subject costofservice utility rate regulation cost property related cost removal less salvage charged accumulated depreciation retirement generationrelated property cost removal charged expense incurred company records gains losses upon retirement generationrelated property based upon difference proceeds received property’s undepreciated basis retirement date depreciation property plant equipment computed straightline method based projected service lives company’s depreciation rates property plant equipment 2002 2001 2000 follows generation188 percent 210 percent 280 percent respectively transmission214 percent 275 percent 274 percent respectively distribution355 percent 377 percent 381 percent respectively general524 percent 430 percent 446 percent respectively amortization nuclear fuel used electric generation provided unitofproduction basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs 2002 company extended estimated useful lives fossil fuel stations electric transmission distribution property based depreciation studies indicated longer lives appropriate changes estimated useful lives reduced depreciation expense approximately 40 million entirety 2002 reduce depreciation expense approximately 64 million annual basis thereafter 2001 company increased estimate useful lives nuclear facilities 20 years reduced depreciation expense approximately 72 million entirety 2001 annual basis thereafter change estimate made connection filing applications license extensions nuclear regulatory commission nrc discussion change accounting future decommissioning costs see asset retirement obligations note 4 derivative instruments company uses derivative instruments futures swaps forwards options manage commodity currency exchange financial market risks business operations company also manages portfolio commodity contracts held trading purposes part strategy market energy manage related risks derivative instruments generally recognized consolidated balance sheets fair value see note 9 discussion company’s use derivative instruments energy trading contracts including risk management policy accounting policy derivatives sfas 133 results hedging activities years ended december 31 2002 2001 prior january 1 2001 company considered derivative instruments effective hedges item hedged underlying financial instrument commodity contract showed strong historical correlation company used deferral accounting account futures forwards derivative instruments designated hedges method realized gains losses including payment premium related effective hedges existing assets liabilities recognized earnings conjunction designated asset liability gains losses related effective hedges firm commitments anticipated transactions included measurement subsequent transaction impairment longlived intangible assets company performs evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable assets written fair value sum expected future undiscounted cash flows less carrying amounts regulatory assets liabilities methods allocating costs accounting periods operations subject federal state costofservice rate virginia electric power company notes consolidated financial statementscontinued regulation may differ accounting methods generally applied nonregulated companies economic effects allocations prescribed regulatory authorities ratemaking purposes must considered application generally accepted accounting principles see notes 10 21 additional information regulatory assets liabilities impact legislation continued application sfas 71 amortization debt issuance costs company defers amortizes debt issuance costs debt premiums discounts lives respective debt issues permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issues note 3 accounting change pension costs effective january 1 2000 connection dominion’s acquisition consolidated natural gas company cng dominion subsidiaries including company adopted new companywide method calculating marketrelated value pension plan assets used determine expected return pension plan assets component net periodic pension cost management believes new method enhances predictability expected return pension plan assets provides consistent treatment investment gains losses results calculated marketrelated pension plan asset values closer market value values calculated preacquisition methods used dominion cng primary participating employer dominion resources retirement plan 2000 company recorded proportionate share cumulative effect change accounting principle 21 million net income taxes 11 million impact cumulative effect change accounting principle effect change net income 2000 material note 4 recently issued accounting standards asset retirement obligations 2001 financial accounting standards board fasb issued sfas 143 accounting asset retirement obligations provides accounting requirements recognition measurement liabilities associated retirement tangible longlived assets company adopted standard effective january 1 2003 company identified certain asset retirement obligations subject standard obligations primarily associated decommissioning nuclear generation facilities sfas 143 asset retirement obligations recognized fair value incurred capitalized part cost related tangible longlived assets present value approach used estimate fair value asset retirement obligations accretion liabilities due passage time recognized operating expense result adoption sfas 143 requires changes company’s accounting reporting certain asset retirement obligations already recognized accounting policies prior adoption sfas 143 example company already recognizes amounts related future decommissioning activities utility nuclear plants discussed note 8 accumulated provision decommissioning presented balance sheet december 31 2002 component accumulated depreciation sfas 143 asset retirement obligation reported liability addition reporting realized unrealized earnings external trusts available funding decommissioning activities company’s nuclear plants recorded income comprehensive income appropriate 2002 company recorded trusts’ earnings income offsetting charge expense also recorded income accretion decommissioning liability january 1 2003 company implemented sfas 143 recognized aftertax gain 139 million representing cumulative effect change accounting principle company’s accounting policy prior adoption sfas 143 838 million previously accrued future asset removal costs primarily related future nuclear decommissioning amounts included accumulated provision depreciation amortization december 31 2002 adoption sfas 143 company calculated asset retirement obligations 697 million recording cumulative effect accounting change company recognized reduction attributable remeasurement asset retirement obligations reclassified amount accumulated provision depreciation amortization noncurrent liabilities cumulative effect accounting change also reflected 175 million increase property plant equipment capitalized asset retirement costs 77 million increase accumulated provision depreciation amortization representing depreciation costs december 31 2002 accordance sfas 71 company continue practice accruing future costs removal costofservice rate regulated electric transmission distribution assets even legal obligation perform activities exists december 31 2002 company’s accumulated depreciation amortization included 375 million representing estimated costs removal activities energy trading contracts october 2002 emerging issues task force eitf rescinded eitf issue 9810 accounting contracts involved energy trading risk management activities eitf 9810 result certain energyrelated commodity contracts held trading purposes longer subject fair value accounting affected contracts energyrelated contracts held trading purposes considered derivatives sfas 133 eitf 9810 accounting fair value energy contracts measured reporting date changes fair value including unrealized amounts reported earnings energyrelated contracts affected rescission eitf 9810 subject accrual accounting recognized revenue expense time contract performance settlement termination rescission eitf 9810 primarily affects timing recognition earnings company’s energyrelated trading contracts addition affected contracts longer reported fair value company’s balance sheet eitf 9810 rescission effective nonderivative energy trading contracts initiated october 25 2002 result implementing change nonderivative energy trading contracts initiated prior october 25 2002 company recognized loss 55 million net taxes 35 million cumulative effect change accounting principle effective january 1 2003 accounting guarantees november 2002 fasb issued interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness othersan interpretation fasb statements 5 57 107 interpretation issuers certain types guarantees must recognize liability based fair value guarantee issued even likelihood making payments remote addition interpretation requires increased disclosures specific types guarantees interpretation’s initial recognition requirements apply guarantees issued modified december 31 2002 company anticipate material impact future results operations financial condition result recording newly issued modified guarantees fair value interpretation’s disclosure requirements effective financial statements ending december 15 2002 consolidation variable interest entities january 2003 fasb issued interpretation 46 consolidation variable interest entities addresses consolidation business enterprises entities controllable voting interests equity investors bear residual economic risks rewards entities commonly referred “special purpose entities” underlying principle behind new interpretation business enterprise majority financial interest entity defined guidance variable interest entity assets liabilities results activities variable interest entity included consolidated financial statements business enterprise interpretation explains identify variable interest entities enterprise assess interest entity decide whether consolidate entity company apply provisions interpretation prospectively variable interest entities created january 31 2003 variable interest entities created january 31 2003 company required consolidate virginia electric power company notes consolidated financial statementscontinued entities deemed primary beneficiary beginning july 1 2003 company anticipate adoption interpretation material impact results operations financial condition sfas 133 guidance connection january 2003 eitf meeting fasb requested reconsider interpretation sfas 133 interpretation contained derivatives implementation group’s c11 guidance relates contracts pricing terms include broad market indices particular guidance discusses whether pricing contract contains broad market indices eg consumer price index could qualify normal purchase sale therefore subject fair value accounting company certain power purchase sale contracts subject guidance addressed request reconsideration aggregate fair value contracts december 31 2002 represented estimated pretax net unrealized loss 120 million company currently evaluating implementation would ultimately required result guidance clarified company contracts considered dominion subsidiaries’ contracts subject guidance dominion estimates aggregate fair value contracts material amount note 5 operating revenue regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services subject costofservice rate regulation company’s customer accounts receivable december 31 2002 2001 includes 231 million 181 million respectively accrued unbilled revenue based estimated electric energy delivered yet billed utility customers considering historical usage applicable customer rates company estimates unbilled utility revenue based total daily electric generation supplied adjusting estimated losses energy transmission weather factors revenue includes revenue energy trading activities sales electricity natural gas marketbased rates brokered gas sales service fees associated rateregulated electric distribution miscellaneous revenue energy trading activities includes realized contract settlements net related cost sales unrealized gains losses resulting marking market commodity contracts yet settled note 6 restructuring costs 2001 restructuring costs fourth quarter 2001 fully integrating cng dominion’s existing organization operations including company management initiated focused review dominion’s combined operations developed plan reorganization result company recognized 48 million restructuring costs included employee severance termination benefits abandonment leased office space longer needed company recorded 42 million total severance related costs including 26 million billed company dominion resources services inc dominion services 2001 restructuring plan company identified 124 positions eliminated recorded 16 million employee severancerelated costs severance payments based individual’s base salary years service time termination 2002 company recorded 7 million adjustment liability severance related costs reported restructuring costs consolidated statement income 89 positions actually eliminated plan adjustment reflected reduction number employee positions eliminated reduction differences actual estimated base salaries years service employees actually terminated plan restructuring related costs year ended december 31 2001 follows 1 dominion services subsidiary service company 1935 act provides certain services dominion’s operating subsidiaries accordingly charges allocated billed among operating subsidiaries accordance predefined service agreements see note 24 2 includes charges abandonment leased office space related costs company dominion services change liability severance related costs 2002 presented 2000 restructuring costs 2000 following acquisition cng dominion subsidiaries implemented plan restructure operations combined companies restructuring plan included involuntary severance program voluntary early retirement program erp transition plan implement operational changes provide efficiencies including consolidation postmerger operations integration information technology systems december 31 2001 total 174 positions eliminated approximately 13 million severance benefits paid severance payments based individual’s base salary yearsof service time termination 2000 approximately 400 company employees elected participate erp resulting expense approximating 51 million erp participants also received benefits involuntary severance package benefits involuntary severance package subject reductions result coordination additional retirement plan benefits provided erp year ended december 31 2000 company recorded 71 million charges connection 2000 restructuring plan follows n 14 million involuntary severance program discussed n 51 million erp n 6 million costs related consolidation integration business operations administrative functions note 7 income taxes details income tax expense follows statutory us federal income rate reconciles effective income tax rates follows company’s effective income tax rate decreased 2002 due net benefit related permanent differences reduction percentages state income taxes book income decrease book depreciation regulated assets company’s effective income tax rate increased 2001 due utility operations virginia becoming subject state income taxes lieu gross receipts taxes deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes virginia electric power company notes consolidated financial statementscontinued company’s net accumulated deferred income taxes consist following 1 2002 2001 amounts include 49 million 37 million respectively current deferred tax assets reported current assets note 8 nuclear operations company four licensed nuclear reactors surry north anna plants virginia serve customers regulated electric utility operations decommissioning represents decontamination removal radioactive contaminants nuclear power plant operations ceased accordance standards established nrc june 2007 amounts collected virginia jurisdictional ratepayers placed external trusts invested fund expected costs decommissioning surry north anna units accounting decommissioning accordance accounting policy recognized regulatory authorities jurisdiction electric utility operations company recognizes expense future cost decommissioning amounts equal amounts collected ratepayers earnings trust investments dedicated funding decommissioning company’s nuclear plants consolidated balance sheets external trusts reported fair value accumulated provision decommissioning included accumulated depreciation net realized unrealized earnings trust investments well offsetting expense increase accumulated provision decommissioning recorded component incomeloss permitted regulatory authorities see note 4 discussion impact adopting sfas 143 company’s accounting decommissioning balance investments held external trusts decommissioning well accumulated provision decommissioning december 31 2002 2001 838 million 858 million respectively company collected 36 million ratepayers years ended 2002 2001 2000 respectively expensed like amounts component depreciation company recognized net realized gains interest income 11 million 32 million 20 million 2002 2001 2000 company recognized net unrealized losses 67 million 61 million 23 million 2002 2001 2000 respectively company recognized offsetting increases decreases provision decommissioning amounts equal net realized unrealized gains losses period expected costs decommissioning total estimated current cost decommission company’s four nuclear units 15 billion based sitespecific study completed 2002 new cost estimate completed 2006 cost estimate assumes method completing decommissioning activities prompt dismantlement current operating licenses decommissioning would begin 2012 detailed table however company filed request nrc 20year life extension surry north anna units 2001 company expects decommission units period 2032 2045 nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities company’s 2002 nrc minimum financial assurance amount aggregated four nuclear units 11 billion satisfied combination surety bonds funds collected deposited external trusts beginning march 2003 company expects replace surety bonds currently utilized guarantee issued dominion insurance priceanderson act limits public liability nuclear power plant owner 95 billion single nuclear incident price anderson act amendment 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor united states company could assessed 88 million four licensed reactors exceed 10 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed three timesin 1967 1975 1988 priceanderson expired august 2002 congress currently holding hearings reauthorize legislation expiration priceanderson impact existing nuclear license holders company’s current level property insurance coverage 255 billion north anna 255 billion surry exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc company’s nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 43 million based severity incident board directors company’s nuclear insurer discretion lower eliminate maximum retrospective premium assessment company financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination company also purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program company subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 19 million north anna power station jointly owned discussed note 13 coowner responsible share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance note 9 derivative instruments hedge accounting energy trading activities adoption sfas 133 company adopted sfas 133 january 1 2001 recorded aftertax charge accumulated comprehensive income aoci 14 million net taxes 9 million risk management policy company uses derivative instruments manage commodity currency exchange financial market risks business operations company manages price risk associated purchases natural gas oil utilizing derivative instruments including futures swaps company manages foreign exchange risk associated anticipated future purchases denominated foreign currencies utilizing currency forward contracts company manages interest rate risk exposure part entering interest rate swap transactions virginia electric power company notes consolidated financial statementscontinued part strategy market energy manage related risks company manages portfolio commoditybased derivative instruments held trading purposes contracts sensitive changes prices energy commodities primarily natural gas electricity company uses established policies procedures manage risks associated price fluctuations uses various derivative instruments futures swaps options reduce risk creating offsetting market positions company operating procedures place administered experienced management help ensure proper internal controls maintained regarding use derivative instruments addition dominion established independent function monitor compliance risk management policies subsidiaries company designates substantial portion derivative instruments held purposes trading fair value cash flow hedges accounting purposes significant portion company’s hedge strategies represents cash flow hedges variable price risk associated purchases natural gas oil commodities company also uses cash flow hedge strategies hedge variability foreign exchange rates variable interest rates longterm debt using derivative instruments discussed preceding paragraphs company also designated interest rate swaps fair value hedges manage exposure fixed interest rates certain longterm debt certain company’s nontrading derivative instruments designated hedges accounting purposes however management believes instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates accounting policy sfas 133 derivatives recognized consolidated balance sheets fair value unless exception available standard certain qualifying derivative contracts designated normal purchases normal sales contracts reported fair value otherwise required sfas 133 commodity contracts representing unrealized gain positions reported derivative energy trading assets commodity contracts representing unrealized losses reported derivative energy trading liabilities addition purchased options sold reported derivative energy trading assets derivative energy trading liabilities respectively estimated market value exercise expiration derivatives designated hedges company formally documents relationship hedging instrument hedged item well risk management objective strategy using hedging instrument company assesses whether hedge relationship derivative hedged item highly effective offsetting changes fair value cash flows inception hedge ongoing basis change fair value derivative effective offsetting changes fair value hedged item recognized currently earnings company discontinues hedge accounting prospectively derivatives ceased highly effective hedges fair value hedge transactions company hedging changes fair value asset liability firm commitment changes fair value derivative generally offset consolidated statements income changes hedged item’s fair value cash flow hedge transactions company hedging variability cash flows related variablepriced asset liability commitment forecasted transaction changes fair value derivative reported aoci derivative gains losses reported aoci reclassified earnings periods earnings impacted variability cash flows hedged item ineffective portions change fair value derivatives change fair value derivatives designated hedges accounting purposes recognized current period earnings foreign currency forward contracts designated cash flow hedges hedge effectiveness measured based changes fair value contract attributable changes forward exchange rate options designated either fair value cash flow hedges changes time value excluded measurement hedge effectiveness therefore recorded earnings gains losses derivatives designated hedges recognized included operating revenue operating expenses interest related charges consolidated statements income specific line item classification determined based nature risk underlying individual hedge strategies changes fair value derivatives designated hedges portion hedging derivatives excluded measurement effectiveness included operations maintenance expense consolidated statements income cash flows resulting settlement derivatives used hedging instruments included net cash flows operating activities derivative hedge accounting results company recognized hedge ineffectiveness 2002 company experienced less 1 million ineffectiveness related hedges 2001 following table presents selected information related cash flow hedges included aoci consolidated balance sheet december 31 2002 actual amounts reclassified earnings 2003 vary expected amounts presented result changes market prices interest rates foreign exchange rates effect amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies energy trading activities company’s nonderivative energy contracts initiated october 25 2002 derivative instruments held energy trading purposes reported fair value corresponding changes value recognized immediately earnings see note 4 discussion recent changes impacting fair value accounting energy trading contracts net gains losses associated company’s commodity trading purchases sales presented net revenue see note 5 cash flows resulting settlement energy trading contracts included net cash flows operating activities composition operating revenue commodity trading activities years 2002 2001 2000 follows note 10 regulatory assets liabilities company accounts regulated operations accordance sfas 71 regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process regulatory liabilities represent probable future reductions revenues associated amounts credited customers ratemaking process 1999 virginia enacted virginia electric utility restructuring act virginia restructuring act established detailed plan restructure virginia’s electric utility industry virginia restructuring act generation portion company’s virginia jurisdictional operations longer subject costbased regulation effective january 1 2002 legislation’s deregulation generation event required discontinuance sfas 71 company’s generation operations 1999 virginia electric power company notes consolidated financial statementscontinued company’s regulatory assets liabilities included following incurred costs underlying regulatory assets may represent past expenditures company’s rate regulated operations may represent recognition liabilities ultimately settled time future december 31 2002 approximately 24 million company’s regulatory assets represented past expenditures earn return expenditures consist primarily deferred fuel costs certain jurisdictions recovered within two years income taxes recoverable future rates resulted recognition additional deferred income taxes previously recorded past ratemaking practices cost decommissioning department energy’s doe uranium enrichment facilities represents company’s required contributions fund decommissioning decontaminating doe’s uranium enrichment facilities company began making contributions 1992 expected continue 15year period escalation inflation costs currently recovered fuel rates deferred fuel accounting provides difference 1 reasonably incurred actual cost fuels used electric generation energy purchases 2 recovery costs included current rates deferred matched future revenue note 11 goodwill intangible assets 2001 fasb issued sfas 142 goodwill intangible assets prohibits amortization goodwill intangible assets indefinite useful lives sfas 142 also requires assets reviewed impairment least annually intangible assets finite lives continue amortized estimated useful lives reviewed impairment whenever events changes circumstances indicate carrying amounts may recoverable company adopted sfas 142 january 1 2002 company goodwill thus provisions sfas 142 requiring discontinuance goodwill amortization impact company’s results operations 2002 company’s intangible assets subject amortization expense intangible assets 24 million 19 million 16 million 2002 2001 2000 respectively material acquisitions intangible assets 2002 components intangible assets december 31 2002 follows amortization expense intangible assets estimated 28 million 2003 26 million 2004 21 million 2005 19 million 2006 14 million 2007 note 12 property plant equipment property plant equipment including nuclear fuel consists following note 13 jointly owned plants company’s proportionate share jointly owned plants december 31 2002 follows coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest company reports share operating costs appropriate operating expense fuel operations maintenance depreciation taxes etc consolidated statements income note 14 shortterm debt credit agreements joint credit facilities may 2002 dominion cng company entered two joint credit facilities allow aggregate borrowings 2 billion facilities include 125 billion 364day revolving credit facility terminates may 2003 750 million threeyear revolving credit facility terminates may 2005 364day facility includes option extend borrowings additional period one year may 2004 joint credit facilities used working capital support combined commercial paper programs dominion cng company general corporate purposes threeyear facility also used support 200 million letters credit company expects renew 364day revolving credit facility prior maturity may 2003 december 31 2002 total outstanding commercial paper supported joint credit facilities 12 billion company’s borrowings 443 million weighted average interest rate 167 percent december 31 2001 total outstanding commercial paper supported previous credit agreements 19 billion company’s borrowings 436 million weighted average interest rate 196 percent december 31 2002 total outstanding letters credit supported threeyear facility 106 million issued dominion cng behalf subsidiaries outstanding letters credit december 31 2001 note 15 longterm debt long term debt consists following 1 substantially company’s property subject lien mortgage securing first refunding mortgage bonds mortgage bonds 2002 company redeemed 200 million 675 percent 1997a mortgage bonds due february 1 2007 company completed redemption part proceeds issuance 650 million 5375 percent senior notes due february 1 2007 senior notes redemption included direct exchange senior notes 117 million mortgage bonds company used remaining proceeds senior notes redeem remaining 83 million mortgage bonds general corporate purposes including repayment debt 2 represents weightedaverage coupon rates debt outstanding december 31 2002 3 certain pollution control equipment company’s generating facilities pledged conveyed secure financings 4 2002 company converted 292 million variable rate pollution control bonds fixed rates ranging 495 percent 5875 percent terms bonds remain 5 represents changes fair value certain fixed rate longterm debt associated fair value hedging relationships described note 22 virginia electric power company notes consolidated financial statementscontinued scheduled principal payments longterm debt december 31 2002 follows millions thereafter total 360 325 600 880 2005 4170 company’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2002 events default company’s covenants note 16 company obligated mandatorily redeemable preferred securities subsidiary trust 2002 virginia power capital trust ii trust subsidiary company sold 16 million 7375 percent trust preferred securities 400 million representing preferred beneficial interests 97 percent beneficial ownership assets held trust exchange 400 million realized sale trust preferred securities 12 million common securities represent remaining 3 percent beneficial ownership interest assets held trust company issued 412 million 2002 7375 percent junior subordinated notes junior subordinated notes due july 30 2042 junior subordinated notes constitute 100 percent trust’s assets trust must redeem trust preferred securities junior subordinated notes repaid redeemed prior maturity 2002 company redeemed 139 million junior subordinated notes held virginia power capital trust redeemed outstanding trust preferred securities 135 million redeemed 4 million common securities held company distribution payments trust preferred securities guaranteed company extent trusts funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities solely dependent upon company’s payment amounts due junior subordinated notes payment junior subordinated notes deferred company may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes note 17 preferred stock company authorized issue 10 million shares preferred stock 100 liquidation preference upon involuntary liquidation dissolution winding company share entitled receive 100 per share plus accrued dividends cumulative holders outstanding preferred stock company entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock 2002 company purchased redeemed par shares variable rate preferred stock october 1988 series june 1989 series september 1992a series september 1992b series 250 million redemption price 100 per share dividend rates series variable set every 49 days via auction process combined weighted average rates series outstanding 2002 2001 2000 including fees brokerdealer agreements 400 percent 432 percent 571 percent respectively 2002 company issued 1250 units consisting 1000 shares per unit cumulative preferred stock 125 million preferred stock dividend rate 550 percent end initial dividend period december 20 2007 dividend rate subsequent periods determined according periodic auctions preferred stock liquidation preference 100 per share plus accumulated unpaid dividends except initial dividend period noncall period preferred stock redeemable whole part dividend payment date option company may also redeem preferred stock whole part certain changes made federal tax law reduce dividends received percentage presented series preferred stock subject mandatory redemption outstanding december 31 2002 1 shares presented thousands 2 73103 10353 commencing 8103 amounts decline steps thereafter 10000 3 83103 10349 commencing 9103 amounts decline steps thereafter 10000 note 18 common stock exchange 150 million reduction amounts payable dominion company issued common stock dominion 2002 note 19 accumulated comprehensive income december 31 2002 2001 accumulated comprehensive income 8 million 4 million respectively representing net unrealized gains losses derivative instruments note 20 employee benefit plans company participates defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer company subject dominion’s funding policy contribute annually amount accordance provisions employment retirement income security act 1974 company’s net periodic pension cost 7 million 7 million 50 million 2002 2001 2000 respectively 2000 net periodic pension cost included 38 million effect erp company’s pension plan see note 6 information erp company’s contributions pension plan 37 million 7 million 12 million 2002 2001 2000 respectively company participates plans provide certain retiree health care life insurance benefits multiple dominion subsidiaries annual premiums based several factors age retirement date years service company’s net periodic benefit cost 34 million 35 million 42 million 2002 2001 2000 respectively certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly company funds postretirement benefit costs voluntary employees’ beneficiary associations company’s contributions health care life insurance plans 17 million 10 million 3 million 2002 2001 2000 respectively company also participates employee savings plans cover substantially employees employer matching contributions totaled 10 million 10 million 12 million 2002 2001 2000 respectively see note 3 discussion accounting change pension costs 2000 note 21 commitments contingencies result issues generated ordinary course business company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money management believes final disposition proceedings material adverse effect company’s financial position liquidity results operations capital expenditures company made substantial commitments connection capital expenditures program expenditures estimated total approximately 900 million 665 million 625 million 2003 2004 2005 respectively purchases nuclear fuel included fuel purchase commitments company expects expenditures met combination sales securities short term borrowings extent funded cash flow operations virginia electric power company notes consolidated financial statementscontinued power purchase contracts company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers december 31 2002 company 42 nonutility purchase contracts combined dependable summer capacity 3758 megawatts table reflects company’s minimum commitments december 31 2002 contracts capacity purchases contracts totaled 691 million 680 million 740 million 2002 2001 2000 respectively 2001 company completed purchase three generating facilities termination seven contracts provided electricity company longterm power purchase agreements nonutility generators company recorded aftertax charge 136 million connection purchase termination longterm power purchase agreements cash payments related purchase three generating facilities totaled 207 million allocation purchase price assigned assets liabilities acquired based upon estimated fair values date acquisition substantially value attributed power purchase agreements terminated resulted charge included operations maintenance expense fuel purchase commitments company enters longterm purchase commitments fuel used electric generation estimated fuel purchase commitments next five years follows 2003439 million 2004237 million 2005174 million 2006142 million 200770 million company recovers costs purchases regulated rates lease commitments company leases various facilities vehicles equipment operating capital leases future minimum lease payments company’s operating capital leases initial remaining lease terms excess one year december 31 2002 follows 200339 million 200428 million 200520 million 200612 million 200710 million years 200734 million terms lease agreements company guaranteed residual values covered vehicles least 44 million time agreements expire terminated rental expense included operations maintenance expense totaled 30 million 25 million 24 million 2002 2001 2000 respectively addition company entered agreements another dominion subsidiary order develop construct finance lease new power generation facility company’s possum point station prince william county virginia project scheduled completion 2003 estimated cost 370 million upon completion company operate new generating facility operating lease estimated annual lease payments 20 million energy trading subsidiaries company enter purchases sales commoditybased contracts energyrelated markets including natural gas electricity coal oil agreements may cover current future periods volume transactions varies day based market conditions see note 9 discussion company’s energy trading activities risk management policies environmental matters company subject costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia state corporation commission period ending june 30 2007 excess level currently included virginia jurisdictional rates company’s results operations decrease date company may seek recovery customers utility rates environmental costs related transmission distribution operations superfund sites time company may identified potentially responsible party superfund site environmental protection agency epa state either allow party conduct pay remedial investigation feasibility study remedial action b conduct remedial investigation action seek reimbursement parties party held jointly severally strictly liable costs parties also bring contribution actions seek reimbursement insurance companies result company may responsible costs remedial investigation actions superfund act laws regulations regarding remediation waste company believe currently identified sites result significant liabilities 1987 epa identified company number entities potentially responsible parties prps two superfund sites located kentucky pennsylvania current cost studies estimate total remediation costs sites range 98 million 152 million company’s proportionate share total cost expected range 2 million 3 million based allocation formulas volume waste shipped sites majority remediation activities kentucky site complete remediation design ongoing pennsylvania site company accrued reserve 2 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay share costs company generally seeks recover costs associated environmental remediation third party insurers december 31 2002 pending possible claims recognized asset offset obligations epa matters 2000 company received notice violation epa alleging company failed obtain new source review permits clean air act prior undertaking specified construction projects mt storm power station west virginia attorney general new york filed suit company alleging similar violations clean air act mt storm power station company also received notices attorneys general connecticut new jersey intentions file suit similar violations december 2002 attorney general connecticut filed motion intervene plaintiff action filed new york state attorney general action stayed management believes company obtained necessary permits generating facilities company reached agreement principle federal government state new york resolve situation agreement principle includes payment 5 million civil penalty commitment 14 million environmental projects virginia west virginia connecticut new jersey new york 12year 12 billion capital investment program environmental improvements company’s coalfired generating stations virginia west virginia company already committed substantial portion 12 billion expenditures sulfur dioxide nitrogen oxide emissions controls negotiations terms binding settlement expanded beyond basic agreement principle ongoing december 31 2002 company recorded discounted basis 18 million civil penalty environmental projects 2002 epa issued section 114 request information whether projects undertaken company’s chesterfield chesapeake yorktown possum point bremo bluff power stations properly permitted clean air act’s new source review requirements company responded timely manner virginia electric power company notes consolidated financial statementscontinued surety bonds december 31 2002 company issued 66 million surety bonds 57 million associated financial assurance requirements imposed nrc respect decommissioning company’s nuclear units see note 8 information nuclear operations terms surety bonds company obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business company may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law company unable develop estimate maximum potential amount future payments contracts events would obligate company yet occurred event occurred company notified occurrence however december 31 2002 management believes future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position spent nuclear fuel provisions nuclear waste policy act 1982 company entered contracts doe disposal spent nuclear fuel doe failed begin accepting spent nuclear fuel january 31 1998 date provided nuclear waste policy act company’s contract doe company continue safely manage spent fuel accepted doe retrospective premium assessments several company’s nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note 8 stranded costs virginia restructuring act generation portion company’s virginia jurisdictional operations longer subject costbased rate regulation effective january 1 2002 company’s base rates excluding fuel costs certain allowable adjustments remain capped july 2007 unless terminated sooner otherwise modified consistent virginia restructuring act company may request termination capped rates time january 1 2004 virginia commission may grant company’s request terminate capped rates finds competitive generation services market exists company’s service area company believes capped electric retail rates applicable wires charges provided virginia restructuring act provide opportunity recover portion potentially stranded costs depending market prices electricity factors stranded costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market even capped rate environment company remains exposed numerous risks including among others exposure potentially stranded costs future environmental compliance requirements changes tax laws inflation increased capital costs december 31 2002 company’s exposure potentially stranded costs included longterm power purchase contracts could ultimately determined market see power purchase contracts generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements see notes 8 20 note 22 fair value financial instruments substantially company’s financial instruments recorded fair value exception instruments described fair value amounts determined using available market information valuation methodologies considered appropriate management company reports following financial instruments based historical cost rather fair value financial instruments’ carrying amounts fair values december 31 2002 2001 follows 1 fair value estimated using market prices available otherwise interest rates currently available issuance debt similar terms remaining maturities used carrying amount debt issues shortterm maturities variable rates repriced current market rates reasonable estimate fair value 2 fair value based market quotations note 23 concentration credit risk credit risk financial loss company counterparties fail perform contractual obligations company sells electricity provides distribution transmission services diverse group customers including residential commercial industrial customers well rural electric cooperatives municipalities addition company enters contracts various companies energy industry purchases sales energyrelated commodities including natural gas electricity energy trading hedging arbitrage activities transactions principally occur northeast midwest midatlantic regions united states management believe geographic concentration contributes significantly company’s overall exposure credit risk credit risk associated trade accounts receivable energy consumers limited due large number customers dominion subsidiaries including company maintain credit policies respect counterparties management believes minimize overall credit risk appropriate policies include evaluation prospective counterparty’s financial condition collateral requirements case energy trading hedging arbitrage activities use standardized agreements facilitate netting cash flows associated single counterparty behalf company dominion also monitors financial condition existing counterparties ongoing basis company maintains provision credit losses based upon factors surrounding credit risk customers historical trends information management believes based dominion’s credit policies december 31 2002 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance company calculates gross credit exposure counterparty unrealized fair value derivative energy trading contracts plus outstanding receivables net payables netting agreements exist prior application collateral calculation net credit exposure company’s gross exposure reduced collateral made available counterparties including letters credit cash received company held margin deposits presented summary company’s gross net credit exposure december 31 2002 amounts presented exclude accounts receivable regulated electric retail distribution regulated electric transmission services amounts payable affiliated companies company’s provision credit losses 1 category includes counterparties minimum credit ratings baa3 assigned moody’s investor service moody’s bbb assigned standard poor’s ratings group division mcgrawhill companies inc standard poor’s five largest counterparty exposures combined category represented approximately 19 percent total gross credit exposure 2 category includes counterparties credit ratings investment grade five largest counterparty exposures combined category represented approximately 8 percent total gross credit exposure 3 category includes counterparties rated moody’s standard poor’s considered investment grade based company’s evaluation counterparty’s creditworthiness five largest counterparty exposures combined category represented approximately 29 percent total gross credit exposure 4 category includes counterparties rated moody’s standard poor’s considered noninvestment grade based company’s evaluation counterparty’s creditworthiness five largest counterparty exposures combined category represented approximately 2 percent total gross credit exposure virginia electric power company notes consolidated financial statementscontinued note 24 related party transactions company unregulated subsidiary exchanges certain quantities natural gas commodities market prices dominion affiliates ordinary course business affiliated commodity transactions presented unregulated subsidiary company involved facilitating dominion’s enterprise risk management strategy connection strategy company enters certain commodity derivative contracts dominion affiliates contracts principally comprised commodity swaps used dominion affiliates manage commodity price risks associated purchases sales natural gas part dominion’s enterprise risk management strategy company generally manages risk exposures entering offsetting derivative instruments nonaffiliates company reports affiliated nonaffiliated derivative instruments fair value related changes included earnings company’s consolidated balance sheets include derivative energy trading assets 60 million 159 million dominion affiliates december 31 2002 2001 respectively derivative energy trading liabilities 81 million 77 million dominion affiliates december 31 2002 2001 respectively company’s income operations includes recognition following derivative gains losses affiliated transactions effective february 1 2000 dominion created subsidiary service company dominion services provides certain services company connection formation dominion services certain company’s employees became employees dominion services 2001 company transferred certain assets liabilities dominion services net book value approximately 27 million gain loss recorded transfer company provides certain services affiliates including charges facilities equipment usage cost services provided company amount billed services provided company follow company leases principal office building dominion agreement approved virginia commission expires 2006 agreement accounted capital lease capitalized cost property lease net accumulated amortization approximately 12 million 14 million december 31 2002 2001 respectively rental payments lease 3 million years ended december 31 2002 2001 2000 2002 dominion advanced funds certain unregulated subsidiaries company pursuant shortterm demand note demand note december 31 2002 net outstanding borrowings demand note totaled 100 million interest charges incurred company 2002 material information company’s agreement another dominion subsidiary dominion equipment ii inc develop construct finance lease new power generation facility possum point station prince william county virginia see note 21 july 2000 company transferred issued outstanding common stock vps communications inc vps dominion renamed vps dominion telecom inc dti 2001 dominion contributed dti dominion fiber ventures llc dfv telecommunications joint venture dfv sole owner dti company leases fiber optic capacity dti rates subject approval virginia commission payments received company connection dominion telecom’s lease fiber optic equipment related fiber optic support maintenance services 2002 2001 period august 1 2000 december 31 2000 material 2001 unregulated division company transferred certain energy management services contracts related leases another dominion subsidiary 14 million representing company’s net book value recorded books contracts exchange 150 million reduction amounts payable dominion company issued common stock dominion see note 18 company’s accounts receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions unregulated subsidiary company sole discretion provided approximately 31 million cash collateral third parties behalf several natural gas supply customers financial support services unregulated subsidiary receives fees security interest customers’ assets arrangements terminate various dates beginning 2005 2007 subject periodic renewal thereafter unless terminated either party see notes 2 7 20 discussion inclusion company dominion’s consolidated federal income tax return company’s participation certain dominion employee incentive benefit plans note 25 dividend restrictions 1935 act related regulations issued sec impose restrictions transfer receipt funds registered holding company like dominion subsidiaries including company restrictions include general prohibition loans advances made subsidiaries benefit registered holding company 1935 act registered holding companies subsidiaries may pay dividends retained earnings unless sec specifically authorizes payments capital accounts virginia commission may prohibit public service company declaring paying dividend affiliate found public interest december 31 2002 virginia commission restricted payment dividends company certain agreements associated company’s joint credit facilities dominion cng contain restrictions ratio debt total capitalization limitations restrict company’s ability pay dividends dominion receive dividends subsidiaries december 31 2002 see note 16 description potential restrictions dividend payments company connection deferral distribution payments trust preferred securities note 26 operating segments company organized primarily basis products services sold united states company manages operations based two operating segments n energy manages company’s portfolio generating facilities power purchase contracts energy trading marketing hedging arbitrage activities n delivery manages company’s electric distribution transmission systems well metering services customer service segment continues subject requirements sfas 71 effective january 1 2003 company’s electric transmission operations managed energy segment instead delivery segment majority company’s revenue provided bundled rate tariffs generally revenues allocated two segments management reporting based prior costofservice studies addition company also reports corporate segment corporate includes certain expenses allocated energy delivery segments including 1 corporate operations 2 transactions amounts allocated operating segments internal reporting purposes 2001 termination power purchase contracts see note 21 2002 2001 2000 restructuring costs see note 6 2000 cumulative effect change accounting principle see note 3 virginia electric power company notes consolidated financial statementscontinued company’s management evaluates performance based measure profit loss represents segment’s contribution company’s net income intersegment sales transfers based underlying contractual arrangements agreements may result intersegment profit loss following table presents segment information pertaining company’s operations note 27 quarterly financial data unaudited summary quarterly results operations years 2002 2001 follows amounts reflect adjustments consisting normal recurring accruals necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2016 2015 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2016 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2016 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 28 2017 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 28 2017 dominion resources inc consolidated statements income accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 see note 3 amounts attributable related parties 2 1 billion shares authorized 628 million shares 596 million shares outstanding december 31 2016 2015 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements equity 1 contains shares issued excess principal amounts related converted securities see note 17 information convertible securities 2 see note 17 information 3 includes subsidiary preferred dividends related noncontrolling interests 13 million accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows 1 see note 3 noncash activities related acquisition four brothers three cedars 2 see note 17 noncash activities related remarketing rsns 2016 accompanying notes integral part dominion’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2016 2015 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2016 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 28 2017 virginia electric power company consolidated statements income 1 see note 24 amounts attributable affiliates 2 includes 2 million associated writeoff issuance expenses related redemption virginia power’s preferred stock 2014 see note 18 additional information accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 see note 24 amounts attributable affiliates 1 see note 24 amounts attributable affiliates 2 500000 shares authorized 274723 shares outstanding december 31 2016 2015 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors dominion gas holdings llc richmond virginia audited accompanying consolidated balance sheets dominion gas holdings llc whollyowned subsidiary dominion resources inc subsidiaries “dominion gas” december 31 2016 2015 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2016 financial statements responsibility dominion gas’ management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement dominion gas required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness dominion gas’ internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion gas holdings llc subsidiaries december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 28 2017 dominion gas holdings llc consolidated statements income 1 see note 24 amounts attributable related parties 2 includes gain sale assets related party 59 million 2014 see note 9 information accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements comprehensive income accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated balance sheets 1 see note 24 amounts attributable related parties 1 see note 24 amounts attributable related parties accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements equity accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements cash flows accompanying notes integral part dominion gas’ consolidated financial statements page intentionally left blank combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power dominion gas virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s stock owned dominion gas holding company conducts business activities regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states regulated gas transportation distribution operations ohio gas gathering processing activities primarily west virginia ohio pennsylvania dominion gas’ membership interests held dominion questar combination completed september 2016 see note 3 description operations acquired dominion questar combination dominion’s operations also include cove point lng import transport storage facility maryland equity investment atlantic coast pipeline regulated gas transportation distribution operations west virginia dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations equity investment blue racer october 2014 dominion midstream launched initial public offering 20125000 common units representing limited partner interests price 21 per unit dominion received 392 million net proceeds sale units deducting underwriting discounts structuring fees estimated offering expenses december 31 2016 dominion owns general partner 509 common subordinated units 375 convertible preferred interests dominion midstream owns preferred equity interest general partner interest cove point dcg questar pipeline 2593 noncontrolling partnership interest iroquois public’s ownership interest dominion midstream reflected noncontrolling interest dominion’s consolidated financial statements dominion manages daily operations three primary operating segments dvp dominion generation dominion energy dominion also reports corporate segment includes corporate service company functions including unallocated debt addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources dominion gas manages daily operations one primary operating segment dominion energy also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion gas result dominion’s basis net assets contributed see note 25 discussion companies’ operating segments note 2 significant accounting policies general companies make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates companies’ consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries nonwhollyowned entities controlling financial interest certain partnership structures income allocated based liquidation value underlying contractual arrangements nrg’s ownership interest four brothers three cedars well terra nova renewable partners’ 33 interest certain dominion’s merchant solar projects reflected noncontrolling interest dominion’s consolidated financial statements see note 3 information transactions companies report certain contracts instruments investments fair value see note 6 information fair value measurements dominion maintains pension postretirement benefit plans virginia power dominion gas participate certain plans see note 21 information plans certain amounts 2015 2014 consolidated financial statements footnotes reclassified conform 2016 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities equity cash flows except reclassification debt issuance costs amounts disclosed dominion inclusive virginia power andor dominion gas applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers dominion virginia power collect sales consumption consumer utility taxes dominion gas collects sales taxes however amounts excluded revenue dominion’s customer receivables december 31 2016 2015 included 631 million 462 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility combined notes consolidated financial statements continued customers virginia power’s customer receivables december 31 2016 2015 included 349 million 333 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers dominion gas’ customer receivables december 31 2016 2015 included 134 million 98 million respectively accrued unbilled revenue based estimated amounts natural gas delivered yet billed customers primary types sales service activities reported operating revenue dominion follows • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity • regulated gas sales consist primarily state fercregulated natural gas sales related distribution services associated derivative activity • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity • gas transportation storage consists primarily fercregulated sales transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • revenue consists primarily sales ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations sales energyrelated products services dominion’s retail energy marketing operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • revenue consists primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities primary types sales service activities reported operating revenue dominion gas follows • regulated gas sales consist primarily state fercregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties • gas transportation storage consists primarily ferc regulated sales transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • ngl revenue consists primarily sales ngl production condensate extracted products associated derivative activity • revenue consists primarily miscellaneous service revenue gas processing handling revenue electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences dominion’s virginia power’s actual electric fuel purchased energy expenses dominion’s dominion gas’ purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms virtually dominion gas’ cove point’s questar gas’ hope’s natural gas purchases either subject deferral accounting recovered customer accounting period sale income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power dominion gas’ subsidiaries addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed although dominion gas disregarded income tax purposes provision income taxes recognized reflect inclusion business activities tax returns parent dominion virginia power dominion gas participate intercompany tax sharing agreements dominion subsidiaries current income taxes based taxable income loss credits determined separate company basis agreements subsidiary incurs tax loss earns credit recognition current income tax benefits limited refunds prior year taxes obtained carryback net operating loss credit extent tax loss credit absorbed taxable income dominion consolidated group members otherwise net operating loss credit carried forward recognized deferred tax asset realized effective january 2016 deferred tax liabilities assets classified noncurrent consolidated balance sheets prior years companies presented deferred taxes either current noncurrent sections consolidated balance sheets based classification related financial accounting assets liabilities items operating loss carryforwards period deferred taxes expected reverse accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes accordingly deferred taxes recognized future consequences different treatments used reporting transactions financial accounting income tax returns companies establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities companies recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets companies recognize interest underpayments overpayments income taxes interest expense income respectively penalties also recognized income dominion’s virginia power’s dominion gas’ interest penalties immaterial 2016 2015 2014 december 31 2016 virginia power income taxrelated affiliated receivable 112 million comprised 122 million federal income taxes due dominion net 10 million state income taxes due dominion gas also affiliated receivable 11 million due dominion representing 10 million federal income taxes 1 million state income taxes net affiliated receivables expected refunded dominion addition virginia power’s consolidated balance sheet december 31 2016 included 2 million noncurrent federal income taxes payable 6 million state income taxes receivable 13 million noncurrent state income taxes receivable dominion gas’ consolidated balance sheet december 31 2016 included 1 million noncurrent federal income taxes payable 1 million state income taxes receivable 7 million noncurrent state income taxes payable december 31 2015 virginia power’s consolidated balance sheet included 296 million affiliated receivable representing excess federal income tax payments expected refunded 9 million federal income taxes payable prior years less 1 million state income taxes payable 10 million state income taxes receivable 14 million noncurrent state income taxes receivable 2 million non current state income taxes payable march 2016 virginia power received 300 million refund 2015 income tax payments december 31 2015 dominion gas’ consolidated balance sheet included 91 million affiliated receivables representing excess federal income tax payments expected refunded benefit utilizing subsidiary’s tax loss offset taxable income dominion’s consolidated tax return less 1 million state income taxes payable 4 million state income taxes receivable 22 million noncurrent state income taxes payable march 2016 dominion gas received 92 million refund 2015 income tax payments benefit subsidiary’s tax loss investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment following table illustrates checks outstanding yet presented payment recorded accounts payable companies purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations virginia power uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate risks dominion gas uses derivative instruments physical financial forwards futures swaps manage commodity interest rate foreign currency exchange rate risks derivatives except exception applies required reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance combined notes consolidated financial statements continued companies offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 82 million 16 million associated cash collateral december 31 2016 2015 respectively dominion’s margin liabilities associated cash collateral december 31 2016 2015 immaterial virginia power’s dominion gas’ margin assets liabilities associated cash collateral immaterial december 31 2016 2015 see note 7 information derivatives manage price risk companies hold certain derivative instruments designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices part dominion’s strategy market energy manage related risks formerly managed portfolio commoditybased financial derivative instruments held trading purposes dominion used established policies procedures manage risks associated price fluctuations energy commodities used various derivative instruments reduce risk creating offsetting market positions second quarter 2013 dominion commenced repositioning producer services business repositioning completed first quarter 2014 resulted termination natural gas trading certain energy marketing activities statement income presentation • derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis • derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges income based nature underlying risk changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments companies designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges companies formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges derivative instruments accounted fair value hedges cash flow hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority companies’ hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas ngls energyrelated products companies also use interest rate swaps hedge exposure variable interest rates longterm debt well foreign currency swaps hedge exposure interest payments denominated euros transactions companies hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable dominion entered interest rate derivative instruments hedge forecasted interest payments related planned debt issuances 2014 interest rate derivatives designated dominion cash flow hedges prior formation dominion gas purposes dominion gas financial statements derivative balances aoci balance income statement impact related interest rate derivative instruments entered dominion continue included dominion gas’ consolidated financial statements forecasted interest payments related debt issuances occur dominion gas fair value hedgesdominion also uses fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition dominion designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2016 2015 2014 dominion capitalized interest costs afudc property plant equipment 159 million 100 million 80 million respectively 2016 2015 2014 virginia power capitalized afudc property plant equipment 21 million 30 million 39 million respectively 2016 2015 2014 dominion gas capitalized afudc property plant equipment 8 million 1 million 1 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2016 2015 2014 virginia power recorded 31 million 19 million 8 million afudc related projects respectively property subject costofservice rate regulation including virginia power electric distribution electric transmission generation property dominion gas natural gas distribution transmission property certain dominion natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable abandoned property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives companies’ average composite depreciation rates utility property plant equipment follows 2014 virginia power made onetime adjustment depreciation expense ordered virginia commission adjustment resulted increase 38 million 23 million aftertax depreciation amortization expense virginia power’s consolidated statements income capitalized costs development wells leaseholds amortized fieldbyfield basis using unitofproduction method estimated proved developed total proved gas oil reserves rate 208 per mcfe 2016 dominion’s nonutility property plant equipment depreciated using straightline method following estimated useful lives depreciation amortization related virginia power’s dominion gas’ nonutility property plant equipment exploration production properties immaterial years ended december 31 2016 2015 2014 except dominion gas’ nonutility gas gathering processing properties depreciated using straightline method estimated useful lives 10 50 years nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets companies perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairments related certain longlived assets regulatory assets liabilities accounting dominion’s dominion gas’ regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions combined notes consolidated financial statements continued applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made asset retirement obligations companies recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed legal obligation exists amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses periodically companies evaluate key assumptions underlying aros including estimates amounts timing future cash flows associated retirement activities aros adjusted significant changes assumptions identified dominion gas report accretion aros depreciation asset retirement costs associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros virginia power reports accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions additionally virginia power reports accretion aros depreciation asset retirement costs associated certain prospective rider projects adjustment regulatory asset certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense respectively consolidated statements income debt issuance costs companies defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others effective january 2016 deferred debt issuance costs recorded reduction longterm debt consolidated balance sheets costs previously recorded asset current assets deferred charges assets consolidated balance sheets amortization issuance costs reported interest expense unamortized costs associated redemptions debt securities prior stated maturity dates generally recognized recorded interest expense immediately permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities • trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income • availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments companies account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include • equity method investments companies ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets companies record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method • cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investmentsspecial considerations • recognition provisions fasb’s otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities • debt securitiesusing information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss dominion virginia power record credit loss earnings remaining portion unrealized loss aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors • equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since dominion virginia power limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory valued using weightedaverage cost method except east ohio gas distribution operations valued using lifo method lifo method current stored gas inventory valued 13 million 24 million december 31 2016 december 31 2015 respectively based average price gas purchased 2016 2015 cost replacing current portion stored gas inventory exceeded amount stated lifo basis 55 million 109 million respectively gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion gas value imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion parties reported current assets imbalances dominion gas owe parties reported current liabilities consolidated balance sheets goodwill dominion gas evaluate goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount new accounting standards revenue recognition may 2014 fasb issued revised accounting guidance revenue recognition contracts customers core principle revised accounting guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services amendments update also require disclosure nature amount timing uncertainty revenue cash flows arising contracts customers companies revised accounting guidance effective interim annual periods beginning january 1 2018 companies completed preliminary evaluations impact guidance pending evaluation items discussed expect significant impact results operations preliminary evaluations complete companies expand scope assessment include contracts customers addition companies considering certain issues could potentially change accounting certain transactions among issues considered accounting contributions aid construction recognition revenue collectability question recognition revenue contracts variable consideration accounting alternative revenue programs capitalization costs acquire new contracts companies plan applying standard using modified retrospective method opposed full retrospective method financial instruments january 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure financial instruments notably update revises accounting equity securities except accounted equity method accounting resulting consolidation requiring equity securities measured fair value changes fair value recognized net income however entity may measure equity investments readily determinable fair value cost minus impairment plus changes observable price changes orderly transactions identical similar investment issuer guidance also simplifies impairment assessment equity investments without readily determinable fair values revises presentation financial assets liabilities amends certain disclosure requirements associated fair value financial instruments guidance effective companies’ interim annual reporting periods beginning january 1 2018 cumulativeeffect adjustment balance sheet amendments related equity securities without readily determinable fair values applied prospectively investments exist date adoption net realized unrealized gains losses including otherthantemporary impairments equity securities subject costbased regulation impacted adoption standard available sale equity securities unrealized gains losses currently recorded comprehensive income recognized net income upon adoption standard combined notes consolidated financial statements continued leases february 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure leasing arrangements update requires liability corresponding rightofuse asset recorded balance sheet leases including leases currently classified operating leases also refining definition lease addition lessees required disclose key information amount timing uncertainty cash flows arising leasing arrangements lessor accounting remains largely unchanged guidance effective companies’ interim annual reporting periods beginning january 1 2019 although early adopted modified retrospective approach requires lessees lessors recognize measure leases beginning earliest period presented leases commenced prior date adoption companies currently preliminary stages evaluating impact guidance financial position plan complete initial assessment 2017 companies expect elect practical expedients would require reassessment whether existing contracts contain leases well reassessment lease classification existing leases companies cannot quantify impact assessment complete companies believe adoption could material impact companies’ financial position derecognition partial sales nonfinancial assets february 2017 fasb issued revised accounting guidance clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets guidance effective dominion’s interim annual reporting periods beginning january 1 2018 dominion may elect apply update full retrospective method modified retrospective method dominion currently evaluating impacts revised accounting guidance consolidated financial statements disclosures note 3 acquisitions dispositions dominion acquisition dominion questar september 2016 dominion completed dominion questar combination dominion questar became whollyowned subsidiary dominion questar rockiesbased integrated natural gas company included questar gas wexpro questar pipeline closing questar gas regulated gas distribution operations utah southwestern wyoming southeastern idaho wexpro develops produces natural gas reserves supplied questar gas costofservice framework questar pipeline provides fercregulated interstate natural gas transportation storage services utah wyoming western colorado dominion questar combination provides dominion pipeline infrastructure provides principal source gas supply western states dominion questar’s regulated businesses also provide balance dominion’s electric gas operations accordance terms dominion questar combination closing share issued outstanding dominion questar common stock converted right receive 2500 per share cash total consideration 44 billion based 1755 million shares dominion questar outstanding closing dominion financed dominion questar combination 1 august 2016 issuance 14 billion 2016 equity units 2 august 2016 issuance 13 billion senior notes 3 september 2016 borrowing 12 billion term loan agreement 4 500 million proceeds april 2016 issuance common stock see notes 17 19 information purchase price allocation dominion questar’s assets acquired liabilities assumed measured estimated fair value closing date included dominion energy operating segment majority operations acquired subject ratesetting authority ferc well utah commission andor wyoming commission therefore accounted pursuant asc 980 regulated operations fair values dominion questar’s assets liabilities subject ratesetting cost recovery provisions provide revenues derived costs including return investment assets liabilities included rate base fair values assets liabilities equal carrying values accordingly neither assets liabilities acquired pro forma financial information reflect adjustments related amounts fair value dominion questar’s assets acquired liabilities assumed subject ratesetting provisions discussed determined using income approach addition fair value dominion questar’s 50 interest white river hub accounted equity method determined using market approach income approach valuations considered level 3 fair value measurements due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risk inherent future cash flows future market prices excess purchase price estimated fair values assets acquired liabilities assumed recognized goodwill closing date goodwill reflects value associated enhancing dominion’s regulated portfolio businesses including expected increase demand lowcarbon natural gasfired generation western states expected continued growth rateregulated businesses located defined service area stable regulatory environment goodwill recognized deductible income tax purposes deferred taxes recorded related goodwill table shows preliminary allocation purchase price assets acquired liabilities assumed closing allocation subject change remainder measurement period ends one year closing date additional information obtained facts circumstances existed closing date material adjustments provisional amounts identified measurement period recognized disclosed reporting period adjustment amounts determined fourth quarter certain modifications made preliminary valuation amounts acquired property plant equipment current liabilities deferred income taxes resulting 6 million net decrease goodwill relate primarily sale questar fueling company december 2016 described sale questar fueling company 1 includes 40 million equity method investment white river hub fair value adjustment equity method investment white river hub considered equity method goodwill amortized 2 nonregulated property plant equipment excluding land depreciated remaining useful lives primarily ranging 9 18 years 3 includes 301 million shortterm debt amounts remain outstanding december 31 2016 well 250 million term loan matures august 2017 bears interest variable rate 4 unsecured senior mediumterm notes maturities range 2017 2048 bear interest rates 298 720 regulatory matters transaction required approval dominion questar’s shareholders clearance federal trade commission hartscottrodino act approval utah commission wyoming commission february 2016 federal trade commission granted antitrust approval dominion questar combination hartscottrodino act may 2016 dominion questar’s shareholders voted approve dominion questar combination august 2016 september 2016 approvals granted utah commission wyoming commission respectively information regarding transaction also provided idaho public utilities commission acknowledged dominion questar combination october 2016 directed dominion questar notify idaho public utilities commission makes filings utah commission approval dominion questar combination utah wyoming dominion agreed following • contribution 75 million dominion questar’s qualified nonqualified definedbenefit pension plans postemployment benefit plans within six months closing date contribution made january 2017 • increasing dominion questar’s historical level corporate contributions charities 1 million per year least five years • withdrawal questar gas’ general rate case filed july 2016 utah commission agreement file general rate case utah commission adjust base distribution nongas rates prior july 2019 unless otherwise ordered utah commission addition questar gas agreed file general rate case wyoming commission requested rate effective date earlier january 2020 questar gas’ ability adjust rates various riders affected results operations pro forma information impact dominion questar combination dominion’s operating revenue net income attributable dominion consolidated statements income twelve months ended december 31 2016 increase 379 million 73 million respectively dominion incurred transaction transition costs 58 million recorded operations maintenance expense twelve months ended december 31 2016 16 million recorded interest related charges twelve months ended december 31 2016 dominion’s consolidated statements income costs consist amortization financing costs charitable contribution commitment described employeerelated expenses professional fees miscellaneous costs following unaudited pro forma financial information reflects consolidated results operations dominion assuming dominion questar combination taken place january 1 2015 unaudited pro forma financial information presented illustrative purposes necessarily indicative consolidated results operations would achieved future consolidated results operations combined company 1 amounts include adjustments nonrecurring costs directly related dominion questar combination contribution questar pipeline dominion midstream october 2016 dominion entered contribution agreement dominion contributed questar pipeline dominion midstream upon closing agreement december 1 2016 dominion midstream became owner combined notes consolidated financial statements continued issued outstanding membership interests questar pipeline exchange consideration consisting dominion midstream common convertible preferred units combined value 467 million cash payment 823 million 300 million considered debtfinanced distribution total 13 billion addition terms contribution agreement dominion midstream repurchased 6656839 common units dominion repaid 301 million promissory note dominion december 2016 cash proceeds transactions utilized december 2016 repay 12 billion term loan agreement borrowed september 2016 since dominion consolidates dominion midstream financial reporting purposes trans actions associated contribution agreement eliminated upon consolidation see note 5 tax impacts transactions sale questar fueling company december 2016 dominion completed sale questar fueling company proceeds sale 28 million net transaction costs gain loss recorded dominion’s consolidated statements income sale resulted measurement period adjustments net assets acquired dominion questar see purchase price allocation section additional details measurement period adjustments recorded whollyowned merchant solar projects acquisitions following table presents significant completed acquisitions whollyowned merchant solar projects dominion longterm power purchase interconnection operation maintenance agreements executed projects dominion claimed federal investment tax credits projects included dominion generation operating segment 1 purchase price primarily allocated property plant equipment 2 includes acquisition cost 3 one projects marin carport began commercial operations 2016 addition 2016 dominion acquired 100 equity interests seven solar projects virginia north carolina south carolina aggregate purchase price 32 million allocated property plant equipment projects expected cost approximately 425 million total constructed including initial acquisition costs generate approximately 221 mw combined one projects commenced commercial operations 2016 remaining projects expected begin commercial operations 2017 august 2016 dominion entered agreement acquire 100 equity interests two solar projects california solar frontier americas holding llc approximately 128 million cash acquisition expected close prior projects commencing operations expected end 2017 projects expected cost approximately 130 million constructed including initial acquisition cost generate approximately 50 mw combined september 2016 dominion entered agreement acquire 100 equity interests solar project virginia community energy solar llc acquisition expected close first quarter 2017 prior project commencing operations end 2017 amount determined based costs incurred closing project expected cost approximately 210 million constructed including initial acquisition cost generate approximately 100 mw january 2017 dominion entered agreement acquire 100 equity interests solar project north carolina cypress creek renewables llc 154 million cash acquisition expected close second quarter 2017 prior project commencing commercial operations expected end third quarter 2017 project expected cost 160 million constructed including initial acquisition cost generate approximately 79 mw sale interest merchant solar projects september 2015 dominion signed agreement sell noncontrolling interest consisting 33 equity interests currently whollyowned merchant solar projects 24 solar projects totaling 425 mw sunedison including projects discussed table december 2015 sale interest 15 solar projects closed 184 million sale interest remaining projects completed january 2016 117 million upon closing sunedison sold interest projects terra nova renewable partners terra nova renewable partners future option buy portion dominion’s remaining 67 ownership projects upon occurrence certain events none expected occur 2017 nonwhollyowned merchant solar projects acquisitions four brothers three cedars june 2015 dominion acquired 50 units four brothers sunedison 64 million consideration consisting 2 million cash 62 million payable dominion remaining obligation related payable december 31 2016 four brothers operates four solar projects located utah produce sell electricity renewable energy credits facilities began commercial operations third quarter 2016 generating 320 mw cost approximately 670 million september 2015 dominion acquired 50 units three cedars sunedison 43 million consideration consisting 6 million cash 37 million payable december 31 2016 2 million payable included current liabilities dominion’s consolidated balance sheets three cedars operates three solar projects located utah produce sell electricity renewable energy credits facilities began commercial operations third quarter 2016 generating 210 mw cost approximately 450 million four brothers three cedars facilities operate longterm power purchase interconnection operation maintenance agreements dominion claim 99 federal investment tax credits projects dominion owns 50 voting interests four brothers three cedars controlling financial interest entities rights control operations allocation 64 million purchase price four brothers resulted 89 million property plant equipment 25 million noncontrolling interest allocation 43 million purchase price three cedars resulted 65 million property plant equipment 22 million noncontrolling interest noncontrolling interest entity measured fair value using discounted cash flow method primary components valuation future cash flows incoming outgoing discount rate dominion determined discount rate based cost capital utilityscale investor would expect well cost capital individual project developer could achieve via combination nonrecourse project financing outside equity partners acquired assets four brothers three cedars included dominion generation operating segment dominion assumed majority agreements provide administrative support services connection operations maintenance facilities technical management services solar facilities costs related services provided agreements immaterial years ended december 31 2016 2015 subsequent dominion’s acquisition four brothers three cedars sunedison made contributions four brothers three cedars 292 million aggregate december 31 2016 reflected noncontrolling interests consolidated balance sheets november 2016 nrg acquired 50 units four brothers three cedars previously held sunedison dominion midstream acquisition interest iroquois september 2015 dominion midstream acquired ng njnr 2593 noncontrolling partnership interest iroquois owns operates 416mile fercregulated natural gas transmission pipeline new york connecticut exchange partnership interest dominion midstream issued 86 million common units representing limited partnership interests dominion midstream 68 million common units ng 204 interest 18 million common units njnr 553 interest investment recorded 216 million based value dominion midstream’s common units closing common units reflected noncontrolling interest dominion’s consolidated financial statements dominion midstream’s noncontrolling partnership interest reflected dominion energy operating segment addition acquisition dominion gas currently holds 2407 noncontrolling partnership interest iroquois dominion midstream dominion gas account interest iroquois equity method investment see notes 9 15 information regarding iroquois acquisition dcg january 2015 dominion completed acquisition 100 equity interests dcg scana corporation 497 million cash adjusted working capital dcg owns operates nearly 1500 miles fercregulated interstate natural gas pipeline south carolina southeastern georgia acquisition supports dominion’s natural gas expansion southeastern us allocation purchase price resulted 277 million net property plant equipment 250 million goodwill approximately 225 million expected deductible income tax purposes 38 million regulatory liabilities goodwill reflects value associated enhancing dominion’s regulated gas position economic value attributable future expansion projects well increased opportunities synergies acquired assets dcg included dominion energy operating segment march 24 2015 dcg converted limited liability company laws south carolina changed name carolina gas transmission corporation dcg april 1 2015 dominion contributed 100 issued combined notes consolidated financial statements continued outstanding membership interests dcg dominion midstream exchange total consideration 501 million adjusted working capital total consideration dominion consisted issuance twoyear 301 million senior unsecured promissory note payable dominion midstream annual interest rate 06 5112139 common units valued 200 million representing limited partner interests dominion midstream number units based volume weighted average trading price dominion midstream’s common units ten trading days prior april 1 2015 3912 per unit since dominion consolidates dominion midstream financial reporting purposes transaction eliminated upon consolidation impact dominion’s financial position cash flows sale electric retail energy marketing business march 2014 dominion completed sale electric retail energy marketing business proceeds 187 million net transaction costs sale resulted gain subject postclosing adjustments 100 million 57 million aftertax net 31 million writeoff goodwill included operations maintenance expense dominion’s consolidated statements income sale electric retail energy marketing business qualify discontinued operations classification virginia power acquisition solar project december 2015 virginia power completed acquisition 100 solar development project north carolina morgans corner 47 million allocated property plant equipment project placed service december 2015 total cost 49 million including initial acquisition cost project generates 20 mw output generated project used meet ten year nonjurisdictional supply agreement us navy unilateral option extend additional ten years october 2015 north carolina commission granted transfer existing cpcn morgans corner virginia power acquired asset included virginia power generation operating segment dominion gas blue racer see note 9 discussion transactions related blue racer assignments shale development rights see note 10 discussion assignments shale development rights note 4 operating revenue companies’ operating revenue consists following note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently companies routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material december 2015 us federal legislation enacted providing extension 50 bonus depreciation allowance qualifying expenditures incurred 2015 2016 2017 phasing allowance 40 2018 30 2019 expiration thereafter addition legislation extends 30 investment tax credit qualifying expenditures incurred 2019 provides phase credit 26 2020 22 2021 10 2022 thereafter continuing operations details income tax expense continuing operations including noncontrolling interests follows 2016 dominion realized taxable gain resulting contribution questar pipeline dominion midstream contribution related transactions resulted increases tax basis questar pipeline’s assets number dominion midstream’s common convertible preferred units held noncontrolling interests direct tax effects transactions included provision current income taxes 212 million offsetting benefit deferred income taxes 96 million charged common shareholders’ equity federal tax liability reduced 129 million tax credits generated 2016 otherwise would resulted additional credit carryforwards 17 million benefit provided domestic production activities deduction benefits indirect effects contribution transaction reflected dominion’s current federal income tax expense 2015 dominion’s current federal income tax benefit includes recognition 20 million benefit related carryback filed nuclear decommissioning expenditures included 2014 net operating loss continuing operations including noncontrolling interests statutory us federal income tax rate reconciles companies’ effective income tax rate follows 2016 dominion’s effective tax rate reflects valuation allowance state credit expected utilized dominion subsidiary files separate state return combined notes consolidated financial statements continued companies’ deferred income taxes consist following december 31 2016 dominion following deductible loss credit carryforwards december 31 2016 virginia power following deductible loss credit carryforwards december 31 2016 dominion gas following deductible loss credit carryforwards reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion subsidiaries unrecognized tax benefits 45 million 69 million 77 million december 31 2016 2015 2014 respectively dominion change unrecognized tax benefits decreased income tax expense 18 million 6 million 47 million 2016 2015 2014 respectively virginia power unrecognized tax benefits 9 million december 31 2016 8 million december 31 2015 2014 virginia power change unrecognized tax benefits increased income tax expense 1 million 2016 affected income tax expense less 1 million 2015 2014 dominion gas unrecognized tax benefits 5 million december 31 2016 19 million december 31 2015 2014 dominion gas change unrecognized tax benefits decreased income tax expense 11 million 2016 affected income tax expense less 1 million 2015 2014 effective 2014 tax year dominion accepted cap dominion opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions agreed irs completed audit tax years 2013 2014 2015 statute limitations yet expired although dominion received final letter indicating changes taxable income tax year 2015 adjustments expected irs examination tax year 2016 ongoing reasonably possible settlement negotiations expiration statutes limitations could result decrease unrecognized tax benefits 2017 25 million dominion 3 million virginia power 7 million dominion gas changes occur revisions accrual interest tax underpayments overpayments earnings could increase 20 million dominion 3 million virginia power 5 million dominion gas otherwise regard 2016 prior years dominion virginia power dominion gas cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2017 major states dominion operates earliest tax year remaining open examination follows 1 considered major state dominion gas’ operations 2 considered major state virginia power’s operations companies also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes operating losses tax credits generated years statute limitations expired amounts generally subject examination note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact companies’ nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments including held nuclear decommissioning dominion’s rabbi pension postretirement benefit plan trusts accordance requirements discussed virginia power applies fair value measurements certain assets liabilities including commodity interest rate derivative instruments investments including held nuclear decommissioning trust accordance requirements discussed dominion gas applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments held pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described inputs assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions companies’ commodity derivative valuations prepared dominion’s erm department erm department creates daily marktomarket valuations companies’ derivative transactions using computerbased statistical models inputs go market valuations transactional information stored systems record market pricing information resides data warehouse databases majority forward prices automatically uploaded data warehouse databases various thirdparty sources inputs obtained thirdparty sources evaluated reliability considering reputation independence market presence methodology used thirdparty forward prices available thirdparty sources erm department models forward prices based available market data team consisting risk management risk quantitative analysts meets business day assess validity market prices marktomarket valuations meeting changes marktomarket valuations period examined qualified historical expectations discrepancies identified process marktomarket valuations market pricing information evaluated adjusted necessary combined notes consolidated financial statements continued options contracts optionlike characteristics observable pricing information available external sources dominion virginia power generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value dominion virginia power use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity derivative contracts • forward commodity prices • transaction prices • price volatility • price correlation • volumes • commodity location • interest rates • credit quality counterparties companies • credit enhancements • time value interest rate derivative contracts • interest rate curves • credit quality counterparties companies • notional value • credit enhancements • time value foreign currency derivative contracts • foreign currency forward exchange rates • interest rates • credit quality counterparties companies • notional value • credit enhancements • time value investments • quoted securities prices indices • securities trading information including volume restrictions • maturity • interest rates • credit quality companies regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels • level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments certain exchangetraded derivatives exchangelisted equities us international equity securities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion virginia power benefit plan trust funds dominion gas rabbi trust funds dominion • level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include commodity forwards swaps interest rate swaps foreign currency swaps cash equivalents corporate debt instruments government securities fixed income investments held nuclear decommissioning trust funds dominion virginia power benefit plan trust funds dominion gas rabbi trust funds dominion • level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 companies consist longdated commodity derivatives ftrs certain natural gas power options modeled commodity derivatives fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability alternative investments consisting investments partnerships joint ventures alternative investments held nuclear decommissioning benefit plan trust funds generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date alternative investments recorded nav classified fair value hierarchy derivative contracts companies recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations fair value measurements categorized level 3 price inputs considered unobservable significant valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions generally considered liquid markets modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets companies enter certain physical financial forwards futures options swaps considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures contracts option model used value level 3 physical financial options discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices original sales prices volumes level 3 fair value measurements forward market prices credit spreads implied price volatilities considered unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty pricing sources following table presents dominion’s quantitative information level 3 fair value measurements december 31 2016 range weighted average presented dollars market price inputs percentages price volatility credit spreads 1 averages weighted volume 2 includes basis 3 includes ngls oil 4 represents market prices beyond defined terms levels 1 2 5 represents credit spreads unrepresented published markets 6 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows nonrecurring fair value measurements dominion gas natural gas assets fourth quarter 2014 dominion gas recorded impairment charge 9 million 6 million aftertax operations maintenance expense consolidated statements income write previously capitalized costs following cancellation development project combined notes consolidated financial statements continued recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s dominion gas’ pension postretirement benefit plans presented note 21 dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts excludes 89 million 101 million assets december 31 2016 2015 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category following table presents dominion’s gains losses included earnings level 3 fair value category virginia power following table presents virginia power’s quantitative information level 3 fair value measurements december 31 2016 range weighted average presented dollars market price inputs percentages price volatility credit spreads 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents credit spreads unrepresented published markets 5 represents volatilities unrepresented published markets combined notes consolidated financial statements continued sensitivity fair value measurements changes significant unobservable inputs follows following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trust excludes 26 million 34 million assets december 31 2016 2015 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2016 2015 2014 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2016 2015 2014 dominion gas following table presents dominion gas’ quantitative information level 3 fair value measurements december 31 2016 range weighted average presented dollars market price inputs 1 averages weighted volume 2 represents market prices beyond defined terms levels 1 2 sensitivity fair value measurements changes significant unobservable inputs follows following table presents dominion gas’ assets liabilities commodity interest rate foreign currency derivatives measured fair value recurring basis hierarchy level including current noncurrent portions following table presents net change dominion gas’ derivative assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category classified operating revenue dominion gas’ consolidated statements income years ended december 31 2016 2015 2014 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2016 2015 2014 fair value financial instruments substantially companies’ financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents restricted cash recorded current assets customer receivables affiliated receivables shortterm debt affiliated current borrowings payables affiliates accounts payable representative fair value shortterm nature instruments companies’ financial instruments recorded fair value carrying amounts estimated fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments december 31 2016 2015 includes valuation certain fair value hedges associated dominion’s fixed rate debt 1 million 7 million respectively 3 carrying amount includes amounts represent unamortized debt issuance costs discount premium 4 carrying amount includes amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments combined notes consolidated financial statements continued note 7 derivatives hedge accounting activities companies exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well interest rate foreign currency exchange rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross companies’ consolidated balance sheets dominion’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared virginia power’s dominion gas’ derivative contracts include overthecounter transactions overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit cases forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized companies’ consolidated balance sheets well letters credit forms security included tables subject offset master netting similar arrangements would reduce net exposure dominion balance sheet presentation tables present dominion’s derivative asset liability balances type financial instrument effects offsetting combined notes consolidated financial statements continued volumes following table presents volume dominion’s derivative activity december 31 2016 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil 3 maturity determined based final settlement period 4 euro equivalent volumes  250000000 ineffectiveness aoci years ended december 31 2016 2015 2014 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2016 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates fair value gains losses derivative instruments following tables present fair values dominion’s derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheets 2 current derivative liabilities presented current liabilities dominion’s consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheets following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 4 amounts recorded dominion’s consolidated statements income classified income combined notes consolidated financial statements continued 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 2 amounts recorded dominion’s consolidated statements income classified interest related charges virginia power balance sheet presentation tables present virginia power’s derivative asset liability balances type financial instrument effects offsetting volumes following table presents volume virginia power’s derivative activity december 31 2016 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options ineffectiveness aoci years ended december 31 2016 2015 2014 gains losses hedging instruments determined ineffective material following table presents selected information related gains losses cash flow hedges included aoci virginia power’s consolidated balance sheet december 31 2016 amounts reclassified aoci earnings generally offset recognition hedged transactions eg interest payments earnings thereby achieving realization interest rates contemplated underlying risk management strategies vary expected amounts presented result changes interest rates combined notes consolidated financial statements continued fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 current derivative liabilities presented current liabilities virginia power’s consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases dominion gas balance sheet presentation tables present dominion gas’ derivative asset liability balances type financial instrument effects offsetting combined notes consolidated financial statements continued volumes following table presents volume dominion gas’ derivative activity december 31 2016 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 maturity determined based final settlement period euro equivalent volumes 250000000 ineffectiveness aoci years ended december 31 2016 2015 2014 gains losses hedging instruments determined ineffective material following table presents selected information related gains losses cash flow hedges included aoci dominion gas’ consolidated balance sheet december 31 2016 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates fair value gains losses derivative instruments following tables present fair values dominion gas’ derivatives presented consolidated balance sheets 1 current derivative assets presented current assets dominion gas’ consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets dominion gas’ consolidated balance sheets 3 current derivative liabilities presented current liabilities dominion gas’ consolidated balance sheets 4 noncurrent derivative liabilities presented deferred credits liabilities dominion gas’ consolidated balance sheets following tables present gains losses dominion gas’ derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion gas’ consolidated statements income 2 amounts recorded dominion gas’ consolidated statements income classified interest related charges 3 amounts recorded dominion gas’ consolidated statements income classified income note 8 earnings per share following table presents calculation dominion’s basic diluted eps 1 dilutive securities consist primarily 2013 equity units 2016 2015 2013 equity units contingently convertible senior notes 2014 dominion redeemed contingently convertible senior notes 2014 see note 17 information 2014 equity units excluded calculation diluted eps years ended december 31 2016 2015 2014 dilutive stock price threshold met 2016 equity units excluded calculation diluted eps year ended december 31 2016 dilutive stock price threshold met see note 17 information dominion midstream convertible preferred units potentially dilutive securities effect calculation diluted eps year ended december 31 2016 see note 19 information combined notes consolidated financial statements continued note 9 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 104 million 100 million december 31 2016 2015 respectively decommissioning trust securities dominion holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 9 million 12 million december 31 2016 2015 respectively 3 fair value securities unrealized loss position 576 million 592 million december 31 2016 2015 respectively fair value dominion’s marketable debt securities held nuclear decommissioning trust funds december 31 2016 contractual maturity follows presented selected information regarding dominion’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 dominion recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 13 million 9 million 3 million december 31 2016 2015 2014 respectively virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 7 million 8 million december 31 2016 2015 respectively 3 fair value securities unrealized loss position 287 million 281 million december 31 2016 2015 respectively fair value virginia power’s marketable debt securities december 31 2016 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 8 million 6 million 2 million december 31 2016 2015 2014 respectively equity method investments dominion gas investments dominion gas account equity method accounting follows 1 comprised dominion midstream’s interest 2593 dominion gas’ interest 2407 see note 15 information combined notes consolidated financial statements continued dominion’s equity earnings investments totaled 111 million 56 million 46 million 2016 2015 2014 respectively dominion received distributions investments 104 million 83 million 60 million 2016 2015 2014 respectively december 31 2016 2015 carrying amount dominion’s investments exceeded share underlying equity net assets 260 million 234 million respectively differences comprised december 31 2016 2015 84 million 72 million respectively related basis differences dominion’s investments blue racer wind projects amortized useful lives underlying assets 176 million 162 million respectively reflecting equity method goodwill amortized dominion gas’ equity earnings investment totaled 21 million 23 million 21 million 2016 2015 2014 respectively dominion gas received distributions investment 22 million 28 million 20 million 2016 2015 2014 respectively december 31 2016 2015 carrying amount dominion gas’ investment exceeded share underlying equity net assets 8 million difference reflects equity method goodwill amortized may 2016 dominion gas sold 065 noncontrolling partnership interest iroquois transcanada approximately 7 million resulted 5 million 3 million aftertax gain included income dominion gas’ consolidated statements income equity earnings recorded income dominion’s dominion gas’ consolidated statements income blue racer december 2012 dominion formed joint venture caiman provide midstream services natural gas producers operating utica shale region ohio portions pennsylvania blue racer equal partnership dominion caiman dominion contributing midstream assets caiman contributing private equity capital march 2014 dominion gas sold northern system affiliate subsequently sold northern system blue racer consideration 84 million dominion gas’ consideration consisted 17 million cash proceeds extinguishment affiliated current borrowings 67 million dominion’s consideration consisted cash proceeds 84 million sale resulted gain 59 million 35 million aftertax dominion gas 34 million aftertax dominion net 3 million writeoff goodwill included operations maintenance expense dominion gas’ dominion’s consolidated statements income december 2016 dominion gas repurchased portion western system blue racer 10 million included property plant equipment dominion gas’ consolidated balance sheets dominion atlantic coast pipeline september 2014 dominion along duke southern company gas formerly known agl resources inc announced formation atlantic coast pipeline atlantic coast pipeline partnership agreement includes provisions allow dominion option purchase additional ownership interest atlantic coast pipeline maintain leading ownership percentage october 2016 dominion purchased additional 3 membership interest atlantic coast pipeline duke 14 million members subsidiaries abovereferenced parent companies hold following membership interests dominion 48 duke 47 southern company gas formerly known agl resources inc 5 atlantic coast pipeline focused constructing approximately 600mile natural gas pipeline running west virginia north carolina subsidiaries affiliates three members plan customers pipeline 20year contracts public service company north carolina inc also plans customer pipeline 20year contract atlantic coast pipeline considered equity method investment dominion ability exercise significant influence control investee see note 15 information note 10 property plant equipment major classes property plant equipment respective balances companies follows jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2016 follows 1 units jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income assignments shale development rights december 2013 dominion gas closed agreements two natural gas producers convey time approximately 100000 acres marcellus shale development rights underneath several natural gas storage fields agreements provide payments dominion gas subject customary adjustments approximately 200 million period nine years overriding royalty interest gas produced acreage 2013 dominion gas received approximately 100 million cash proceeds resulting 20 million 12 million aftertax gain recorded operations maintenance expense dominion gas’ consolidated statements income 2014 dominion gas received 16 million additional cash proceeds resulting postclosing adjustments march 2015 dominion gas one natural gas producers closed amendment agreement included immediate conveyance approximately 9000 acres marcellus shale development rights twoyear extension term original agreement conveyance development rights resulted recognition 43 million 27 million aftertax previously deferred revenue operations maintenance expense dominion gas’ consolidated statements income april 2016 dominion gas natural gas producer closed amendment agreement included immediate conveyance 32 partial interest remaining approximately 70000 acres conveyance resulted recognition remaining 35 million 21 million aftertax previously deferred revenue operations maintenance expense dominion gas’ consolidated statements income november 2014 dominion gas closed agreement natural gas producer convey time approximately 24000 acres marcellus shale development rights underneath one natural gas storage fields agreement provides payments combined notes consolidated financial statements continued dominion gas subject customary adjustments approximately 120 million period four years overriding royalty interest gas produced acreage november 2014 dominion gas closed agreement received proceeds 60 million associated initial conveyance approximately 12000 acres resulting 60 million 36 million aftertax gain recorded operations maintenance expense dominion gas’ consolidated statements income connection agreement 2016 dominion gas conveyed approximately 4000 acres marcellus shale development rights received proceeds 10 million overriding royalty interest gas produced acreage transactions resulted 10 million 6 million aftertax gain gains included operations maintenance expense dominion gas’ consolidated statements income march 2015 dominion gas conveyed natural gas producer approximately 11000 acres marcellus shale development rights underneath one natural gas storage fields received proceeds 27 million overriding royalty interest gas produced acreage transaction resulted 27 million 16 million aftertax gain included operations maintenance expense dominion gas’ consolidated statements income september 2015 dominion gas closed agreement natural gas producer convey approximately 16000 acres utica point pleasant shale development rights underneath one natural gas storage fields agreement provided payment dominion gas subject customary adjustments 52 million overriding royalty interest gas produced acreage september 2015 dominion gas received proceeds 52 million associated conveyance acreage resulting 52 million 29 million aftertax gain included operations maintenance expense dominion gas’ consolidated statements income note 11 goodwill intangible assets goodwill changes dominion’s dominion gas’ carrying amount segment allocation goodwill presented 1 goodwill recorded corporate segment allocated primary operating segments goodwill impairment testing purposes 2 goodwill amounts contain accumulated impairment losses 3 recast reflect nonregulated retail energy marketing operations dominion energy segment 4 see note 3 discussion dominion’s acquisitions intangible assets companies’ intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 73 million 78 million 71 million 2016 2015 2014 respectively 2016 dominion acquired 124 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 15 years amortization expense virginia power’s intangible assets 29 million 25 million 24 million 2016 2015 2014 respectively 2016 virginia power acquired 40 million intangible assets primarily representing software estimated weightedaverage amortization period 12 years dominion gas’ amortization expense intangible assets 6 million 18 million 17 million 2016 2015 2014 respectively 2016 dominion gas acquired 20 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 12 years components intangible assets follows annual amortization expense intangible assets estimated follows note 12 regulatory assets liabilities regulatory assets liabilities include following combined notes consolidated financial statements continued 1 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 2 primarily reflects deferrals electric transmission ferc formula rate deferral costs associated certain current prospective rider projects virginia power deferrals costs associated certain current prospective rider projects dominion gas see note 13 information 3 reflects unrecovered gas costs regulated gas operations recovered filings applicable regulatory authority 4 reflects deferred fuel expenses virginia north carolina jurisdictions dominion’s virginia power’s generation operations see note 13 information 5 represents unrecognized pension postretirement employee benefit costs expected recovered future rates generally expected remaining service period plan participants certain dominion’s dominion gas’ rateregulated subsidiaries 6 reflects amount related pjm transmission cost allocation matter see note 13 information 7 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 8 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 9 ohio legislation house bill 95 became effective september 2011 law updates natural gas legislation enabling gas companies include uptodate cost levels filing rate cases also allows gas companies seek approval capital expenditure plans gas companies recognize carrying costs associated capital investments placed service defer carrying costs plus depreciation property tax expenses recovery ratepayers future 10 pipp eligible customers make reduced payments based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rate adjustment clause according east ohio tariff provisions see note 13 information 11 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 12 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aros december 31 2016 303 million dominion’s 230 million virginia power’s 31 million dominion gas’ regulatory assets represented past expenditures currently earn return exception 192 million pjm transmission cost allocation matter majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business companies involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders andor involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate range possible loss statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties may represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect companies’ financial position liquidity results operations fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities dominion’s merchant generators sell electricity pjm miso caiso isone wholesale markets wholesale purchasers states virginia north carolina indiana connecticut tennessee georgia california utah dominion’s marketbased sales tariffs authorized ferc pursuant ferc authority sell qualified facility virginia power purchases ferc marketbased rate authority sells electricity wholesale market addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure march 2010 odec north carolina electric membership corporation filed complaint ferc virginia power claiming 223 million transmission costs related specific projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate october 2010 ferc issued order dismissing complaint part established hearings settlement procedures remaining part complaint february 2012 virginia power submitted ferc settlement agreement resolve issues set hearing settlement accepted ferc may 2012 provides payment virginia power transmission customer parties collectively 250000 per year ten years resolves matters allocation incremental cost certain underground transmission facilities march 2014 ferc issued order excluding virginia power’s transmission rates wholesale transmission customers located outside virginia incremental costs undergrounding certain transmission line projects ferc found reasonable nonvirginia wholesale transmission customers allocated incremental costs undergrounding facilities projects direct result virginia legislation virginia commission pilot programs intended benefit citizens virginia order retroactively effective march 2010 cause reallocation costs charged wholesale transmission customers loads outside virginia wholesale transmission customers loads virginia ferc determined sufficient evidence record determine magnitude underground increment held hearing determine appropriate amount undergrounding cost allocated wholesale transmission customer virginia power cannot predict outcome hearing expected material effect results operations pjm transmission rates april 2007 ferc issued order regarding transmission rate design allocation costs among pjm transmission customers including virginia power transmission service provided pjm new pjmplanned transmission facilities operate 500 kv ferc established pjm regional rate design customers pay according customer’s share region’s load recovery costs existing facilities ferc approved existing methodology whereby customer pays cost facilities located zone customer number parties appealed order us court appeals seventh circuit august 2009 court issued decision affirming ferc order regard existing facilities remanded ferc issue cost allocation associated new facilities 500 kv consideration ferc remand ferc reaffirmed earlier decision allocate costs new facilities 500 kv according customer’s share region’s load number parties filed appeals order us court appeals seventh circuit june 2014 court remanded cost allocation issue ferc december 2014 ferc issued order setting evidentiary hearing settlement proceeding regarding cost allocation issue hearing concerns costs new facilities approved pjm prior february 1 2013 transmission facilities approved february 1 2013 allocated hybrid cost allocation method approved ferc subject court review june 2016 pjm transmission owners state commissions representing substantially load pjm market submitted settlement ferc resolve outstanding issues regarding matter terms settlement virginia power would required pay approximately 200 million pjm next 10 years although settlement agreement accepted ferc settlement opposed small group parties proceeding virginia power believes probable required make payment outcome settlement accordingly december 31 2016 virginia power contingent liability 200 million deferred credits liabilities offset 192 million regulatory asset amount recovered retail rates virginia remaining 8 million recorded operations maintenance expense 2015 consolidated statements income regulatory matters electric regulation virginia regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs underground distribution lines environmental compliance conservation energy efficiency programs renewable energy programs also contains statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission amended provides enhanced returns capital expenditures specific newlyproposed generation projects virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows regulation act legislation february 2015 virginia governor signed legislation law keep virginia power’s base rates unchanged least december 1 2022 addition biennial reviews conducted virginia commission five successive combined notes consolidated financial statements continued 12month test periods beginning january 1 2015 ending december 31 2019 legislation states virginia power’s 2015 biennial review filed march 2015 would proceed sole purpose reviewing determining whether refunds due customers based earnings performance generation distribution services 2013 2014 test periods addition legislation requires virginia commission conduct proceedings 2017 2019 determine utility’s roe use connection rate adjustment clauses requires utilities file integrated resource plans annually rather biennially november 2015 virginia commission ordered testimony briefs separate bifurcated hearing virginia power’s thenpending rider b r w cases whether virginia commission adjust roe applicable rate adjustment clauses prior 2017 february 2016 virginia commission issued final orders cases stating could adjust roe setting base roe 96 projects separate additional bifurcated hearings virginia commission issued final orders setting base roes 96 march 2016 rider gv april 2016 riders c1a c2a june 2016 riders bw us2 august 2016 rider u february 2017 virginia commission issued final orders setting base roes 94 riders b r w gv effective april 1 2017 february 2016 certain industrial customers apco petitioned virginia commission issue declaratory judgment virginia legislation enacted 2015 keeping apco’s base rates unchanged least 2020 virginia power’s base rates unchanged least 2022 unconstitutional require apco make biennial review filings 2016 2018 virginia power intervened support constitutionality legislation july 2016 virginia commission held divided opinion legislation constitutional industrial customers appealed order supreme court virginia november 2016 supreme court virginia granted appeal matter right consolidated oral argument similar appeals virginia commission’s order appeals pending 2015 biennial review pursuant regulation act march 2015 virginia power filed base rate case schedules virginia commission’s 2015 biennial review virginia power’s rates terms conditions per legislation enacted february 2015 biennial review limited reviewing virginia power’s earnings rates generation distribution services combined 2013 2014 test period determining whether credits due customers event virginia power’s earnings exceeded earnings band determined 2013 biennial review order november 2015 virginia commission issued 2015 biennial review order deciding several contested regulatory earnings adjustments virginia commission ruled virginia power earned average roe approximately 1089 generation distribution services combined 2013 2014 test periods roe 70 basis points virginia power’s authorized roe 100 virginia commission ordered approximately 20 million excess earnings credited customer bills based usage 2013 2014 sixmonth period beginning within 60 days 2015 biennial review order based upon 2015 legislation keeping virginia power’s base rates unchanged least december 1 2022 virginia commission order certain existing rate adjustment clauses combined virginia power’s base rates virginia commission determine whether virginia power revenue deficiency sufficiency projecting annual revenues generated base rates revenues required recover costs service earn fair return december 2015 group large industrial customers filed notices appeal supreme court virginia 2015 biennial review order virginia commission’s order denying petition rehearing reconsideration april 2016 supreme court virginia granted appeals matter right also april 2016 attorney general filed unopposed motion suspend appellate briefing pending outcome separate case virginia commission raising issues may 2016 supreme court virginia denied attorney general’s unopposed motion suspend briefing previously granted appeals virginia commission’s orders supreme court virginia later granted leave industrial customer appellants withdraw appeals thus concluding matter virginia fuel expenses may 2016 virginia power submitted annual fuel factor virginia commission recover estimated 14 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2016 virginia power’s proposed fuel rate represented fuel revenue decrease 286 million applied projected kilowatthour sales period july 1 2016 june 30 2017 october 2016 virginia commission approved virginia power’s proposed fuel rate solar facility projects february 2017 virginia power received approval virginia commission cpcn construct operate remington solar facility related distribution interconnection facilities total estimated cost remington solar facility approximately 47 million excluding financing costs facility subject publicprivate partnership whereby commonwealth virginia nonjurisdictional customer compensate virginia power facility’s net electrical energy output microsoft corporation purchase environmental attributes including renewable energy certificates generated facility rate adjustment clause associated cpcn costs project recovered jurisdictional customers october 2015 virginia power filed application virginia commission cpcns construct operate scott solar whitehouse woodland solar facilities related distributionlevel interconnection facilities virginia power also applied approval rider us2 recover costs projects june 2016 virginia commission granted requested cpcns approved 4 million revenue requirement subject trueup costofservice basis using 96 roe rider us2 rate year beginning september 1 2016 projects placed service december 2016 increased dominion’s renewable generation combined 56 mw total cost approximately 130 million excluding financing costs see information rider us2 august 2016 virginia power filed application virginia commission cpcn construct operate oceana solar facility related distribution interconnection facilities land owned us navy facility would begin commercial operations late 2017 increase dominion’s renewable generation approximately 18 mw estimated cost approximately 40 million excluding financing costs facility subject publicprivate partnership whereby commonwealth virginia nonjurisdictional customer compensate virginia power facility’s net electrical energy output virginia power retire renewable energy certificates commonwealth’s behalf amount equal generated facility rate adjustment clause associated cpcn filing costs project recovered jurisdictional customers case pending rate adjustment clauses discussion significant riders associated various virginia power projects • virginia commission previously approved rider t1 concerning transmission rates may 2016 virginia power proposed 639 million total revenue requirement rate year beginning september 1 2016 represents 1 million increase revenues projected produced rate year current rates july 2016 virginia commission approved virginia power’s proposed total revenue requirement • virginia commission previously approved rider conjunction virginia city hybrid energy center february 2016 virginia commission approved 251 million revenue requirement subject trueup rate year beginning april 1 2016 also established 106 roe rider effective april 1 2016 june 2016 virginia power proposed 254 million revenue requirement rate year beginning april 1 2017 represents 3 million increase previous year february 2017 virginia commission established 104 roe rider effective april 1 2017 case pending • virginia commission previously approved rider w conjunction warren county february 2016 virginia commission approved 118 million revenue requirement subject trueup rate year beginning april 1 2016 also established 106 roe rider w effective april 1 2016 june 2016 virginia power proposed 126 million revenue requirement rate year beginning april 1 2017 represents 8 million increase previous year february 2017 virginia commission established 104 roe rider w effective april 1 2017 case pending • virginia commission previously approved rider r conjunction bear garden february 2016 virginia commission approved 74 million revenue requirement subject trueup rate year beginning april 1 2016 also established 106 roe rider r effective april 1 2016 june 2016 virginia power proposed 75 million revenue requirement rate year beginning april 1 2017 represents 1 million increase previous year february 2017 virginia commission established 104 roe rider r effective april 1 2017 case pending • virginia commission previously approved rider b conjunction conversion three power stations biomass february 2016 virginia commission approved 30 million revenue requirement rate year beginning april 1 2016 also established 116 roe rider b effective april 1 2016 june 2016 virginia power proposed 28 million revenue requirement rate year beginning april 1 2017 represents 2 million decrease versus previous year february 2017 virginia commission established 114 roe rider b effective april 1 2017 case pending • virginia commission previously approved rider u conjunction cost recovery move certain electric distribution facilities underground authorized prior virginia legislation august 2016 virginia commission approved net 20 million revenue requirement 96 roe rate year beginning september 1 2016 additional 2 million credits offset approved revenue requirements phase one 20172018 20182019 rate years order limited total investment phase one virginia power’s proposed program 140 million 123 million recoverable rider u december 2016 virginia power proposed total 31 million revenue requirement phase one phase two costs rate year beginning september 1 2017 virginia power’s estimated total investment phase two 110 million case pending • virginia commission previously approved riders c1a c2a connection cost recovery dsm programs april 2016 virginia commission approved 46 million revenue requirement subject trueup rate year beginning may 1 2016 also established 96 roe riders c1a c2a effective may 1 2016 virginia commission approved one new energy efficiency program reduced cost cap denied second energy efficiency program approved extension existing peak shaving program recovered base rates additional incremental cost october 2016 virginia power proposed total revenue requirement 45 million rate year beginning july 1 2017 virginia power also proposed two new energy efficiency programs virginia commission approval requested fiveyear cost cap 178 million virginia power proposed extend existing energy efficiency program additional two years current funding existing peak shaving program additional five years additional 5 million cost cap case pending • virginia commission previously approved rider bw conjunction brunswick county june 2016 virginia commission approved 119 million revenue requirement rate year beginning september 1 2016 also established 106 roe rider bw effective september 1 2016 october 2016 virginia power proposed combined notes consolidated financial statements continued 134 million revenue requirement rate year beginning september 1 2017 represents 15 million increase previous year case pending • virginia commission previously approved rider us2 conjunction scott solar whitehouse woodland solar facilities june 2016 virginia commission approved 4 million revenue requirement rate year beginning september 1 2016 also established 96 roe rider us2 effective september 1 2016 october 2016 virginia power proposed 10 million revenue requirement rate year beginning september 1 2017 represents 6 million increase previous year case pending • july 2015 virginia power filed application virginia commission cpcn construct operate greensville county related transmission interconnection facilities virginia power also applied approval rider gv recover costs greensville county march 2016 virginia commission granted requested cpcn approved 40 million revenue requirement rate year beginning april 1 2016 also established 96 roe rider gv effective april 1 2016 june 2016 virginia power proposed 89 million revenue requirement rate year beginning april 1 2017 represents 49 million increase previous year february 2017 virginia commission established 94 roe rider gv effective april 1 2017 matter pending electric transmission projects november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton february 2014 virginia commission granted reconsideration requested virginia power issued order amending certificate several appeals filed supreme court virginia april 2015 supreme court virginia issued opinion consolidated appeals virginia commission’s order granting cpcn skiffes creek transmission line related facilities supreme court virginia unanimously affirmed one alleged grounds appeal court approved proposed project including proposed route 500 kv overhead transmission line surry skiffes creek switching station site court reversed remanded virginia commission’s determination one set appeals skiffes creek switching station transmission line purposes statutory exemption local zoning ordinances may 2015 supreme court virginia denied separate petitions filed virginia power virginia commission rehear ruling regarding skiffes creek switching station pending receipt remaining required permits approvals virginia power expects construct project virginia power previously filed application virginia commission cpcn construct operate loudoun county virginia new approximately 230 kv poland road substation new approximately four mile overhead 230 kv double circuit transmission line existing 230 kv loudounbrambleton line poland road substation august 2016 virginia commission granted cpcn construct operate project along revised route total estimated cost project approximately 55 million november 2015 virginia power filed application virginia commission cpcn convert existing transmission line 230 kv prince william county virginia loudoun county virginia construct operate new approximately five mile overhead 230 kv double circuit transmission line tap point near gainesville substation new tobeconstructed haymarket substation total estimated cost project approximately 55 million case pending november 2015 virginia power filed application virginia commission cpcn construct operate multiple virginia counties approximately 38 mile overhead 230 kv transmission line remington gordonsville substations along associated facilities total estimated cost project approximately 105 million case pending february 2016 virginia commission issued order granting virginia power cpcn construct operate remington ctwarrenton 230 kv double circuit transmission line vint hillwheeler wheelergainesville 230 kv lines 230 kv vint hill wheeler switching stations along virginia power’s proposed route total estimated cost project approximately 110 million march 2016 virginia power filed application virginia commission cpcn rebuild operate multiple virginia counties approximately 33 miles existing 500 kv transmission line cunningham switching station dooms substation along associated station work total estimated cost project approximately 60 million case pending august 2016 virginia power filed application virginia commission cpcn rebuild operate multiple virginia counties approximately 28 miles existing 500 kv transmission line carson switching station terminus located near rogers road switching station construction greensville county virginia along associated work carson switching station total estimated cost project approximately 55 million case pending january 2017 virginia power filed application virginia commission cpcn rebuild rearrange idylwood substation fairfax county virginia total estimated cost project approximately 110 million case pending north anna virginia power considering construction third nuclear unit site located north anna nuclear power station virginia power decides build new unit must first receive col nrc approval virginia commission certain environmental permits approvals col expected 2017 virginia power yet committed building new nuclear unit north anna nuclear power station requests bredl contested nrc hearing virginia power’s col application dismissed september 2016 us court appeals dc circuit dismissed prejudice petitions judicial review bredl organizations filed challenging nrc’s reliance rule generically assessing environmental impacts continued onsite storage spent nuclear fuel various licensing proceedings including virginia power’s col proceeding dismissal followed court’s june 2016 decision new york v nrc upholding nrc’s continued storage rule august 2016 denial requests rehearing en banc therefore contested portion col proceeding closed nrc required conduct hearing col proceedings mandatory nrc hearing anticipated occur first half 2017 uncontested august 2016 virginia power received 60day notice intent sue sierra club alleging endangered species act violations notice alleges us army corps engineers failed conduct adequate environmental consultation reviews related potential third nuclear unit located north anna prior issuing cwa section 404 permit virginia power september 2011 lawsuit filed november 2016 army corps engineers suspended section 404 permit gathers additional information permitting issue expected affect nrc’s issuance col virginia power currently unable make estimate potential impacts consolidated financial statements related matter north carolina regulation march 2016 virginia power filed base rate case schedules north carolina commission virginia power proposed nonfuel base rate increase 51 million effective november 1 2016 roe 105 october 2016 virginia power entered stipulation settlement agreement nonfuel base rate increase 35 million roe 99 effective november 1 2016 temporary basis subject refund permanent rates ordered north carolina commission effective january 1 2017 december 2016 north carolina commission approved stipulation settlement agreement august 2016 virginia power submitted annual filing north carolina commission adjust fuel component electric rates virginia power proposed total 36 million decrease fuel component electric rates rate year beginning january 1 2017 december 2016 north carolina commission approved requested decrease additional 1 million reduction virginia power’s fuel rates ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 25 pipeline system march 2015 east ohio filed application ohio commission requesting approval extend pir program additional five years increase annual capital investment corresponding increases annual rateincrease caps september 2016 ohio commission approved stipulation filed jointly east ohio staff ohio commission settle east ohio’s pending application requested pir program associated cost recovery continue another fiveyear term calendar years 2017 2021 east ohio permitted increase annual capital expenditures 200 million 2018 3 per year thereafter subject cost recovery rate increase caps proposed east ohio costs associated calendar year 2016 investment recovered existing terms february 2016 east ohio filed application adjust pir cost recovery 2015 costs filing reflects gross plant investment 2015 171 million cumulative gross plant investment 1 billion revenue requirement 131 million application approved ohio commission april 2016 amr program 2007 east ohio began installing automated meter reading technology 12 million customers ohio amr program approved ohio commission completed 2012 although capital investment added east ohio approved recover depreciation property taxes carrying charges return east ohio another rate case february 2016 east ohio filed application adjust amr cost recovery costs incurred calendar year 2015 filing reflects revenue requirement approximately 7 million application approved ohio commission april 2016 pipp plus program ohio pipp plus program eligible customers make reduced payments based ability pay bill difference customer’s total bill pipp amount deferred collected pipp rider accordance rules ohio commission july 2016 east ohio’s annual update pipp rider automatically approved ohio commission 45day waiting period date filing revised rider rate reflects recovery twelvemonth period july 2016 june 2017 projected deferred program costs approximately 32 million april 2016 june 2017 net refund overrecovery accumulated arrearages approximately 28 million march 31 2016 uex rider east ohio approval uex rider recovers bad debt expense customers participating pipp plus program uex rider adjusted annually achieve dollar recovery east ohio’s actual writeoffs uncollectible amounts august 2016 ohio commission approved increase east ohio’s uex rider reflects refund overrecovered accumulated bad debt expense approximately 8 million march 31 2016 recovery prospective net bad debt expense projected total approximately 19 million twelvemonth period april 2016 march 2017 psmp november 2016 ohio commission approved east ohio’s request defer operation maintenance costs associated implementing psmp 15 million per year combined notes consolidated financial statements continued west virginia regulation may 2016 hope filed prep application west virginia commission requesting approval projected capital investment 2017 27 million part total fiveyear projected capital investment 152 million september 2016 hope reached settlement parties case agreeing new prep customer rates year beginning november 1 2016 provide annual projected revenue 2 million related capital investments 20 million 27 million 2016 2017 respectively october 2016 west virginia commission approved settlement fercgas cove point november 2016 pursuant terms previous settlement cove point filed general rate case fercjurisdictional services 23 proposed rates effective january 1 2017 cove point proposed annual costofservice approximately 140 million december 2016 ferc accepted january 1 2017 effective date proposed rates five suspended effective june 1 2017 note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain companies’ longlived assets dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities ash pond landfill closures dominion gas’ aros primarily include plugging abandonment gas oil wells interim retirement natural gas gathering transmission distribution storage pipeline components companies also identified recognized aros related retirement dominion’s lng facility dominion’s dominion gas’ storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed dominion’s virginia power’s generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2015 2016 follows 1 primarily reflects future ash pond landfill closure costs certain utility generation facilities see note 22 information 2 includes 216 million 249 million reported current liabilities december 31 2015 2016 respectively 3 primarily reflects aros assumed dominion questar combination see note 3 information 4 includes 137 million 147 million reported deferred credits liabilities remainder recorded current liabilities december 31 2015 2016 respectively dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2016 2015 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 45 billion 42 billion respectively december 31 2016 2015 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 21 billion 19 billion respectively note 15 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie dominion december 31 2016 dominion owns general partner 509 common subordinated units 375 convertible preferred interests dominion midstream owns preferred equity interest general partner interest cove point additionally dominion owns manager 67 membership interest certain merchant solar facilities discussed note 2 dominion concluded entities vies due limited partners members lacking characteristics controlling financial interest addition 2016 dominion created wholly owned subsidiary sbl holdco holding company interest vie merchant solar facilities accordingly sbl holdco vie dominion primary beneficiary dominion midstream sbl holdco merchant solar facilities dominion midstream primary beneficiary cove point power direct activities significantly impact economic performance well obligation absorb losses benefits could significant dominion’s securities due within one year longterm debt include 17 million 377 mil lion respectively debt issued 2016 sbl holdco net issuance costs nonrecourse dominion secured sbl holdco’s interest merchant solar facilities dominion owns 48 membership interest atlantic coast pipeline see note 9 details regarding nature entity dominion concluded atlantic coast pipeline vie insufficient equity finance activities without additional subordinated financial support dominion concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance power direct shared among multiple unrelated parties dominion obligated provide capital contributions based ownership percentage dominion’s maximum exposure loss limited current future investment dominion virginia power dominion’s virginia power’s nuclear decommissioning trust funds dominion’s rabbi trusts hold investments limited partnerships similar type entities see note 9 details dominion virginia power concluded partnership investments vies due limited partners lacking characteristics controlling financial interest dominion virginia power concluded neither primary beneficiary power direct activities significantly impact vies’ economic performance dominion virginia power obligated provide capital contributions partnerships required partnership agreement based ownership percentages dominion virginia power’s maximum exposure loss limited current future investments dominion gas dominion previously concluded iroquois vie nonaffiliated iroquois equity holder ability limited period time transfer ownership interests another iroquois equity holder affiliate end first quarter 2016 right longer existed result dominion concluded iroquois longer vie virginia power virginia power longterm power capacity contracts five nonutility generators contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests contracts two nonutility generators expired 2015 leaving remaining aggregate summer generation capacity approximately 418 mw evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance entities remaining terms virginia power’s contracts years entities expected operate contractual relationships expire remaining contracts expire various combined notes consolidated financial statements continued dates ranging 2017 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 287 million december 31 2016 virginia power paid 144 million 200 million 223 million electric capacity 31 million 83 million 138 million electric energy entities years ended december 31 2016 2015 2014 respectively dominion gas dti engaged oversee construction subsequently operate maintain projects undertaken atlantic coast pipeline based overall direction oversight atlantic coast pipeline’s members affiliate dti holds membership interest atlantic coast pipeline therefore dti considered variable interest atlantic coast pipeline members atlantic coast pipeline hold power direct construction operations maintenance activities entity dti concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance dti obligation absorb losses vie see note 24 information associated related party receivable balances virginia power dominion gas virginia power dominion gas purchased shared services drs affiliated vie 346 million 123 million 318 million 115 million 335 million 106 million years ended december 31 2016 2015 2014 respectively virginia power dominion gas determined neither primary beneficiary drs neither power direct activities significantly impact economic performance well obligation absorb losses benefits could significant drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power dominion gas virginia power dominion gas obligation absorb allocated shares drs costs note 16 shortterm debt credit agreements companies use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations january 2016 dominion expanded shortterm funding resources 10 billion increase one joint revolving credit facility limits addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 may 2016 maturity dates facilities extended april 2019 april 2020 credit facilities used support bank borrowings issuance commercial paper well support combined 20 billion letters credit 2 january 2016 facility limit increased 40 billion 50 billion 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 105 062 december 31 2016 2015 respectively dominion questar’s revolving multiyear 364day credit facilities limits 500 million 250 million respectively terminated october 2016 questar gas’ shortterm financing supported two joint revolving credit facilities discussed dominion virginia power dominion gas questar gas added borrower november 2016 initial aggregate sublimit 250 million december 2016 questar gas entered commercial paper program pursuant began accessing commercial paper markets addition credit facilities mentioned sbl holdco 30 million credit facilities stated maturity date december 2017 automatic oneyear renewals maturity sbl holdco term loan agreement 2023 december 31 2016 amounts outstanding facilities virginia power virginia power’s shortterm financing supported access coborrower two joint revolving credit facilities credit facilities used working capital support combined commercial paper programs companies general corporate purposes virginia power’s share commercial paper letters credit outstanding joint credit facilities dominion gas questar gas follows 1 full amount facilities available virginia power less amounts outstanding coborrowers dominion gas questar gas sublimits virginia power set within facility limit changed option dominion gas questar gas multiple times per year december 31 2016 sublimit virginia power aggregate 20 billion virginia power liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion may 2016 maturity dates facilities extended april 2019 april 2020 credit facilities used support bank borrowings issuance commercial paper well support 20 billion sublimit whichever less letters credit 2 january 2016 facility limit increased 40 billion 50 billion 3 weightedaverage interest rates outstanding commercial paper supported credit facilities 097 060 december 31 2016 2015 respectively addition credit facility commitments mentioned virginia power also 100 million credit facility may 2016 maturity date credit facility extended april 2019 april 2020 october 2016 facility reduced 120 million 100 million december 31 2016 facility supports 100 million certain variable rate taxexempt financings virginia power dominion gas dominion gas’ shortterm financing supported access coborrower two joint revolving credit facilities credit facilities used working capital support combined commercial paper programs companies general corporate purposes dominion gas’ share commercial paper letters credit outstanding joint credit facilities dominion virginia power questar gas follows 1 maximum combined 15 billion facilities available dominion gas assuming adequate capacity available giving effect uses coborrowers dominion virginia power questar gas sublimits dominion gas set within facility limit changed option companies multiple times per year november 2016 aggregate sublimit dominion gas decreased 750 million 500 million dominion gas liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion may 2016 maturity dates facilities extended april 2019 april 2020 credit facilities used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit 2 weightedaverage interest rate outstanding commercial paper supported credit facilities 100 063 december 31 2016 2015 respectively combined notes consolidated financial statements continued note 17 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2016 2 beginning june 30 2016 amount includes foreign currency remeasurement adjustments 3 financings relate certain pollution control equipment virginia power’s generating facilities certain variable rate taxexempt financings supported 100 million credit facility terminates april 2020 4 represents debt assumed dominion merger former cng subsidiary 5 represents debt obligations dominion questar gas see note 3 information 6 represents debt associated sbl holdco debt nonrecourse dominion secured sbl holdco’s interest certain merchant solar facilities 7 represents debt obligations dei subsidiary 8 represents debt obligations questar pipeline see note 3 information 9 represents valuation certain fair value hedges associated dominion’s fixed rate debt 10 2015 excludes 100 million variable rate shortterm notes purchased cancelled february 2016 using proceeds issuance longterm debt notes would otherwise matured may 2016 based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2016 follows companies shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2016 events default covenants january 2017 dominion issued 400 million 1875 senior notes 400 million 275 senior notes mature 2019 2022 respectively senior note redemptions part dominion’s liability management exercise december 2014 dominion redeemed five outstanding series senior notes aggregate outstanding principal 19 billion aggregate redemption price paid december 2014 22 billion represents principal amount outstanding accrued unpaid interest applicable makewhole premium 263 million total charges liability management exercise 284 million including makewhole premium recognized recorded interest expense dominion’s consolidated statements income proceeds dominion’s issuance senior notes november 2014 used offset payment redemption price also see convertible securities called redemption convertible securities part dominion’s liability management exercise november 2014 dominion provided notice redeem 22 million outstanding contingent convertible senior notes senior notes eligible conversion 2014 however lieu redemption holders elected convert remaining 22 million notes december 2014 26 million common stock proceeds dominion’s issuance senior notes november 2014 used offset portion conversions paid cash enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively beginning june 30 2016 june 2006 hybrids bear interest threemonth libor plus 2825 reset quarterly previously interest fixed 75 per year september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly june 2009 dominion issued 685 million 8375 june 2009 hybrids june 2009 hybrids listed nyse symbol dru october 2014 dominion issued 685 million october 2014 hybrids bear interest 575 per year october 1 2024 thereafter bear interest threemonth libor plus 3057 reset quarterly dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion executed rccs connection issuance june 2006 hybrids september 2006 hybrids june combined notes consolidated financial statements continued 2009 hybrids terms rccs dominion covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days july 2014 dominion amended rcc june 2009 hybrids expand measurement period consideration proceeds sale common stock equitylike issuances 180 days 365 days proceeds dominion receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price part dominion’s liability management exercise october 2014 dominion redeemed 685 million june 2009 hybrids plus accrued interest net proceeds issuance october 2014 hybrids 2015 dominion purchased cancelled 14 million 3 million june 2006 hybrids september 2006 hybrids respectively first quarter 2016 dominion purchased cancelled 38 million 4 million june 2006 hybrids september 2006 hybrids respectively july 2016 dominion launched tender offer purchase 200 million aggregate additional june 2006 hybrids september 2006 hybrids expired august 1 2016 connection tender offer dominion purchased cancelled 125 million 74 million june 2006 hybrids september 2006 hybrids respectively purchases conducted compliance applicable rcc also july 2016 dominion issued 800 million 525 july 2016 hybrids proceeds used general corporate purposes including finance tender offer july 2016 hybrids listed nyse symbol drua time dominion may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions additional tender offers otherwise remarketable subordinated notes june 2013 dominion issued 550 million 2013 series 6125 equity units 550 million 2013 series b 60 equity units initially form corporate units corporate units listed nyse symbols dcua dcub respectively corporate unit consisted stock purchase contract 120 interest rsn issued dominion stock purchase contracts obligated holders purchase shares dominion common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts march 2016 may 2016 dominion successfully remarketed 550 million 2013 series 107 rsns due 2021 550 million 2013 series b 118 rsns due 2019 respectively pursuant terms related 2013 equity units connection remarketings interest rate series b junior subordinated notes reset 4104 2962 respectively payable semiannual basis dominion ceased ability redeem notes option defer interest payments december 31 2016 securities included junior subordinated notes dominion’s consolidated balance sheets dominion receive proceeds remarketings remarketing proceeds belonged investors holding related 2013 equity units temporarily used purchase portfolio treasury securities upon maturity portfolio proceeds applied behalf investors related stock purchase contract settlement date pay purchase price dominion issuance 85 million shares common stock april 1 2016 july 1 2016 see issuance common stock description common stock issued dominion april 2016 july 2016 stock purchase contracts july 2014 dominion issued 10 billion 2014 series 6375 equity units initially form corporate units august 2016 dominion issued 14 billion 2016 series 675 equity units initially form corporate units corporate units listed nyse symbols dcuc dcud respectively net proceeds 2016 equity units used finance dominion questar combination see note 3 information 2014 series corporate unit consists stock purchase contract 120 interest 2014 series rsn issued dominion 2016 series corporate unit consists stock purchase contract 140 interest 2016 series a1 rsn issued dominion 140 interest 2016 series a2 rsn issued dominion stock purchase contracts obligate holders purchase shares dominion common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts dominion makes quarterly interest payments rsns quarterly contract adjustment payments stock purchase contracts rates described dominion may defer payments stock purchase contracts rsns one consecutive periods generally beyond purchase contract settlement date payments deferred dominion may make cash distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated rsns dominion recorded present value stock purchase contract payments liability offset charge equity interest payments rsns recorded interest expense stock purchase contract payments charged liability accretion stock purchase contract liability recorded imputed interest expense calculating diluted eps dominion applies treasury stock method equity units pursuant terms 2014 equity units 2016 equity units dominion expects remarket 2014 series rsns second quarter 2017 2016 series a1 2016 series a2 rsns third quarter 2019 following successful remarketing interest rate rsns reset interest payable semiannual basis dominion cease ability redeem rsns option defer interest payments proceeds remarketing belong investors related equity units held applied behalf settlement date related stock purchase contracts pay purchase price dominion issuance common stock terms stock purchase contracts assuming antidilution adjustments dominion issue 116 million 145 million shares common stock july 2017 150 million 187 million shares august 2019 total 409 million shares dominion’s common stock reserved issuance connection stock purchase contracts selected information dominion’s equity units presented 1 payments 94 million 101 million made 2016 2015 respectively including payments remarketed 2013 series b notes stock purchase contract liability 212 million 115 million december 31 2016 2015 respectively 2 maturity dates 700 million series a1 rsns 700 million series a2 rsns august 15 2021 august 15 2024 respectively 3 annual interest rate applies series a1 rsns series a2 rsns combined notes consolidated financial statements continued note 18 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2016 2015 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 2014 virginia power redeemed 259 million shares represented outstanding series preferred stock redeemed part dominion’s liability management exercise september 2014 upon redemption series longer outstanding purpose dividends ceased accumulate virginia power preferred stock issued outstanding december 31 2016 2015 note 19 equity issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion began purchasing common stock open market plans april 2014 dominion began issuing new common shares direct stock purchase plans 2016 dominion received cash proceeds net fees commissions 22 billion issuance approximately 32 million shares common stock various programs resulting approximately 628 million shares common stock outstanding december 31 2016 proceeds include cash 295 million received issuance 40 million shares dominion direct® employee savings plans december 2014 dominion filed sec shelf registration sale debt equity securities including ability sell common stock atthemarket program also december 2014 dominion entered four separate sales agency agreements effect sales program pursuant may offer time 500 million aggregate amount common stock sales common stock made means privately negotiated transactions nyse market prices transactions agreed upon dominion sales agents conformance applicable securities laws following issuances first second quarters 2015 dominion ability issue approximately 200 million stock 2014 sales agency agreements however additional issuances occurred agreements 2016 april 2016 july 2016 dominion issued 85 million shares related stock purchase contracts entered part dominion’s 2013 equity units received 11 billion total proceeds additionally dominion completed market issuance equity april 2016 102 million shares received proceeds 756 million registered underwritten public offering portion net proceeds used finance dominion questar combination see note 3 information virginia power 2016 2015 2014 virginia power issue shares common stock dominion shares reserved issuance december 31 2016 dominion approximately 63 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans issuance connection stock purchase contracts see note 17 information repurchase common stock dominion repurchase shares 2016 2015 plan repurchase shares 2017 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization purchase dominion midstream units september 2015 dominion initiated program purchase market 50 million common units representing limited partner interests dominion midstream expired september 2016 dominion purchased approximately 658000 common units 17 million 887000 common units 25 million years ended december 31 2016 2015 respectively issuance dominion midstream units fourth quarter 2016 dominion midstream received 482 million proceeds issuance common units 490 million proceeds issuance convertible preferred units net proceeds primarily used finance portion acquisition questar pipeline dominion see note 3 information holders convertible preferred units entitled receive cumulative quarterly distributions payable cash additional convertible preferred units subject certain conditions units convertible dominion midstream common units oneforone basis subject certain adjustments whole part option unitholders time december 1 2018 ii whole part dominion midstream’s option subject certain conditions time december 1 2019 conversion units would result potential increase dominion’s net income attributable noncontrolling interests accumulated comprehensive income loss presented table summary aoci component dominion following table presents dominion’s changes aoci component net tax 1 see table details reclassifications combined notes consolidated financial statements continued following table presents dominion’s reclassifications aoci component virginia power following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications following table presents virginia power’s reclassifications aoci component dominion gas following table presents dominion gas’ changes aoci component net tax 1 see table details reclassifications combined notes consolidated financial statements continued following table presents dominion gas’ reclassifications aoci component stockbased awards 2005 2014 incentive compensation plans permit stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2016 approximately 24 million shares available future grants plans dominion measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion’s results years ended december 31 2016 2015 2014 include 33 million 39 million 39 million respectively compensation costs 11 million 14 million 14 million respectively income tax benefits related dominion’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income excess tax benefits classified financing cash flow dominion realized less 1 million 3 million excess tax benefits vesting restricted stock awards year ended december 31 2016 2015 respectively less 1 million year ended december 31 2014 restricted stock restricted stock grants made officers dominion’s ltip may also granted certain key nonofficer employees time fair value dominion’s restricted stock awards equal closing price dominion’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2016 2015 2014 december 31 2016 unrecognized compensation cost related nonvested restricted stock awards totaled 31 million expected recognized weightedaverage period 19 years fair value restricted stock awards vested 21 million 37 million 19 million 2016 2015 2014 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates goalbased stock goalbased stock awards granted dominion’s ltip officers achieved certain targeted level share ownership lieu cashbased performance grants current outstanding goalbased shares include awards granted officers february 2015 february 2016 issuance awards based achievement two performance metrics twoyear period tsr relative companies listed members philadelphia utility index end performance period roic actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock determined date grant awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares following table provides summary goalbased stock activity years ended december 31 2016 2015 2014 december 31 2016 targeted number shares expected issued february 2015 february 2016 awards approximately 23 thousand january 2017 cgn committee determined actual performance metrics established february 2015 awards performance period ended december 31 2016 based determination total number shares issued february 2015 goalbased stock awards approximately 9 thousand december 31 2016 unrecognized compensation cost related nonvested goalbased stock awards material cashbased performance grants cashbased performance grants made dominion’s officers dominion’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved february 2014 cashbased performance grant made officers performance grant paid january 2016 based achievement two performance metrics 2014 2015 tsr relative companies listed members philadelphia utility index end performance period roic total payout grant 10 million february 2015 cashbased performance grant made officers payout performance grant occurred january 2017 based achievement two performance metrics 2015 2016 tsr relative companies listed members philadelphia utility index end performance period roic total payout grant 10 million february 2016 cashbased performance grant made officers payout performance grant expected occur march 15 2018 based achievement two performance metrics 2016 2017 tsr relative companies listed members philadelphia utility index end performance period roic december 31 2016 targeted amount grant 14 million liability 6 million accrued award note 20 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2016 virginia commission restricted payment dividends virginia power ohio commission may prohibit public service company including east ohio declaring paying dividend affiliate found detrimental public interest december 31 2016 ohio commission restricted payment dividends east ohio utah commission may prohibit public service company including questar gas declaring paying dividend affiliate found detrimental public interest december 31 2016 utah commission restricted payment dividends questar gas certain agreements associated companies’ credit facilities contain restrictions ratio debt total capitalization limitations restrict companies’ ability pay dividends receive dividends subsidiaries december 31 2016 see note 17 description potential restrictions dividend payments dominion connection deferral interest payments certain junior subordinated notes equity units initially form corporate units note 21 employee benefit plans dominion gasdefined benefit plans dominion provides certain retirement benefits eligible active employees retirees qualifying dependents dominion gas participates number dominionsponsored retirement plans terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension programs also provide benefits certain retired executives companysponsored nonqualified employee benefit plans nonqualified plans funded contributions grantor trusts dominion also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension benefits dominion gas employees represented collective bargaining units covered domin combined notes consolidated financial statements continued ion pension plan defined benefit pension plan sponsored dominion provides benefits multiple dominion subsidiaries pension benefits dominion gas employees represented collective bargaining units covered separate pension plans east ohio dti plan provides benefits employees dti hope employee compensation basis allocating pension costs obligations dti hope determining east ohio’s share total pension costs retiree healthcare life insurance benefits dominion gas employees represented collective bargaining units covered dominion retiree health welfare plan sponsored dominion provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries retiree healthcare life insurance benefits dominion gas employees represented collective bargaining units covered separate postretirement benefit plans east ohio dti plan provides benefits dti hope employee headcount basis allocating postretirement benefit costs obligations dti hope determining east ohio’s share total postretirement benefit costs pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates rate compensation increases dominion uses december 31 measurement date employee benefit plans including dominion gas participates dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost pension plans including dominion gas participates marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments dominion’s pension postretirement plan assets experienced aggregate actual returns 534 million 2016 aggregate actual losses 72 million 2015 versus expected returns 691 million 648 million respectively dominion gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns 130 million 2016 aggregate actual losses 13 million 2015 versus expected returns 157 million 150 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans october 2014 society actuaries published new mortality tables mortality improvement scales tables scales used develop mortality assumptions use determining pension postretirement benefit liabilities expense following evaluation new tables dominion changed assumption mortality rates reflect generational improvement scale change assumption increased net periodic benefit cost dominion gas employees represented collective bargaining units 25 million 3 million respectively 2015 2016 dominion gas employees represented collective bargaining units engaged actuary conduct experience study employees demographics fiveyear period compared significant assumptions used determine pension postretirement benefit obligations periodic costs assumptions primarily included mortality retirement rates termination rates salary increase rates changes assumptions implemented result experience study resulted increases 290 million 38 million pension postretirement benefits obligations respectively december 31 2016 dominion 24 million 9 million pension postretirement benefits obligations respectively december 31 2016 dominion gas addition changes increase net periodic benefit costs dominion 42 million 2017 increase net periodic benefit costs dominion gas 2017 immaterial plan amendments remeasurements third quarter 2016 dominion remeasured postretirement benefit plan result amendment changed post65 retiree medical coverage certain current future local 50 retirees effective april 1 2017 remeasurement resulted decrease dominion’s accumulated postretirement benefit obligation 37 million impact remeasurement net periodic benefit credit recognized prospectively remeasurement date increased net periodic benefit credit 2016 9 million discount rate used remeasurement 371 demographic mortality assumptions updated using planspecific studies mortality improvement scales expected longterm rate return used consistent measurement december 31 2015 third quarter 2014 east ohio remeasured postretirement benefit plan result amendment changed medical coverage upon attainment age 65 certain future retirees effective january 1 2016 employees represented collective bargaining units remeasurement resulted increase accumulated postretirement benefit obligation 22 million impact remeasurement net periodic benefit credit recognized prospectively remeasurement date reduced net periodic benefit credit 2014 employees represented collective bargaining units less 1 million discount rate used remeasurement 420 expected longterm rate return used 850 assumptions used remeasurement consistent measurement december 31 2013 funded status following table summarizes changes pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status dominion gas employees represented collective bargaining units 1 2016 amount relates primarily plan amendment changed post65 retiree medical coverage certain current future local 50 retirees effective april 1 2017 2015 amount relates primarily plan amendment changed retiree medical benefits certain nonunion employees medicare eligibility 2 relates primarily settlement certain executives 3 reflected deferred credits liabilities dominion gas’ consolidated balance sheets combined notes consolidated financial statements continued abo dominion’s defined benefit pension plans 73 billion 58 billion december 31 2016 2015 respectively abo defined benefit pension plans covering dominion gas employees represented collective bargaining units 640 million 578 million december 31 2016 2015 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time 2016 dominion gas made contributions qualified defined benefit pension plans contributions currently expected 2017 january 2017 dominion made 75 million contribution dominion questar’s qualified pension plan satisfy regulatory condition closing dominion questar combination july 2012 map 21 act signed law act includes increase interest rates used determine plan sponsors’ pension contributions required funding purposes 2014 hatfa 2014 signed law similar map 21 act hatfa 2014 adjusts rules calculating interest rates used determining funding obligations estimated new interest rates reduce required pension contributions 2019 dominion believes required pension contributions rise subsequent 2019 resulting estimated 200 million reduction net cumulative required contributions 10year period certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries including dominion gas fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion’s contributions vebas pertained dominion gas employees totaled 12 million 2016 2015 dominion expects contribute approximately 12 million dominion vebas 2017 pertains dominion gas employees dominion gas expect pension postretirement plan assets returned 2017 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets dominion gas employees represented collective bargaining units following table provides information abo fair value plan assets dominion’s pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid dominion’s dominion gas’ employees represented collective bargaining units plans plan assets dominion’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk participating employer various pension plans sponsored dominion gas subject dominion’s investment policies plans minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations dominion’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments us equity includes investments largecap midcap smallcap companies located us nonus equity includes investments largecap smallcap companies located outside us including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity real estate investment trusts investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies dominion also utilizes commoncollective trust funds investment vehicle defined benefit plans commoncollective trust fund pooled fund operated bank trust company investment assets various organizations individuals welldiversified portfolio commoncollective trust funds grouped assets follow various investment strategies strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 combined notes consolidated financial statements continued fair values dominion’s dominion gas’ employees represented collective bargaining units pension plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 also included common collective trust funds northern trust collective shortterm investment fund totaling 167 million 125 million december 31 2016 2015 respectively comprised money market instruments shortterm maturities used temporary investment liquidity emphasized provide redemption units business day principal preservation also prime objective admissions withdrawals made daily interest accrued daily distributed monthly 3 includes net assets related pending sales securities 46 million net accrued income 19 million excludes net assets related pending purchases securities 47 million december 31 2016 includes net assets related pending sales securities 112 million net accrued income 16 million excludes net assets related pending purchases securities 118 million december 31 2015 4 also included common collective trust funds northern trust collective shortterm investment fund totaling 37 million 30 million december 31 2016 2015 respectively comprised money market instruments shortterm maturities used temporary investment liquidity emphasized provide redemption units business day principal preservation also prime objective admissions withdrawals made daily interest accrued daily distributed monthly 5 includes net assets related pending sales securities 10 million net accrued income 4 million excludes net assets related pending purchases securities 10 million december 31 2016 includes net assets related pending sales securities 27 million net accrued income 4 million excludes net assets related pending purchases securities 28 million december 31 2015 fair values dominion’s dominion gas’ employees represented collective bargaining units postretirement plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 also included common collective trust funds northern trust collective shortterm investment fund totaling 16 million 9 million december 31 2016 2015 respectively comprised money market instruments shortterm maturities used temporary investment liquidity emphasized provide redemption units business day principal preservation also prime objective admissions withdrawals made daily interest accrued daily distributed monthly 3 includes net assets related pending sales securities 5 million net accrued income 2 million excludes net assets related pending purchases securities 5 million december 31 2016 4 also included common collective trust funds northern trust collective shortterm investment fund totaling 2 million 3 million december 31 2016 2015 respectively comprised money market instruments shortterm maturities used temporary investment liquidity emphasized provide redemption units business day principal preservation also prime objective admissions withdrawals made daily interest accrued daily distributed monthly combined notes consolidated financial statements continued plan’s investments determined based fair values investments underlying investments determined follows • cash equivalentsinvestments held primarily shortterm notes treasury bills valued cost plus accrued interest • common preferred stocksinvestments valued closing price reported active market individual securities traded • insurance contractsinvestments group annuity contracts john hancock entered 1992 stated fair value based fair value underlying securities provided managers include investments us government securities corporate debt instruments state municipal debt securities • corporate debt instrumentsinvestments valued using pricing models maximizing use observable inputs similar securities includes basing value yields currently available comparable securities issuers similar credit ratings quoted prices available identical similar instruments instrument valued discounted cash flows approach maximizes observable inputs current yields similar instruments includes adjustments certain risks may observable credit liquidity risks broker quote available • government securitiesinvestments valued using pricing models maximizing use observable inputs similar securities • commoncollective trust fundscommoncollective trust funds invest debt equity securities instruments characteristics similar funds’ benchmarks primary objectives funds seek investment returns approximate overall performance benchmark indexes benchmarks major equity indices fixed income indices money market indices focus growth income liquidity strategies applicable investments commoncollective trust funds stated nav determined issuer commoncollective trust funds based fair value underlying investments held fund less liabilities nav used practical expedient estimate fair value commoncollective trust funds unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment • alternative investmentsinvestments real estate funds private equity funds debt funds hedge funds stated fair value based nav plan’s proportionate share partnership joint venture alternative investment’s fair value determined reference audited financial statements nav statements provided investment manager nav used practical expedient estimate fair value net periodic benefit credit cost net periodic benefit credit cost reflected operations maintenance expense consolidated statements income components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans follows 1 assumptions used determine net periodic cost following year 2 society actuaries model used determine healthcare cost trend rates updated 2014 new model converges ultimate trend rate much quickly previous models combined notes consolidated financial statements continued components aoci regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans recognized components net periodic benefit credit cost follows 1 december 31 2016 32 billion 136 million related pension benefits postretirement benefits 19 billion 103 million respectively included aoci remainder included regulatory assets liabilities december 31 2015 24 billion 123 million related pension benefits postretirement benefits 14 billion 90 million respectively included aoci remainder included regulatory assets liabilities 2 december 31 2016 458 million related pension benefits 167 million included aoci remainder included regulatory assets liabilities 67 million related postretirement benefits included entirely regulatory assets liabilities december 31 2015 381 million related pension benefits 138 million included aoci remainder included regulatory assets liabilities 40 million related postretirement benefits included entirely regulatory assets liabilities following table provides components aoci regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans december 31 2016 expected amortized components net periodic benefit credit cost 2017 expected longterm rates return plan assets discount rates healthcare cost trend rates mortality critical assumptions determining net periodic benefit credit cost dominion develops assumptions compared forecasts independent investment advisor except expected longterm rates return ensure reasonableness internal committee selects final assumptions used dominion’s pension postretirement plans including dominion gas participates including discount rates expected longterm rates return healthcare cost trend rates mortality rates dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans including dominion gas participates using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forecasts independent investment advisor • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans including dominion gas participates mortality rates developed actual projected plan experience postretirement benefit plans dominion’s actuary conducts experience study periodically part process select best estimate mortality dominion considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate 2016 dominion conducted new experience study scheduled result updated mortality assumptions plans including dominion gas participates assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans including dominion gas participates one percentage point change assumed healthcare cost trend rates would following effects dominion’s dominion gas’ employees represented collective bargaining units postretirement benefit plans dominion gas employees represented collective bargaining units virginia powerparticipation defined benefit plans virginia power employees dominion gas employees represented collective bargaining units covered dominion pension plan described participating employers virginia power dominion gas subject dominion’s funding policy contribute annually amount accordance erisa 2016 virginia power dominion gas made contributions dominion pension plan contributions plan currently expected 2017 virginia power’s net periodic pension cost related plan 79 million 97 million 75 million 2016 2015 2014 respectively dominion gas’ net periodic pension credit related plan 45 million 38 million 37 million 2016 2015 2014 respectively net periodic pension credit cost reflected operations maintenance expense respective consolidated statements income funded status various dominion subsidiary groups employee compensation basis determining share total pension costs participating dominion subsidiaries see note 24 virginia power dominion gas amounts due tofrom dominion related plan retiree healthcare life insurance benefits virginia power employees dominion gas employees represented collective bargaining units covered dominion retiree health welfare plan described virginia power’s net periodic benefit credit cost related plan 29 million 16 million 18 million 2016 2015 2014 respectively dominion gas’ net periodic benefit credit cost related plan 4 million 5 million 5 million 2016 2015 2014 respectively net periodic benefit credit cost reflected operations maintenance expenses respective consolidated statements income employee headcount basis determining share total postretirement benefit costs participating dominion subsidiaries see note 24 virginia power dominion gas amounts due tofrom dominion related plan dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power dominion gas’ employees participate investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash virginia power dominion gas provide dominion shares employee benefit plan contributions certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power dominion gas fund postretirement benefit costs vebas 2016 2015 virginia power made contributions veba expect contribute veba 2017 dominion gas made contributions vebas employees represented collective bargaining units 2016 2015 expect contribute 2017 defined contribution plans dominion also sponsors defined contribution employee savings plans cover substantially employees 2016 2015 2014 dominion recognized 44 million 43 million 41 million respectively employer matching contributions plans dominion gas participates employee savings plans specific dominion gas cover multiple dominion subsidiaries 2016 2015 2014 dominion gas recognized 7 million employer matching contributions plans virginia power also participates employee savings plans 2016 2015 2014 virginia power recognized 19 million 18 million 17 million respectively employer matching contributions plans organizational design initiative first quarter 2016 companies announced organizational design initiative reduced total workforces 2016 goal organizational design initiative streamline leadership structure push decision making lower also improving efficiency year ended december 31 2016 dominion recorded 65 million 40 million aftertax charge including 33 million 20 million aftertax virginia power 8 million 5 million aftertax dominion gas primarily reflected operations maintenance expense consolidated statements income due severance pay costs related organizational design initiative terms severance organizational design initiative consistent companies’ existing severance plans note 22 commitments contingencies result issues generated ordinary course business companies involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate range possible loss statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect financial position liquidity results operations companies environmental matters companies subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations combined notes consolidated financial statements continued air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements mats december 2011 epa issued mats coal oilfired electric utility steam generating units rule establishes strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases rule includes limited use provision oilfired units annual capacity factors 8 provides exemption emission limits allows compliance operational work practice standards compliance required april 16 2015 certain limited exceptions however june 2014 vdeq granted oneyear mats compliance extension two coalfired units yorktown power station defer planned retirements allow continued operation units address reliability concerns necessary electric transmission upgrades completed coal units need continue operating least april 2017 due delays transmission upgrades needed maintain electric reliability therefore october 2015 virginia power submitted request epa additional one year compliance extension epa administrative order signed epa april 2016 allowing yorktown units operate one additional year required maintain reliable power availability transmission upgrades made june 2015 us supreme court issued decision holding epa failed take cost account agency first decided regulate emissions coal oilfired plants remanded mats rule back us court appeals dc circuit however supreme court vacate stay effective date implementation mats rule november 2015 response supreme court decision epa proposed supplemental finding consideration cost alter agency’s previous conclusion appropriate necessary regulate coal oilfired electric utility steam generating units section 112 caa december 2015 us court appeals dc circuit issued order remanding mats rulemaking proceeding back epa without setting aside judgment noting epa represented track issue final finding regarding consideration cost april 2016 epa issued final supplemental finding consideration costs alter conclusion regarding appropriateness necessity regulation actions change virginia power’s plans close coal units yorktown power station april 2017 need complete necessary electricity transmission upgrades expected service approximately 20 months following receipt required permits approvals construction since mats rule remains effect dominion complying requirements rule dominion expect adverse impacts operations time csapr july 2011 epa issued replacement rule cair called csapr required 28 states reduce power plant emissions cross state lines csapr established new so2 nox emissions cap trade programs completely independent current arp specifically csapr required reductions so2 nox emissions fossil fuelfired electric generating units 25 mw annual nox emissions caps nox emissions caps ozone season may 1 september 30 annual so2 emission caps differing requirements two groups affected states following numerous petitions industry participants review successful motion stay october 2014 us court appeals dc circuit ordered epa’s motion lift stay csapr granted court granted epa’s request shift csapr compliance deadlines three years phase 1 emissions budgets would gone effect 2012 2013 applied 2015 2016 phase 2 emissions budgets apply 2017 beyond csapr replaced cair beginning january 2015 september 2016 epa issued revision csapr reduces ozone season nox emission budgets 22 states beginning 2017 cost comply csapr including recent revision csapr ozone season nox program expected material dominion’s virginia power’s consolidated financial statements ozone standards october 2015 epa issued final rule tightening ozone standard 75ppb 70ppb comply standard april 2016 virginia power submitted nox reasonable available control technology analysis unit 5 possum point power station december 2016 vdeq determined nox controls required unit 5 installation operation nox controls including associated water treatment system required mid2019 expected cost range 25 35 million epa expected complete attainment designations new standard december 2017 states 2020 2021 develop plans address new standard states developed implementation plans companies unable predict whether extent new rules ultimately require additional controls however significant expenditures required implement additional controls could materially affect companies’ results operations cash flows nox voc emissions april 2016 pennsylvania department environmental protection issued final regulations effective date january 2017 reduce nox voc emissions combustion sources comply regulations dominion gas installing emission control systems existing engines several compressor stations pennsylvania compliance costs associated engineering installation controls compliance demonstration regulation expected approximately 25 million nsps august 2012 epa issued first nsps impacting new modified facilities natural gas production gathering sectors made revisions nsps natural gas processing transmission facilities rules establish equipment performance specifications emissions standards control voc emissions natural gas production wells tanks pneumatic controllers compressors upstream sector june 2016 epa issued final nsps regulation oil natural gas sector regulate methane voc emissions new modified facilities transmission storage gathering boosting production processing facilities projects commenced construction september 2015 required comply regulation dominion gas still evaluating whether potential impacts results operations financial condition andor cash flows related matter material climate change regulation carbon regulations october 2013 us supreme court granted petitions filed several industry groups states us chamber commerce seeking review us court appeals dc circuit’s june 2012 decision upholding epa’s regulation ghg emissions stationary sources caa’s permitting programs june 2014 us supreme court ruled epa lacked authority caa require psd title v permits stationary sources based solely ghg emissions however court upheld epa’s ability require bact ghg sources otherwise subject psd title v permitting conventional pollutants august 2016 epa issued draft rule proposing reaffirm source’s obligation obtain psd title v permit ghgs triggered permitting requirements first triggered nonghg conventional pollutants regulated new source review program set significant emissions rate 75000 tons per year co2 equivalent emissions source would required apply bact ghg emissions epa ultimately takes final action rulemaking companies cannot predict impact financial statements july 2011 epa signed final rule deferring need psd title v permitting co2 emissions biomass projects rule temporarily deferred period three years consideration co2 emissions biomass projects determining whether stationary source meets psd title v applicability thresholds including application bact deferral policy expired july 2014 july 2013 us court appeals dc circuit vacated rule however mandate making decision effective issued virginia power converted three coalfired generating stations altavista hopewell southampton biomass co2 deferral period unclear court’s decision epa’s final policy regarding treatment specific feedstock affect biomass sources permitted deferral period however expenditures comply new requirements could material dominion’s virginia power’s financial statements methane emissions july 2015 epa announced next generation voluntary natural gas star program natural gas star methane challenge program covers entire natural gas sector production distribution emphasis transparency increased reporting annual emissions reductions achieved implementation measures march 2016 east ohio hope dti questar gas prior dominion questar combination joined epa founding partners new methane challenge program submitted implementation plans september 2016 dcg joined epa’s voluntary natural gas star program july 2016 submitted implementation plan september 2016 dominion gas expect costs related programs material impact results operations financial condition andor cash flows water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms companies must comply applicable aspects cwa programs operating facilities october 2014 final regulations section 316b cwa govern existing facilities new units existing facilities employ cooling water intake structure flow levels exceeding minimum threshold became effective rule establishes national standard impingement based seven compliance options forgoes creation single technology standard entrainment instead epa delegated entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination five mandatory facilityspecific factors including social costbenefit test six optional facilityspecific factors rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd dominion virginia power 14 11 facilities respectively may subject final regulations dominion anticipates install impingement control technologies many stations oncethrough cooling systems dominion virginia power currently evaluating need potential entrainment controls final rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies impacts rule could material dominion’s virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts virginia power september 2015 epa released final rule revise effluent limitations guidelines steam electric power generating category final rule establishes updated standards wastewater discharges apply primarily coal oil steam generating stations affected facilities required convert wet dry closed cycle coal ash management improve existing wastewater treatment systems andor install new combined notes consolidated financial statements continued wastewater treatment technologies order meet new discharge limits virginia power eight facilities may subject additional wastewater treatment requirements associated final rule impacts rule could material dominion’s virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts virginia power solid hazardous waste cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites jointly severally strictly liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion virginia power dominion gas may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power dominion gas may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste companies believe matters material effect results operations financial condition andor cash flows september 2011 epa issued uao virginia power 22 parties pursuant cercla ordering specific remedial action certain areas ward transformer superfund site located raleigh north carolina september 2016 us behalf epa lodged proposed remedial designremedial action consent decree us district court eastern district north carolina settling claims related site epa number parties including virginia power november 2016 court approved entered final consent decree closed case consent decree identifies virginia power nonperforming cashout party settlement resolves virginia power’s alleged liability cercla respect site including liability pursuant uao virginia power’s cash settlement case less 1 million dominion determined associated 19 former manufactured gas plant sites three pertain virginia power 12 pertain dominion gas studies con ducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none former sites companies associated investigation state federal environmental agency one former sites dominion conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program virginia power currently evaluating nature extent contamination site well potential remedial options preliminary costs options evaluation site range 1 million 22 million due uncertainty surrounding sites companies unable make estimate potential financial statement impacts see discussion ash pond landfill closure costs legal matters companies defendants number lawsuits claims involving unrelated incidents property damage personal injury due uncertainty surrounding matters companies unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows appalachian gateway pipeline contractor litigation following completion appalachian gateway project 2012 dti received multiple change order requests claims additional payments pipeline contractor project july 2013 dti filed complaint us district court eastern district virginia breach contract well accounting declaratory relief contractor filed motion dismiss alternative motion transfer venue pennsylvania andor west virginia pipelines constructed dti filed opposition contractor’s motion august 2013 november 2013 court granted contractor’s motion basis dti must first comply dispute resolution process july 2015 contractor filed complaint dti us district court western district pennsylvania august 2015 dti filed motion dismiss alternative motion transfer venue virginia march 2016 pennsylvania court granted motion dismiss transferred case us district court eastern district virginia april 2016 virginia court issued order staying proceedings ordering mediation occurred may 2016 unsuccessful july 2016 dti filed motion dismiss case pending dti accrued liability 6 million matter dominion gas cannot currently estimate additional financial statement impacts could material impact financial condition andor cash flows gas producers litigation connection appalachian gateway project dominion field services inc entered contracts firm purchase rights group small gas producers june 2016 gas pro ducers filed complaint circuit court marshall county west virginia dominion dti dominion field services inc among defendants claiming contracts unenforceable seeking compensatory punitive damages third quarter 2016 dominion dti dominion field services inc served complaint also third quarter 2016 dominion dti consent defendants removed case us district court northern district west virginia october 2016 defendants filed motion dismiss plaintiffs filed motion remand february 2017 us district court entered order remanding matter circuit court marshall county west virginia case pending dominion gas cannot currently estimate financial statement impacts could material impact financial condition andor cash flows ash pond landfill closure costs september 2014 virginia power received notice southern environmental law center behalf potomac riverkeeper sierra club alleging cwa violations possum point power station notice alleges unpermitted discharges surface water groundwater possum point power station’s historical active ash storage facilities similar notice southern environmental law center behalf sierra club subsequently received related chesapeake power station december 2014 virginia power offered close coal ash ponds landfills possum point power station chesapeake bremo power stations settlement potential litigation issue open potential negotiations southern environmental law center declined offer presented january 2015 march 2015 filed lawsuit related claims alleged cwa violations chesapeake power station virginia power filed motion dismiss april 2015 denied november 2015 trial held june 2016 case pending result december 2014 settlement offer virginia power recognized charge 121 million operations maintenance expense consolidated statements income year ended december 31 2014 april 2015 epa’s final rule regulating management ccrs stored impoundments ash ponds landfills published federal register final rule regulates ccr landfills existing ash ponds still receive manage ccrs inactive ash ponds receive still store ccrs virginia power currently operates inactive ash ponds existing ash ponds ccr landfills subject final rule eight different facilities enactment final rule april 2015 created legal obligation virginia power retrofit close inactive existing ash ponds certain period time well perform required monitoring corrective action postclosure care activities necessary ccr rule requires groundwater impacts associated ash ponds remediated early implementation phase rule determine scope potential groundwater remediation costs required could material april 2016 epa announced partial settlement certain environmental industry organizations challenged final ccr rule us court appeals dc circuit part settlement certain exemptions included final rule inactive ponds closed april 2018 removed resulting inactive ponds ultimately subject requirements existing ponds june 2016 court issued order approving settlement requires epa modify provisions final ccr rule concerning inactive ponds august 2016 epa issued final rule effective october 2016 extending certain compliance deadlines final ccr rule inactive ponds february march 2016 respectively two parties filed administrative appeals circuit court city richmond challenging certain provisions relating ash pond dewatering activities possum point power station’s wastewater discharge permit issued vdeq january 2016 one parties withdrew appeal june 2016 november 2016 court dismissed remaining appeal 2015 virginia power recorded 386 million aro related future ash pond landfill closure costs resulted 99 million incremental charge recorded operations maintenance expense consolidated statement income 166 million increase property plant equipment associated asset retirement costs 121 million reduction noncurrent liabilities related reversal contingent liability described since aro obligation created final ccr rule represents similar activities 2016 virginia power recorded increase aro 238 million resulted 197 million incremental charge recorded operations maintenance expense consolidated statement income 17 million increase property plant equipment 24 million increase regulatory assets actual aros related ccr rule may vary substantially estimates used record obligation december 31 2016 december 2016 us congress passed president signed legislation creates framework epa approved state ccr permit programs legislation approved state ccr permit program functions lieu selfimplementing federal ccr rule legislation allows states flexibility developing permit programs implement environmental criteria ccr rule unknown long take epa develop framework state program approvals epa enforcement authority new ccr rules place state programs approved epa states approved programs authority enforce ccr requirements respective rules programs dominion cannot forecast potential incremental impacts costs related existing coal ash sites rules implementing 2016 ccr legislation place cove point dominion constructing liquefaction project cove point facility would enable facility liquefy domesticallyproduced natural gas export lng september 2014 ferc issued order granting authorization cove point construct modify operate liquefaction project october 2014 several parties filed motion ferc stay order requested rehearing may 2015 ferc denied requests stay rehearing combined notes consolidated financial statements continued two parties separately filed petitions review ferc order us court appeals dc circuit petitions consolidated separately one party requested stay ferc order judicial proceedings complete court denied june 2015 july 2016 court denied one party’s petition review ferc order authorizing liquefaction project court also issued decision remanding party’s petition review ferc order ferc explanation ferc’s decision previous transaction existing import shipper unduly discriminatory cove point believes remand ferc able justify decision september 2013 doe granted nonfta authorization approval export 077 bcfeday natural gas countries fta trade natural gas june 2016 party filed petition review approval us court appeals dc circuit case pending ferc staff office enforcement division investigations conducting nonpublic investigation virginia power’s offers combustion turbines generators pjm dayahead markets april 2010 september 2014 ferc staff notified virginia power preliminary findings relating virginia power’s alleged violation ferc’s rules connection activities virginia power provided response ferc staff’s preliminary findings letter explaining virginia power’s conduct lawful refuting allegation wrongdoing virginia power cooperating fully investigation however cannot currently predict whether extent may incur material liability greensville county virginia power constructing greensville county related transmission interconnection facilities july 2016 sierra club filed administrative appeal circuit court city richmond challenging certain provisions greensville county’s psd air permit issued vdeq june 2016 virginia power currently unable make estimate potential impacts consolidated financial statements related matter nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups institute nuclear power operations like us nuclear operators dominion gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisting actions staff determined started without unnecessary delay december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactors construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion requiring implementation safety enhancements related mitigation strategies respond extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation implemented information requests issued nrc request reactor reevaluate seismic external flooding hazards site using presentday methods information conduct walkdowns facilities ensure protection hazards current design basis reevaluate emergency communications systems staffing levels walkdowns unit completed audited nrc found adequate reevaluation emergency communications systems staffing levels completed part effort comply orders reevaluation seismic external flooding hazards expected continue 2018 dominion virginia power currently expect compliance nrc’s information requests materially impact financial position results operations cash flows implementation period nrc staff evaluating implementation longer term tier 2 tier 3 recommendations dominion virginia power expect material financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2016 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 29 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2016 nrc minimum financial assurance amounts calculated using preliminary december 31 2016 us bureau labor statistics indices dominion believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion virginia power continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial instruments recognized nrc see note 9 additional information nuclear decommissioning trust investments nuclear insurance priceanderson amendments act 1988 provides public 1336 billion liability protection per nuclear incident via obligations required owners nuclear power plants allows inflationary provision adjustment every five years dominion virginia power purchased 375 million coverage commercial insurance pools reactor site remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us companies could assessed 127 million licensed reactors exceed 19 million per year per reactor limit number incidents retrospective premium assessed however nrc granted exemption march 2015 remove kewaunee secondary financial protection program current levels nuclear property insurance coverage dominion’s virginia power’s nuclear units follows 1 surry north anna share blanket property limit 200 million dominion’s virginia power’s nuclear property insurance coverage millstone surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site kewaunee meets nrc minimum requirement 106 billion includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum retrospective premium assessment current policy period 87 million 49 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination millstone virginia power also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program dominion virginia power subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum retrospective premium assessment current policy period 23 million 10 million respectively odec part owner north anna massachusetts municipal green mountain part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel dominion virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act dominion’s virginia power’s contracts doe dominion virginia power previously received damages award payments settlement payments related contracts mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 settlement agreements surry north anna millstone plants extended provide periodic payments damages incurred december 31 2016 additional extensions contemplated settlement agreements possible settlement kewaunee claims damages incurred december 31 2013 evaluated 2016 virginia power dominion received payments 30 million resolution claims incurred north anna surry period january 1 2014 december 31 2014 22 million resolution claims incurred millstone period july 1 2014 june 30 2015 virginia power dominion received payments 8 million resolution claims incurred north anna surry period january 1 2013 december 31 2013 17 million resolution claims incurred millstone period july 1 2013 june 30 2014 virginia power dominion received payments 27 million resolution claims incurred north anna surry period january 1 2011 december 31 2012 17 million resolution claims incurred millstone period july 1 2012 june 30 2013 2014 dominion also received payments totaling 7 million resolution claims incurred kewaunee periods january 1 2011 december 31 2013 dominion virginia power continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion’s receivables combined notes consolidated financial statements continued spent nuclear fuelrelated costs totaled 56 million 87 million december 31 2016 2015 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 37 million 54 million december 31 2016 2015 respectively pursuant november 2013 decision us court appeals dc circuit january 2014 secretary doe sent recommendation us congress adjust zero current fee 1 per mwh electricity paid civilian nuclear power generators disposal spent nuclear fuel processes specified nuclear waste policy act adjustment fee completed may 2014 dominion virginia power longer required pay waste fee 2014 dominion virginia power recognized fees 16 million 10 million respectively dominion virginia power continue manage spent fuel accepted doe longterm purchase agreements december 31 2016 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2016 present value virginia power’s total commitment capacity payments 347 million capacity payments totaled 248 million 305 million 330 million energy payments totaled 126 million 198 million 304 million years ended 2016 2015 2014 respectively lease commitments companies lease real estate vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2016 follows 1 amounts include lease agreement dominion questar corporate office accounted capital lease december 31 2016 consolidated balance sheets include 30 million property plant equipment 35 million deferred credits liabilities consolidated statements income include less 1 million recorded depreciation depletion amortization year ended december 31 2016 rental expense dominion totaled 104 million 99 million 92 million 2016 2015 2014 respectively rental expense virginia power totaled 52 million 51 million 43 million 2016 2015 2014 respectively rental expense dominion gas totaled 37 million 37 million 35 million 2016 2015 2014 respectively majority rental expense reflected operations maintenance expense consolidated statements income july 2016 dominion signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 365 million fund estimated project costs project expected completed mid2019 dominion appointed act construction agent lessor time dominion request cash draws lessor debt investors fund project costs totaled 46 million december 31 2016 project terminated certain events default dominion could required pay 899 funded amount specific full recourse events dominion could required pay 100 funded amount fiveyear lease term commence construction substantially complete facility able occupied end initial lease term dominion extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion may required make payment lessor 87 project costs difference project costs sale proceeds guarantees surety bonds letters credit december 31 2016 dominion issued 48 million guarantees primarily support equity method investees significant amounts related guarantees recorded dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2016 dominion issued following subsidiary guarantees 1 guarantees related commodity commitments certain subsidiaries guarantees provided counterparties order facilitate physical financial transaction related commodities services 2 guarantees related certain dei subsidiaries’ regarding aspects running nuclear facility 3 guarantees related cove point support terminal services transportation construction cove point two guarantees maximum limit therefore included amount 4 includes guarantees facilitate development solar projects also includes guarantees entered dei behalf certain subsidiaries facilitate acquisition development solar projects 5 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects insurance programs due uncertainty worker’s compensation claims parental guarantee stated limit also included guarantees related certain dei subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower december 31 2016 dominion’s maximum remaining cumulative exposure equity funding agreements 36 million 2019 maximum annual future contributions could range approximately 4 million 19 million 6 excludes dominion’s guarantee construction new corporate office property discussed within lease commitments additionally december 31 2016 dominion purchased 149 million surety bonds including 71 million virginia power 22 million dominion gas authorized issuance letters credit financial institutions 85 million facilitate commercial transactions subsidiaries third parties terms surety bonds companies obligated indemnify respective surety bond company amounts paid december 31 2016 virginia power issued 14 million guarantees primarily support taxexempt debt issued conduits related debt matures 2031 included longterm debt virginia power’s consolidated balance sheets event default conduit virginia power would obligated repay amounts limited principal interest outstanding indemnifications part commercial contract negotiations normal course business companies may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law companies unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2016 companies believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position note 23 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction companies maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2016 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest rocky mountain regions us dominion believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2016 dominion’s credit exposure totaled 98 million amount investment grade counterparties including internally rated represented 53 single counterparty whether investment grade noninvestment grade exceeded 9 million exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial combined notes consolidated financial statements continued industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2016 virginia power’s credit exposure totaled 42 million amount investment grade counterparties including internally rated represented 33 single counterparty whether investment grade noninvestment grade exceeded 6 million exposure dominion gas dominion gas transacts mainly major companies energy industry residential commercial energy consumers transactions principally occur northeast midatlantic midwest regions us dominion gas believe geographic concentration contributes overall exposure credit risk addition result large diverse customer base dominion gas exposed significant concentration credit risk receivables arising gas utility operations 2016 dti provided service 289 customers approximately 96 storage transportation revenue provided firm services ten largest customers provided approximately 40 total storage transportation revenue thirty largest provided approximately 70 total storage transportation revenue east ohio distributes natural gas residential commercial industrial customers ohio using rates established ohio commission approximately 98 east ohio revenues derived regulated gas distribution services east ohio’s bad debt risk mitigated regulatory framework established ohio commission see note 13 information ohio’s pipp uex riders mitigate east ohio’s overall credit risk creditrelated contingent provisions majority dominion’s derivative instruments contain creditrelated contingent provisions require dominion provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2016 2015 dominion would required post additional 3 million 12 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion posted collateral december 31 2016 2015 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2016 2015 9 million 49 million respectively include impact offsetting asset positions creditrelated contingent provisions virginia power dominion gas material december 31 2016 2015 see note 7 information derivative instruments note 24 relatedparty transactions virginia power dominion gas engage related party transactions primarily dominion subsidiaries affiliates virginia power’s dominion gas’ receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power dominion gas included dominion’s consolidated federal income tax return applicable combined income tax returns dominion filed various states see note 2 information dominion’s transactions equity method investments described note 9 discussion significant related party transactions follows virginia power transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps manage commodity price risks associated purchases natural gas see notes 7 19 information december 31 2016 virginia power’s derivative assets liabilities affiliates 41 million 8 million respectively december 31 2015 virginia power’s derivative assets liabilities affiliates 13 million 22 million respectively virginia power participates certain dominion benefit plans described note 21 december 31 2016 2015 virginia power’s amounts due dominion associated dominion pension plan reflected noncurrent pension postretirement benefit liabilities consolidated balance sheets 396 million 316 million respectively december 31 2016 2015 virginia power’s amounts due dominion associated dominion retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 130 million 77 million respectively drs affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage financial statements years presented include costs certain general administrative corporate expenses assigned drs virginia power basis direct allocated methods accordance virginia power’s services agreements drs costs incurred cannot determined specific identification costs allocated based proportional level effort devoted drs resources attributable entity determined reference number employees salaries wages similar measures relevant drs service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable presented significant transactions drs affiliates 1 includes capitalized expenditures 144 million 143 million 146 million year ended december 31 2016 2015 2014 respectively virginia power borrowed funds dominion shortterm borrowing arrangements 262 million 376 million shortterm demand note borrowings dominion december 31 2016 2015 respectively weightedaverage interest rate borrowings 097 060 december 31 2016 2015 respectively virginia power outstanding borrowings net repayments dominion money pool nonregulated subsidiaries december 31 2016 2015 interest charges related virginia power’s borrowings dominion immaterial years ended december 31 2016 2015 2014 issuances virginia power’s common stock dominion 2016 2015 2014 dominion gas transactions related parties dominion gas transacts affiliates certain quantities natural gas commodities market prices ordinary course business additionally dominion gas provides transportation storage services affiliates dominion gas also enters certain contracts affiliates presented separately contracts involving commodities services december 31 2016 2015 dominion gas’ commodity derivatives affiliates see notes 7 19 information see note 9 information regarding transactions affiliate dominion gas participates certain dominion benefit plans described note 21 december 31 2016 2015 dominion gas’ amounts due dominion associated dominion pension plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 697 million 652 million respectively december 31 2016 2015 dominion gas’ amounts due dominion liabilities due dominion associated dominion retiree health welfare plan immaterial drs affiliates provide accounting legal finance certain administrative technical services dominion gas dominion gas provides certain services related parties including technical services financial statements years presented include costs certain general administrative corporate expenses assigned drs dominion gas basis direct allocated methods accordance dominion gas’ services agreements drs costs incurred cannot determined specific identification costs allocated based proportional level effort devoted drs resources attributable entity determined reference number employees salaries wages similar measures relevant drs service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable costs services follow 1 includes capitalized expenditures 49 million 57 million 49 million year ended december 31 2016 2015 2014 respectively 2 amounts primarily attributable atlantic coast pipeline following table presents affiliated related party balances reflected dominion gas’ consolidated balance sheets 1 represents amounts due atlantic coast pipeline related party vie 2 amounts presented current liabilities dominion gas’ consolidated balance sheets 3 amounts presented deferred charges assets dominion gas’ consolidated balance sheets dominion gas’ borrowings irca dominion totaled 118 million 95 million december 31 2016 2015 respectively weightedaverage interest rate borrowings 108 065 december 31 2016 2015 respectively interest charges related dominion gas’ total borrowings dominion immaterial years ended december 31 2016 2015 4 million year ended december 31 2014 combined notes consolidated financial statements continued note 25 operating segments companies organized primarily basis products services sold us description operations included companies’ primary operating segments follows 1 includes remaining producer services activities addition operating segments companies also report corporate segment dominion corporate segment dominion includes corporate service company functions including unallocated debt addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources march 2014 dominion exited electric retail energy marketing business result earnings impact electric retail energy marketing business included corporate segment dominion 2014 first quarter results operations second quarter 2013 dominion commenced restructuring producer services business aggregates natural gas supply engages natural gas trading marketing activities natural gas supply management provides price risk management services dominion affiliates restructuring completed first quarter 2014 resulted termination natural gas trading certain energy marketing activities result earnings impact natural gas trading certain energy marketing activities included corporate segment dominion 2014 2016 dominion reported aftertax net expenses 484 million corporate segment 180 million net expenses attributable specific items related operating segments net expenses specific items 2016 primarily related impact following items • 197 million 122 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable dominion generation • 59 million 36 million aftertax charge related organizational design initiative attributable • dvp 5 million aftertax • dominion energy 12 million aftertax • dominion generation 19 million aftertax 2015 dominion reported aftertax net expenses 391 million corporate segment 136 million net expenses attributable specific items related operating segments net expenses specific items 2015 primarily related impact following items • 99 million 60 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable dominion generation • 85 million 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 attributable dominion generation 2014 dominion reported aftertax net expenses 970 million corporate segment 544 million net expenses attributable specific items related operating segments net expenses specific items 2014 primarily related impact following items • 374 million 248 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities attributable dominion generation • 319 million 193 million aftertax net loss related producer services business discussed attributable dominion energy • 121 million 74 million aftertax charge related settlement offer incur future ash pond closure costs certain utility generation facilities attributable dominion generation following table presents segment information pertaining dominion’s operations intersegment sales transfers dominion based contractual arrangements may result intersegment profit loss eliminated consolidation virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources 2016 virginia power reported aftertax net expenses 173 million specific items attributable operating segments corporate segment net expenses specific items 2016 primarily related impact following item • 197 million 121 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable dominion generation 2015 virginia power reported aftertax net expenses 153 million specific items attributable operating segments corporate segment net expenses specific items 2015 primarily related impact following items • 99 million 60 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable dominion generation • 85 million 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 attributable dominion generation 2014 virginia power reported aftertax net expenses 342 million specific items attributable operating segments corporate segment net expenses specific items 2014 primarily related impact following items • 374 million 248 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities attributable dominion generation • 121 million 74 million aftertax charge related settlement offer incur future ash pond closure costs certain utility generation facilities attributable dominion generation combined notes consolidated financial statements continued following table presents segment information pertaining virginia power’s operations dominion gas corporate segment dominion gas primarily includes specific items attributable dominion gas’ operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion gas result dominion’s basis net assets contributed 2016 dominion gas reported aftertax net expenses 3 million corporate segment 7 million net expenses attributable operating segment net expense specific items 2016 primarily related impact following item • 8 million 5 million aftertax charge related organizational design initiative 2015 dominion gas reported aftertax net expenses 21 million corporate segment 13 million net expenses attributable specific items related operating segment net expenses specific items 2015 primarily related impact following item • 16 million 10 million aftertax ceiling test impairment charge 2014 dominion gas reported aftertax net expenses 9 million corporate segment none net expenses attributable specific items related operating segment following table presents segment information pertaining dominion gas’ operations combined notes consolidated financial statements continued note 26 quarterly financial common stock data unaudited summary companies’ quarterly results operations years ended december 31 2016 2015 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion’s 2016 results include impact following significant item • fourth quarter results include 122 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities significant items impacting dominion’s 2015 quarterly results virginia power virginia power’s quarterly results operations follows virginia power’s 2016 results include impact following significant item • fourth quarter results include 121 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities virginia power’s 2015 results include impact following significant items • fourth quarter results include 32 million aftertax charge related incremental future ash pond landfill closure costs certain utility generation facilities • second quarter results include 28 million aftertax charge related incremental future ash pond landfill closure costs certain utility generation facilities due enactment final ccr rule april 2015 • first quarter results include 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 dominion gas dominion gas’ quarterly results operations follows significant items impacting dominion gas’ 2016 quarterly results dominion gas’ 2015 results include impact following significant items • third quarter results include 29 million aftertax gain agreement convey shale development rights underneath natural gas storage field • first quarter results include 43 million aftertax gain agreements convey shale development rights underneath several natural gas storage fields item 9 item 8 financial statements supplementary data page intentionally left blank report independent registered public accounting firm shareholders board directors dominion energy inc opinion consolidated financial statements audited accompanying consolidated balance sheets dominion energy inc subsidiaries “dominion energy” december 31 2018 2017 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2018 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position dominion energy december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob dominion energy’s internal control financial reporting december 31 2018 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 28 2019 expressed unqualified opinion dominion energy’s internal control financial reporting basis opinion consolidated financial statements responsibility dominion energy’s management responsibility express opinion dominion energy’s consolidated financial statements based audits public accounting firm registered pcaob required independent respect dominion energy accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 28 2019 served dominion energy’s auditor since 1988 dominion energy inc consolidated statements income 1 see note 9 amounts attributable related parties accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements comprehensive income accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated balance sheets 1 see note 9 amounts attributable related parties 1 see note 9 amounts attributable related parties 2 1 billion shares authorized 681 million shares 645 million shares outstanding december 31 2018 2017 respectively accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements equity 1 see note 17 information accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements cash flows 1 see note 9 noncash activities related equity method investments 2 see note 19 noncash activities related remeasurement dominion energy’s noncontrolling interest dominion energy midstream accompanying notes integral part dominion energy’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors shareholder virginia electric power company opinion consolidated financial statements audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion energy inc subsidiaries “virginia power” december 31 2018 2017 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2018 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position virginia power december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility virginia power’s management responsibility express opinion virginia power’s consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect virginia power accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud virginia power required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 28 2019 served virginia power’s auditor since 1988 virginia electric power company consolidated statements income 1 see note 24 amounts attributable affiliates accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 see note 24 amounts attributable affiliates 1 see note 24 amounts attributable affiliates 2 500000 shares authorized 274723 shares outstanding december 31 2018 2017 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors dominion energy gas holdings llc opinion consolidated financial statements audited accompanying consolidated balance sheets dominion energy gas holdings llc whollyowned subsidiary dominion energy inc subsidiaries “dominion energy gas” december 31 2018 2017 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2018 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position dominion energy gas december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility dominion energy gas’ management responsibility express opinion dominion energy gas’ consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect dominion energy gas accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud dominion energy gas required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness dominion energy gas’ internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 28 2019 served dominion energy gas’ auditor since 2012 dominion energy gas holdings llc consolidated statements income 1 see note 24 amounts attributable related parties accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements comprehensive income accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated balance sheets 1 see note 24 amounts attributable related parties 1 see note 24 amounts attributable related parties accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements equity accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements cash flows accompanying notes integral part dominion energy gas’ consolidated financial statements page intentionally left blank combined notes consolidated financial statements note 1 nature operations dominion energy headquartered richmond virginia one nation’s largest producers transporters energy dominion energy’s operations conducted various subsidiaries including virginia power dominion energy gas virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s stock owned dominion energy dominion energy gas holding company conducts business activities regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states regulated gas transportation distribution operations ohio gas gathering processing activities primarily west virginia ohio pennsylvania dominion energy gas’ membership interests held dominion energy scana combination completed january 2019 see note 3 description operations acquired scana combination dominion energy’s operations also include cove point lng facility cove point pipeline liquefaction project equity investment atlantic coast pipeline regulated gas transportation distribution operations primarily eastern rocky mountain regions us dominion energy’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations december 31 2018 dominion energy owned general partner 609 common units 375 convertible preferred interests dominion energy midstream owned preferred equity interest general partner interest cove point decg dominion energy questar pipeline 2593 noncontrolling partnership interest iroquois january 2019 dominion energy acquired outstanding partnership interests owned dominion energy dominion energy midstream became whollyowned subsidiary dominion energy december 31 2018 public’s ownership interest dominion energy midstream reflected noncontrolling interest dominion energy’s consolidated financial statements december 2018 dominion energy managed daily operations three primary operating segments power delivery power generation gas infrastructure dominion energy also reports corporate segment includes corporate service company functions including unallocated debt addition corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources subsequent scana combination dominion energy manages operations scana additional operating segment southeast energy virginia power manages daily operations two primary operating segments power delivery power generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources dominion energy gas manages daily operations one primary operating segment gas infrastructure also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion energy gas result dominion energy’s basis net assets contributed see note 25 discussion companies’ operating segments note 2 significant accounting policies general companies make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates companies’ consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries nonwhollyowned entities controlling financial interest certain partnership structures income allocated based liquidation value underlying contractual arrangements december 31 2018 dominion energy owns 50 voting interests four brothers three cedars controlling financial interest entities rights control operations august 2018 nrg’s ownership interest four brothers three cedars transferred gip’s ownership interest four brothers three cedars terra nova renewable partners’ 33 interest certain dominion energy’s merchant solar projects nondominion energy held interest dominion energy midstream january 2019 reflected noncontrolling interest dominion energy’s consolidated financial statements terra nova renewable partners future option buy portion dominion energy’s remaining 67 ownership certain merchant projects upon occurrence certain events none expected occur 2019 companies report certain contracts instruments investments fair value see note 6 information fair value measurements companies consider acquisitions dispositions substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets acquisition disposition asset rather business see notes 3 10 information transactions dominion energy maintains pension postretirement benefit plans virginia power dominion energy gas participate certain plans see note 21 information plans certain amounts companies’ 2017 2016 consolidated financial statements notes reclassified combined notes consolidated financial statements continued conform 2018 presentation comparative purposes however reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion energy inclusive virginia power andor dominion energy gas applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers dominion energy virginia power collect sales consumption consumer utility taxes dominion energy gas collects sales taxes however amounts excluded revenue dominion energy’s customer receivables december 31 2018 2017 included 626 million 661 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2018 2017 included 392 million 400 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers dominion energy gas’ customer receivables december 31 2018 2017 included 131 million 121 million respectively accrued unbilled revenue based estimated amounts natural gas delivered yet billed customers see note 24 amounts attributable related parties primary types sales service activities reported operating revenue dominion energy subsequent adoption revised guidance revenue recognition contracts customers follows revenue contracts customers • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated hedging activity • regulated gas sales consist primarily stateregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties associated hedging activity • regulated gas transportation storage sales consist fercregulated sales transmission storage services stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • nonregulated gas transportation storage sales consist primarily lng terminalling services • regulated revenue consists primarily miscellaneous service revenue electric gas distribution operations sales excess electric capacity commodities • nonregulated revenue consists primarily ngl gathering processing sales ngl production condensate extracted products associated hedging activity nonregulated revenue also includes services performed atlantic coast pipeline sales energyrelated products services dominion energy’s retail energy marketing operations service concession arrangements gas processing handling revenue • revenue consists primarily alternative revenue programs gains losses derivative instruments subject hedge accounting lease revenues primary types sales service activities reported operating revenue dominion energy prior adoption revised guidance revenue recognition contracts customers follows • regulated electric sales consisted primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consisted primarily sales electricity marketbased rates contracted fixed rates associated derivative activity • regulated gas sales consisted primarily state fercregulated natural gas sales related distribution services associated derivative activity • nonregulated gas sales consisted primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity • gas transportation storage sales consisted primarily fercregulated sales transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • revenue consisted primarily sales ngl production condensate extracted products associated derivative activity revenue also included miscellaneous service revenue electric gas distribution operations sales energyrelated products services dominion energy’s retail energy marketing operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power subsequent adoption revised guidance revenue recognition contracts customers follows revenue contracts customers • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • regulated revenue consists primarily sales excess capacity commodities miscellaneous service revenue electric distribution operations • nonregulated revenue consists primarily sales nonjurisdictional customers certain solar facilities revenue renting space certain electric transmission poles distribution towers service concession arrangements revenue • revenue consists primarily alternative revenue programs gains losses derivative instruments subject hedge accounting lease revenues primary types sales service activities reported operating revenue virginia power prior adoption revised guidance revenue recognition contracts customers follows • regulated electric sales consisted primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • revenue consisted primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities primary types sales service activities reported operating revenue dominion energy gas subsequent adoption revised guidance revenue recognition contracts customers follows revenue contracts customers • regulated gas sales consist primarily stateregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales gas purchased third parties royalty revenues • regulated gas transportation storage sales consist fercregulated sales transmission storage services stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • ngl revenue consists primarily ngl gathering processing sales ngl production condensate extracted products associated hedging activity • management service revenue consists primarily services performed atlantic coast pipeline • regulated revenue consists primarily miscellaneous regulated revenues • nonregulated revenue consists primarily miscellaneous service revenue • revenue consists primarily gains losses derivative instruments subject hedge accounting primary types sales service activities reported operating revenue dominion energy gas prior adoption revised guidance revenue recognition contracts customers follows • regulated gas sales consisted primarily state fercregulated natural gas sales related distribution services • nonregulated gas sales consisted primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties • gas transportation storage sales consisted primarily fercregulated sales transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • ngl revenue consisted primarily sales ngl production condensate extracted products associated derivative activity • revenue consisted primarily miscellaneous service revenue gas processing handling revenue dominion energy virginia power record refunds customers required state commissions reduction regulated electric sales regulated gas sales applicable dominion energy virginia power’s revenue accounted alternative revenue program guidance primarily consists equity return underrecovery certain riders alternative revenue programs compensate dominion energy virginia power certain projects initiatives revenues arising programs presented separately revenue arising contracts customers categories revenues electric gas sales recognized time customers companies consume gas electricity delivered transportation storage contracts primarily standready service contracts include fixed reservation variable usage fees lng terminalling services also standready service contracts primarily consisting fixed fees offset service credits associated startup phase liquefaction project fixed fees recognized ratably life contract standready performance obligation satisfied variable usage fees recognized dominion energy dominion energy gas right consideration customer amount corresponds directly value customer performance obligation completed date sales products services including ngls typically transfer control recognized revenue upon delivery product service customer able direct use obtain substantially benefits product time product delivered contract customer states final terms sale including description quantity price product service purchased payment sales services varies contract type typically due within month billing dominion energy dominion energy gas typically receive retain ngls natural gas customers providing natural gas processing transportation storage services revised guidance revenue contracts customers requires entities include fair value noncash consideration transaction price therefore subsequent adoption revised guidance revenue recognition contracts customers dominion energy dominion energy gas record fair value ngls received natural gas processing service revenue recognized time continue recognize revenue subsequent sale ngls customers upon delivery dominion energy dominion energy gas typically retain natural gas certain transportation service arrangements intended facilitate performance service allow natural losses occur intent allowance enable fulfillment contract rather provide compensation services fuel allowance included revenue electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences dominion energy virginia power’s actual electric fuel purchased energy expenses dominion energy dominion energy gas’ purchased gas expenses related combined notes consolidated financial statements continued levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers december 31 2018 approximately 84 subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms virtually dominion energy gas cove point questar gas hope sceg psnc’s following scana combination natural gas purchases either subject deferral accounting recovered customer accounting period sale income taxes consolidated federal income tax return filed dominion energy subsidiaries including virginia power dominion energy gas’ subsidiaries addition applicable combined income tax returns dominion energy subsidiaries filed various states otherwise separate state income tax returns filed although dominion energy gas disregarded income tax purposes provision income taxes recognized reflect inclusion business activities tax returns parent dominion energy virginia power dominion energy gas participate intercompany tax sharing agreements dominion energy subsidiaries current income taxes based taxable income loss credits determined separate company basis agreements subsidiary incurs tax loss earns credit recognition current income tax benefits limited refunds prior year taxes obtained carryback net operating loss credit extent tax loss credit absorbed taxable income dominion energy consolidated group members otherwise net operating loss credit carried forward recognized deferred tax asset realized 2017 tax reform act included broad range tax reform provisions affecting companies including changes corporate tax rates business deductions 2017 tax reform act reduces corporate income tax rate 35 21 tax years beginning december 31 2017 deferred tax assets liabilities classified noncurrent consolidated balance sheets measured enacted tax rate expected apply temporary differences realized settled thus date enactment federal deferred taxes remeasured based upon new 21 tax rate total effect tax rate changes deferred tax balances recorded component income tax provision related continuing operations period law enacted even assets liabilities relate components financial statements items accumulated comprehensive income dominion energy subsidiaries rateregulated utilities existing deferred income tax assets liabilities adjusted reduction corporate income tax rate allocated continuing operations dominion energy’s rateregulated utility subsidiaries likewise required adjust deferred income tax assets liabilities change income tax rates however probable effect change income tax rates recovered refunded future rates regulated utility recorded regulatory asset liability instead increase decrease deferred income tax expense accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes accordingly deferred taxes recognized future consequences different treatments used reporting transactions financial accounting income tax returns companies establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities companies recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets companies recognize interest underpayments overpayments income taxes interest expense income respectively penalties also recognized income interest companies immaterial 2018 2016 dominion energy virginia power recognized interest income 11 million 2017 dominion energy gas’ interest immaterial 2017 dominion energy virginia power dominion energy gas’ penalties immaterial 2018 2017 2016 december 31 2018 virginia power income taxrelated affiliated receivable 36 million comprised 34 million federal income taxes 2 million state income taxes due dominion energy dominion energy gas also net affiliated receivable 2 million due dominion energy representing 8 million federal income taxes receivable 6 million state income taxes payable dominion energy net affiliated receivables expected received dominion energy addition dominion energy gas’ consolidated balance sheet december 31 2018 included 13 million state income taxes receivable state income taxes receivable virginia power immaterial december 31 2018 december 31 2017 virginia power income taxrelated affiliated payable 16 million comprised 16 million federal income taxes due dominion energy dominion energy gas also affiliated payable 25 million due dominion energy representing 21 million federal income taxes 4 million state income taxes net affiliated payables paid dominion energy addition virginia power’s consolidated balance sheet december 31 2017 included 1 million noncurrent federal income taxes receivable less 1 million state income taxes receivable 1 million noncurrent state income taxes receivable dominion energy gas’ consolidated balance sheet december 31 2017 included 14 million state income taxes receivable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash restricted cash equivalents cash restricted cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less current banking arrangements generally require checks funded presented payment following table illustrates checks outstanding yet presented payment recorded accounts payable companies restricted cash equivalents companies hold restricted cash equivalent balances primarily consist amounts held customer deposits future debt payments sbl holdco dominion solar projects iii inc’s term loan agreements eagle solar’s senior note agreement following table provides reconciliation total cash restricted cash equivalents reported within companies’ consolidated balance sheets corresponding amounts reported within companies’ consolidated statements cash flows years ended december 31 2018 2017 2016 1 restricted cash equivalent balances presented within current assets companies’ consolidated balance sheets distributions equity method investees dominion energy dominion energy gas hold investments accounted equity method accounting dominion energy dominion energy gas classify distributions equity method investees either cash flows operating activities cash flows investing activities consolidated statements cash flows according nature distribution distributions received classified basis nature activity investee generated distribution either return investment classified cash flows operating activities return investment classified cash flows investing activities information available dominion energy dominion energy gas combined notes consolidated financial statements continued derivative instruments companies exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well interest rate foreign currency exchange rate risks business operations dominion energy uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations virginia power uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate risks dominion energy gas uses derivative instruments physical financial forwards futures swaps manage commodity interest rate foreign currency exchange rate risks derivatives except exception applies required reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance companies offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion energy margin assets 95 million 92 million associated cash collateral december 31 2018 2017 respectively dominion energy’s margin liabilities associated cash collateral less 1 million december 31 2018 2017 virginia power margin assets 23 million associated cash collateral december 31 2017 virginia power margin assets associated cash collateral december 31 2018 margin liabilities associated cash collateral december 31 2018 2017 dominion energy gas margin assets liabilities associated cash collateral december 31 2018 2017 see note 7 information derivatives manage price risk companies hold certain derivative instruments designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges income based nature underlying risk changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments accordance accounting guidance pertaining derivatives hedge accounting companies designate portion derivative instruments either cash flow fair value hedges accounting purposes derivative instruments accounted fair value hedges cash flow hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority companies’ hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas ngls companies also use interest rate swaps hedge exposure variable interest rates longterm debt well foreign currency swaps hedge exposure interest payments denominated euros transactions companies hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable dominion energy entered interest rate derivative instruments hedge forecasted interest payments related planned debt issuances 2014 interest rate derivatives designated dominion energy cash flow hedges prior formation dominion energy gas purposes dominion energy gas financial statements derivative balances aoci balance income statement impact related interest rate derivative instruments entered dominion energy continue included dominion energy gas’ consolidated financial statements forecasted interest payments related debt issuances occur dominion energy gas fair value hedgesdominion energy also designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure addition dominion energy used fair value hedges mitigate fixed price exposure inherent commodity inventory fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2018 2017 2016 dominion energy capitalized interest costs afudc property plant equipment 134 million 236 million 159 million respectively 2018 2017 2016 virginia power capitalized afudc property plant equipment 56 million 37 million 21 million respectively 2018 2017 2016 dominion energy gas capitalized afudc property plant equipment 18 million 25 million 8 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2018 2017 2016 virginia power recorded 4 million 22 million 31 million afudc related projects respectively property subject costofservice rate regulation including dominion energy virginia power electric distribution electric transmission generation property dominion energy gas natural gas distribution transmission property certain dominion energy natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable abandoned january 2019 virginia power committed plan retire certain automated meter reading infrastructure associated electric operations end useful life replace equipment current ami technology result virginia power expects incur charge approximately 190 million 141 million aftertax 2019 property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives companies’ average composite depreciation rates utility property plant equipment follows second quarter 2018 virginia power recorded adjustment retroactive application depreciation rates regulated nuclear plants comply virginia commission requirements adjustment resulted decrease 60 million 44 million aftertax depreciation expense virginia power’s consolidated statements income year ended december 31 2018 resulted increase dominion energy’s eps 007 per share year ended december 31 2018 revision expected decrease annual depreciation expense approximately 30 million 23 million aftertax first quarter 2017 virginia power revised depreciation rates assets reflect results new depreciation study change resulted increase annual depreciation expense 40 million 25 million aftertax 2017 additionally dominion energy revised depreciable lives merchant generation assets excluding millstone resulted decrease annual depreciation expense 26 million 16 million aftertax 2017 capitalized costs development wells leaseholds amortized fieldbyfield basis using unitofproduction method estimated proved developed total proved gas oil reserves rate 189 211 per mcfe 2018 2017 respectively dominion energy’s nonutility property plant equipment depreciated using straightline method following estimated useful lives combined notes consolidated financial statements continued depreciation amortization related virginia power dominion energy gas’ nonutility property plant equipment exploration production properties immaterial years ended december 31 2018 2017 2016 except dominion energy gas’ nonutility gas gathering processing properties depreciated using straightline method estimated useful lives 10 50 years nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion energy virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets companies perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairment longlived assets regulatory assets liabilities accounting dominion energy dominion energy gas’ regulated gas dominion energy virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made asset retirement obligations companies recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed legal obligation exists amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses quarterly companies assess aros determine circumstances indicate estimates amounts timing future cash flows associated retirement activities changed aros adjusted significant changes amounts timing future cash flows identified dominion energy dominion energy gas report accretion aros depreciation asset retirement costs associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros dominion energy following scana combination virginia power report accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions additionally dominion energy virginia power report accretion aros depreciation asset retirement costs associated certain rider prospective rider projects adjustment regulatory asset certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense respectively consolidated statements income debt issuance costs companies defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others deferred debt issuance costs recorded reduction longterm debt consolidated balance sheets amortization issuance costs reported interest expense unamortized costs associated redemptions debt securities prior stated maturity dates generally recognized recorded interest expense immediately permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation deferred amortized investments debt equity securities readily determinable fair values dominion energy accounts classifies investments debt securities trading availableforsale securities virginia power classifies investments debt securities availableforsale securities • debt securities classified trading securities include securities held dominion energy rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income • debt securities classified availableforsale securities include debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale debt securities including held dominion energy’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses debt securities cost basis security based specific identification method equity securities readily determinable fair values include securities held dominion energy rabbi trusts associated certain deferred compensation plans securities held dominion energy virginia power nuclear decommissioning trusts dominion energy virginia power record equity securities readily determinable fair value permitted estimate fair value using nav equivalent fair value nuclear decommissioning trust funds investments consolidated balance sheets however dominion energy virginia power may elect measurement alternative equity securities without readily determinable fair value measurement alternative equity securities reported cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer dominion energy virginia power qualitatively assess equity securities reported using measurement alternative determine whether investment impaired ongoing basis net realized unrealized gains losses equity securities held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation equity securities including held dominion energy’s merchant generation nuclear decommissioning trusts rabbi trusts net realized unrealized gains losses included income consolidated statements income equity securities without readily determinable fair values companies account illiquid privately held securities without readily determinable fair values either equity method cost method equity securities without readily determinable fair values include • equity method investments companies ability exercise significant influence control investee dominion energy’s investments included investments equity method affiliates dominion energy gas’ investments included investments consolidated balance sheets dominion energy dominion energy gas record equity method adjustments income earnings equity method investee respectively consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method • cost method investments dominion energy virginia power ability exercise significant influence investee dominion energy virginia power’s investments included investments nuclear decommissioning trust funds cost method investments reported cost less impairment plus minus changes resulting observable price changes orderly transactions identical similar investments issuer otherthantemporary impairment companies periodically review investments debt securities equity method investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investments special considerations debt securities • recognition provisions otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity • using information obtained nuclear decommissioning trust fixedincome investment managers dominion energy virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss dominion energy virginia power record credit loss earnings remaining portion unrealized loss aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory valued using weightedaverage cost method except east ohio gas distribution operations valued using lifo method lifo method current stored gas inventory valued 12 million 9 million december 31 2018 december 31 2017 respectively based average price gas purchased 2018 2017 cost replacing current portion stored gas inventory exceeded amount stated lifo basis 87 million 79 million respectively gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion energy dominion energy gas value imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion energy parties reported current assets imbalances dominion energy dominion energy gas owe parties combined notes consolidated financial statements continued reported current liabilities consolidated balance sheets goodwill dominion energy dominion energy gas evaluate goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount new accounting standards revenue recognition may 2014 fasb issued revised accounting guidance revenue recognition contracts customers companies adopted revised accounting guidance interim annual reporting periods beginning january 1 2018 using modified retrospective method upon adoption standard dominion energy dominion energy gas recorded cumulativeeffect change accounting principle 3 million retained earnings membership interests respectively establish contract asset related changes timing revenue recognition three existing contracts customers deti result adopting revised accounting guidance dominion energy dominion energy gas record offsetting operating revenue energyrelated purchases noncash consideration performing processing fractionation services related ngls amounts dominion energy 107 million dominion energy gas 103 million recorded consolidated statements income year ended december 31 2018 amounts recorded year ended december 31 2017 dominion energy dominion energy gas longer record offsetting operating revenue purchased gas fuel retained offset costs certain transportation storage arrangements amounts dominion energy 111 million dominion energy gas 79 million recorded consolidated statements income year ended december 31 2017 financial instruments january 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure financial instruments guidance became effective companies’ interim annual reporting periods beginning january 1 2018 companies adopted standard using modified retrospective method upon adoption guidance equity securities held january 1 2018 dominion energy virginia power recorded cumulativeeffect change accounting principle reclassify net unrealized gains aoci retained earnings recognize equity securities previously categorized cost method investments fair value using nav nuclear decommissioning trust funds consolidated balance sheets cumulativeeffect adjustment retained earnings dominion energy virginia power reclassified approximately 11 billion 734 million aftertax 119 million 73 million aftertax respectively net unrealized gains aoci retained earnings dominion energy virginia power also recorded approximately 36 million 22 million aftertax net unrealized gains equity securities previously classified cost method investments 3 million recorded retained earnings 33 million recorded regulatory liabilities net unrealized gains subject costbased regulation result adopting revised accounting guidance dominion energy recorded unrealized losses equity securities net regulatory deferrals 190 million 142 million aftertax income consolidated statements income year ended december 31 2018 resulting 022 loss per share year ended december 31 2018 virginia power recorded unrealized losses equity securities net regulatory deferrals 24 million 18 million aftertax income consolidated statements income year ended december 31 2018 leases february 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure leasing arrangements update requires liability corresponding rightofuse asset recorded balance sheet leases including leases currently classified operating leases also refining definition lease addition lessees required disclose key information amount timing uncertainty cash flows arising leasing arrangements lessor accounting remains largely unchanged guidance effective companies’ interim annual reporting periods beginning january 1 2019 companies adopt revised accounting guidance using modified retrospective approach requires lessees lessors recognize measure leases date adoption approach companies permitted utilize transition practical expedient maintain historical presentation periods january 1 2019 companies apply practical expedients would require reassessment whether existing contracts contain leases reassessment lease classification existing leases reassessment existing expired land easements previously accounted leases dominion energy virginia power dominion energy gas anticipate adoption guidance result approximately 450 million 500 million 200 million 250 million 60 million 70 million respectively offsetting rightofuse assets liabilities added consolidated balance sheets operating leases effect adoption date dominion energy’s anticipated rightofuse asset liability associated operating leases includes acquired part scana combination approximately 30 million 35 million material changes expected companies’ results operations derecognition partial sales nonfinancial assets february 2017 fasb issued revised accounting guidance clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets guidance became effective companies’ interim annual reporting periods beginning january 1 2018 companies adopted standard using modified retrospective method upon adoption standard dominion energy recorded cumulativeeffect change accounting principle reclassify 127 million noncontrolling interests common stock related sale noncontrolling interest certain merchant solar projects completed december 2015 january 2016 net periodic pension postretirement benefit costs march 2017 fasb issued revised accounting guidance presentation net periodic pension postretirement benefit costs guidance became effective companies beginning january 1 2018 requires service cost component net periodic pension postretirement benefit costs classified line item compensation costs arising services rendered employees components net periodic pension postretirement costs classified outside income operations addition service cost component remains eligible capitalization construction changes impact accounting participants multiemployer plan standard also recognizes event regulator continues require capitalization net periodic benefit costs prospectively difference would result recognition regulatory asset liability costs capitalized regulators expected provide recovery regulatory asset established amounts eligible capitalization consolidated financial statements virginia power dominion energy gas subsidiary participants dominion energy’s multiemployer plans differ amounts eligible capitalization consolidated financial statements dominion energy plan administrator differences result regulatory asset liability recorded consolidated financial statements dominion energy tax reform december 2017 staff sec issued guidance clarifies accounting income taxes information yet available complete provided oneyear measurement period complete required analyses accounting guidance described three scenarios associated company’s status accounting income tax reform 1 company complete accounting certain effects tax reform 2 company able determine reasonable estimate certain effects tax reform records estimate provisional amount 3 company able determine reasonable estimate therefore continues apply accounting income taxes based provisions tax laws effect immediately prior 2017 tax reform act enacted companies accounted effects 2017 tax reform act although additional changes could occur guidance issued finalized described addition certain states companies operate may conform provisions 2017 tax reform act ultimate resolution clarification matters may result favorable unfavorable impacts results operations cash flows adjustments taxrelated assets liabilities could material august 2018 us department treasury issued proposed regulations addressing availability federal bonus depreciation period beginning september 27 2017 december 31 2017 application changes decreased dominion energy’s net operating loss carryforward utilization 2017 tax return discussed note 5 november 2018 us department treasury issued proposed regulations defining interest amounts associated time value money use funds proposed regulations provide guidance purposes exception interest limitation regulated public utilities application interest limitation consolidated groups dominion energy interest limitation respect partnerships partners partnerships unclear guidance may finalized whether guidance could result disallowance portion companies’ interest deductions future february 2018 fasb issued revised accounting guidance provide clarification application 2017 tax reform act balances recorded within aoci revised guidance provides stranded amounts within aoci impacts 2017 tax reform act reclassified retained earnings companies adopted guidance interim annual reporting periods beginning january 1 2018 prospective basis connection adoption guidance dominion energy reclassified benefit 289 million aoci retained earnings virginia power reclassified benefit 3 million aoci retained earnings dominion energy gas reclassified benefit 26 million aoci membership interests amounts reclassified reflect reduction federal income tax rate federal benefit state income taxes components companies’ aoci note 3 acquisitions dispositions dominion energy acquisition scana january 2019 dominion energy issued 956 million shares dominion energy common stock valued 68 billion representing 06690 share dominion energy common stock share scana common stock connection completion scana combination scana regulated subsidiaries primarily engaged generation transmission distribution electricity central southern southwestern portions south carolina distribution natural gas north carolina south carolina addition scana markets natural gas retail customers southeast us following completion scana combination scana operates whollyowned subsidiary dominion energy addition scana’s outstanding debt totaled 69 billion closing scana combination expands dominion energy’s portfolio regulated electric generation transmission distribution regulated natural gas distribution infrastructure operations merger approval conditions merger approval scana combination required approval scana’s shareholders ferc north carolina commission south carolina commission georgia public service commission combined notes consolidated financial statements continued nrc clearance federal trade commission hartscottrodino act approvals received prior closing scana combination various parties filed petitions rehearing reconsideration scana merger approval order january 2019 south carolina commission issued directive 1 granting request various parties finding sceg imprudent actions disclosing material information south carolina office regulatory staff south carolina commission regard costs incurred subsequent march 2015 2 denying petitions rehearing consideration issues raised various petitions scana merger approval order rehearing subject appeal various parties refunds customers condition scana merger approval order sceg provide refunds restitution 20 billion 20 years capital support dominion energy september october 2017 sceg received proceeds toshiba corporation totaling 11 billion full satisfaction share settlement agreement sceg santee cooper toshiba corporation connection westinghouse wectec whollyowned subsidiaries toshiba corporation responsible engineering construction nnd project filing bankruptcy purchase price allocation includes previously established regulatory liability sceg totaling 11 billion associated monetization bankruptcy settlement toshiba corporation accordance terms scana merger approval order regulatory liability net amounts may required satisfy liens nnd project property totaling 10 billion refunded sceg electric service customers 20year period ending 2039 additionally sceg reflect first quarter 2019 reduction operating revenue corresponding regulatory liability 10 billion approximately 140 million considered current representing refund amounts previously collected retail electric customers sceg nnd project credited estimated 11year period result 756 million aftertax charge dominion energy’s consolidated statements income first quarter 2019 nnd project condition scana merger approval order sceg exclude rate recovery 24 billion costs related nnd project 180 million costs associated purchase columbia energy center power station regulatory assets included scana’s historical balance sheet december 31 2018 reflected disallowances remaining regulatory asset associated nnd project 28 billion collected 20year period including return investment january 2019 sceg filed nnd project rider accordance terms scana merger approval order rates effective february 2019 sceg’s retail electric customers south carolina commission approved filing january 2019 terms conditions • sceg file application general rate case south carolina commission requested effective date earlier january 2021 • psnc file application general rate case north carolina commission requested effective date earlier april 2021 • dominion energy committed increasing scana’s historical level corporate contributions charities 1 million per year next five years • dominion energy maintain sceg psnc’s headquarters cayce south carolina gastonia north carolina respectively • dominion energy seek minimize reductions local employment allowing des employees supporting shared common services functions activities located cayce south carolina makes economic practical sense purchase price allocation scana’s assets acquired liabilities assumed measured estimated fair value closing included southeast energy operating segment established following closing scana combination majority operations acquired subject rate setting authority ferc north south carolina commissions therefore accounted pursuant asc 980 regulated operations fair values scana’s assets liabilities subject ratesetting cost recovery provisions provide revenues derived costs including return investment assets liabilities included rate base fair values assets liabilities equal carrying values accordingly neither assets liabilities acquired unaudited pro forma financial information reflect adjustments related amounts fair value scana’s assets acquired liabilities assumed subject ratesetting provisions discussed fair values scana’s investments accounted equity method determined using income approach market approach valuation scana’s longterm debt considered level 2 fair value measurement valuations considered level 3 fair value measurements due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risk inherent future market prices excess purchase price estimated fair values assets acquired liabilities assumed reflected goodwill first quarter 2019 goodwill reflects value associated enhancing dominion energy’s portfolio regulated operations growing southeast region us goodwill recognized deductible income tax purposes deferred taxes recorded related goodwill table shows preliminary allocation purchase price assets acquired liabilities assumed closing reflected dominion energy’s consolidated balance sheet first quarter 2019 allocation subject change measurement period additional information obtained facts circumstances existed closing allocation purchase price excludes certain contracts intangible assets related nonregulated operations including semi equity method investments certain income taxrelated amounts included dominion energy completes valuation analysis result amount goodwill included may change material amount dominion energy finalizes allocation purchase price first quarter 2019 information assets liabilities acquired cash restricted cash equivalents total current assets line includes 389 million cash restricted cash equivalents 115 million considered restricted acquired dominion energy connection scana combination investments acquired connection scana combination include 20 million pertaining certain investments accounted equity method carrying value dominion energy still assessing fair value investments income taxes deferred income taxes include deferred tax asset recorded federal net operating loss carryforward 18 billion state net operating loss carryforward 24 billion based available evidence dominion energy believes likely benefit federal net operating loss utilized carryforward period therefore valuation allowance established dominion energy still assessing whether valuation allowance required state net operating loss carryforward deferred income taxes also include unrecognized tax benefits 106 million could increase dominion energy continues completes evaluation positions taken scana’s federal state income tax returns property plant equipment date scana combination major classes property plant equipment respective balances scana follows connection scana combination dominion energy intends forego recovery approximately 105 million certain assets expects recognize 79 million aftertax charge first quarter 2019 regulated property depreciated straightline basis based projected service lives actual average composite depreciation rates scana’s utility property plant equipment follows nonregulated property plant equipment excluding land depreciated straightline basis remaining useful lives property primarily ranging 5 78 years sceg jointly owns operator summer december 31 2018 subsequent scana combination sceg 667 ownership interest summer proportionate share plant service accumulated depreciation plant construction 15 billion 644 million 128 million respectively coowners obligated pay share future construction expenditures operating costs summer proportion respective ownership interest regulatory assets addition items discussed related nnd project dominion energy intends forego recovery approximately 190 million regulatory assets related certain deferred income taxes expects recognize 145 million aftertax charge first quarter 2019 intangible assets current assets presented table include intangible assets subject regulatory recovery gross carrying value 281 million related accumulated amortization 181 million intangible assets estimated combined notes consolidated financial statements continued weightedaverage amortization period approximately five years annual amortization expense intangible assets estimated follows asset retirement obligations purchase price allocation includes 577 million aros 23 million considered current liability aros associated scana’s legal obligation decommission summer well conditional obligations related generation transmission distribution properties including gas pipelines shortterm longterm debt closing scana combination commercial paper letters credit outstanding well capacity available scana’s existing credit facilities follows 1 includes south carolina fuel company inc’s 500 million credit facility 2 january 2019 scana repaid 40 million letter credit advances connection scana combination dominion energy intends terminate scana sceg psnc’s existing credit facilities scheduled expire december 2020 add sceg coborrower 60 billion joint revolving credit facility first quarter 2019 certain regulatory approvals obtained january 2019 virginia power sceg coborrowers filed virginia commission south carolina commission respectively approval february 2019 virginia commission approved request sceg required obtain ferc approval issue shortterm indebtedness including commercial paper assume liabilities guarantor february 2019 dominion energy terminated south carolina fuel company inc’s existing credit facility scheduled expire december 2020 closing scana combination scana following longterm debt outstanding part total consideration provided transaction 1 represents weightedaverage coupon rates debt outstanding closing scana combination 2 includes variable rate debt 68 million weightedaverage interest rate 172 hedged fixed swaps based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt closing scana combination follows february 2019 scana launched tender offer certain medium term notes aggregate purchase price 300 million expires march 2019 also february 2019 sceg launched tender offer certain first mortgage bonds pursuant purchased first mortgage bonds aggregate purchase price 10 billion sceg simultaneously launched tender offer expires march 2019 certain first mortgage bonds aggregate purchase price equal 12 billion less aggregate purchase price paid tender offer preferred stock closing scana combination authorized shares sceg preferred stock 20 million 1000 shares par value held scana regulatory matters proceedings base load review act 2016 south carolina commission approved revised rates base load review act allowing incorporation financing costs associated sceg’s incremental construction work progress incurred nnd project setting allowed roe 105 july 2018 south carolina commission issued orders implementing june 2018 legislativelymandated temporary reduction revenues could collected sceg electric utility customers base load review act altering certain provisions previously applicable base load review act including redefining standard care required associated regulations supplying definitions key terms would affect evidence required establish sceg’s ability recover costs associated nnd project orders reduced portion sceg’s retail electric rates associated nnd project approximately 18 average residential electric customer’s bill equates reduction revenues approximately 31 million per month retroactive april 2018 lower rates remained effect february 2019 new rates pursuant scana merger approval order became effective june 2018 sceg filed lawsuit us district court district south carolina challenging constitutionality rate reductions base load review act lawsuit subsequently amended sceg sought declaration new laws unconstitutional january 2019 sceg voluntarily dismissed lawsuit 2017 tax reform act connection scana merger approval order south carolina commission approved sceg’s provision approximately 100 million bill credits related 2017 tax reform act’s impact retail electric customer rates period beginning january 2018 january 2019 credits included bills rendered first billing cycle february 2019 addition south carolina commission approved tax rider whereby effects reduction corporate income tax rate resulting 2017 tax reform act benefit retail electric customers tax rider expected reduce base rates retail electric customers approximately 67 million 2019 2020 effective first billing cycle february 2019 october 2018 south carolina commission issued order approving adjustment sceg’s natural gas rate schedules terms natural gas rate stabilization act reflect reduction federal corporate tax rate arising 2017 tax reform act approved natural gas rate schedules also included tax reform rate rider refund certain income tax amounts previously collected customers lower rates representing 20 million decreased revenue requirement became effective bills rendered first billing cycle november 2018 december 2018 north carolina commission issued order approving psnc’s proposed adjustments customer rates representing 13 million decreased revenue requirement reflect reduction federal corporate tax rate arising 2017 tax reform act lower rates became effective service rendered january 1 2019 amounts collected customer rates 2018 amounts arising excess deferred income taxes recorded regulatory liabilities must considered psnc’s next general rate case proceeding three years whichever sooner reduction federal corporate tax rate impact psnc’s various rate riders addressed future proceedings related riders dsm programs sceg approval dsm rider recovers expenditures related dsm programs january 2019 sceg filed application south carolina commission seeking approval recover 30 million costs net lost revenues associated programs along incentive invest programs matter pending legal proceedings following describes certain legal proceedings scana sceg party closing scana combination dominion energy intends vigorously contest lawsuits claims assessments filed initiated scana sceg reference disclosure proceeding item matter described shall construed admission indication proceeding item matter material due uncertainty surrounding matters dominion energy unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows ratepayer class actions may 2018 consolidated complaint sceg scana state south carolina filed state court common pleas hampton county south carolina sceg ratepayer case september 2018 court certified case class action plaintiffs allege among things sceg negligent unjustly enriched breached alleged fiduciary contractual duties committed fraud misrepresentation failing properly manage nnd project sceg committed unfair trade practices violated state antitrust laws plaintiffs sought declaratory judgment sceg may charge customers past continuing costs nnd project sought scana sceg’s assets frozen monies recovered toshiba corporation sources placed constructive trust benefit ratepayers sought specific performance alleged implied contract construct nnd project december 2018 state court common pleas hampton county entered order granting preliminary approval class action settlement stay pretrial proceedings sceg ratepayer case settlement agreement contingent upon closing scana combination provides scana sceg would establish escrow account proceeds escrow account would distributed combined notes consolidated financial statements continued class members payment certain taxes attorneys’ fees expenses administrative costs escrow account would include 1 20 billion net credit 20 billion future electric bill relief would inure benefit escrow account favor class members period time established south carolina commission order related matters south carolina commission related nnd project 2 cash payment 115 million 3 transfer certain scegowned real estate sales proceeds sale properties counsel sceg ratepayer class estimate aggregate value 60 million 85 million closing scana combination scana sceg funded escrow account court scheduled fairness hearing settlement may 2019 distribution escrow account subject court approval result dominion energy expects reflect approximately 180 million 135 million aftertax charge first quarter 2019 september 2017 purported class action filed santee cooper sceg palmetto electric cooperative inc central electric power cooperative inc state court common pleas hampton county south carolina santee cooper ratepayer case allegations substantially similar sceg ratepayer case plaintiffs seek declaratory judgment defendants may charge purported class reimbursement past future costs nnd project march 2018 plaintiffs filed amended complaint including additional named defendants including certain current former directors santee cooper scana june 2018 santee cooper filed notice petition original jurisdiction supreme court south carolina december 2018 santee cooper filed answer plaintiffs’ fourth amended complaint filed cross claims sceg case pending dominion energy cannot currently estimate financial statement impacts matter could material impact results operations financial condition andor cash flows rico class action january 2018 purported class action filed subsequently amended scana sceg certain former executive officers us district court district south carolina plaintiff alleges among things scana sceg individual defendants participated unlawful racketeering enterprise violation rico conspired violate rico fraudulently inflating utility bills generate unlawful proceeds sceg ratepayer class action settlement described previously contemplates dismissal claims sceg ratepayers case sceg scana officers case pending dominion energy cannot currently estimate financial statement impacts matter could material impact results operations financial condition andor cash flows state court shareholder actions september 2017 purported shareholder derivative action filed certain former executive officers directors scana state court common pleas richland county south carolina september 2018 action consolidated another action business court pilot program richland county plaintiffs allege among things defendants breached fiduciary duties shareholders gross mismanagement nnd project defendants unjustly enriched bonuses paid connection project defendants filed motion dismiss consolidated action favor pending federal derivative action case pending dominion energy cannot currently estimate financial statement impacts matter could material impact results operations financial condition andor cash flows january 2018 purported class action filed scana dominion energy certain former executive officers directors state court common pleas lexington county south carolina city warren lawsuit plaintiff alleges among things defendants violated fiduciary duties shareholders executing merger agreement would unfairly deprive plaintiffs true value scana stock dominion energy aided abetted actions among remedies plaintiff seeks enjoin andor rescind merger february 2018 dominion energy removed case us district court district south carolina filed motion dismiss march 2018 june 2018 case remanded back state court common pleas lexington county dominion energy appealed decision remand us court appeals fourth circuit appeal consolidated similar appeal remains pending october 2018 us district court district south carolina granted dominion energy’s motion stay pending appeal case pending dominion energy cannot currently estimate financial statement impacts matter could material impact results operations financial condition andor cash flows february 2018 purported class action filed certain former directors scana sceg dominion energy state court common pleas richland county south carolina allegations made relief sought plaintiffs substantially similar described city warren lawsuit february 2018 dominion energy removed case us district court district south carolina filed motion dismiss march 2018 august 2018 case remanded back state court common pleas richland county dominion energy appealed decision remand us court appeals fourth circuit appeal consolidated city warren lawsuit case pending dominion energy cannot currently estimate financial statement impacts matter could material impact results operations financial condition andor cash flows federal court shareholder action november 2017 purported shareholder derivative action filed scana certain former executive officers directors us district court district south carolina another purported shareholder derivative action filed nearly defendants january 2018 us district court district south carolina consolidated suits plaintiffs filed consolidated amended complaint plaintiffs allege among things defendants violated fiduciary duties shareholders disseminating false misleading information nnd project failing maintain proper internal controls failing properly oversee manage scana individual defendants unjustly enriched compensation june 2018 court denied defendants’ motions dismiss october 2018 court denied scana’s motion stay proceedings pending investigation special litigation committee leave refile scana merger approval order issued plaintiffs agreed stay action condition defendants file motion judgment pleadings filed january 2019 case pending dominion energy cannot currently estimate financial statement impacts matter could material impact results operations financial condition andor cash flows federal court 10b5 merger actions september 2017 purported class action filed scana certain former executive officers directors us district court district south carolina subsequent additional purported class actions separately filed nearly defendants january 2018 us district court district south carolina consolidated suits plaintiffs filed consolidated amended complaint march 2018 plaintiffs allege among things defendants violated §10b securities exchange act 1934 amended rule 10b5 promulgated thereunder individually named defendants liable §20a act june 2018 defendants filed motions dismiss pending dominion energy cannot currently estimate financial statement impacts matter could material impact results operations financial condition andor cash flows employment class action indemnification july 2018 case filed us district court district south carolina certified class action behalf persons formerly employed nnd project plaintiffs allege among things scana fluor corporation fluor enterprises inc violated worker adjustment retraining notification act connection decision stop construction nnd project plaintiffs allege defendants failed provide adequate advance written notice terminations employment estimated much 75 million sceg coowner nnd project would 55 proportional share ultimate outcome ultimate loss could rise due fluor defendants seeking indemnification sceg september 2018 case filed state court common pleas fairfield county south carolina fluor enterprises inc fluor daniel maintenance services inc sceg santee cooper plaintiffs make claims indemnification breach contract promissory estoppel arising among things defendants’ alleged failure refusal defend indemnify fluor defendants aforementioned case cases pending filot litigation related matters november 2017 fairfield county filed complaint motion temporary injunction sceg state court common pleas fairfield county south carolina making allegations breach contract fraud negligent misrepresentation breach fiduciary duty breach implied duty good faith fair dealing unfair trade practices related sceg’s termination filot agreement sceg fairfield county related nnd project plaintiff sought temporary permanent injunction prevent sceg terminating filot agreement plaintiff withdrew motion temporary injunction december 2017 dominion energy currently unable make estimate potential impacts consolidated financial statements related matter case pending governmental proceedings investigations june 2018 sceg received notice proposed assessment approximately 410 million excluding interest scdor following audit sceg’s sales use tax returns periods september 1 2008 december 31 2017 proposed assessment includes 100 nnd project based scdor’s position sceg’s sales use tax exemption nnd project apply facility become operational sceg protested proposed assessment remains pending recorded 11 million liability consolidated balance sheet december 31 2018 share taxes ultimately due september october 2017 scana served subpoenas issued us attorney’s office district south carolina staff sec’s division enforcement seeking documents related nnd project addition south carolina law enforcement division conducting criminal investigation handling nnd project scana sceg matters pending scana sceg cooperating fully investigations however dominion energy cannot currently predict whether extent scana sceg may incur material liability december 2018 arbitration proceedings commenced sceg cameco corporation related supply agreement signed may 2008 agreement provides terms conditions sceg agreed purchase uranium hexafluoride cameco corporation period 2010 2020 cameco corporation alleges sceg violated agreement failing purchase stated quantities uranium hexafluoride 2017 2018 delivery years sceg denies breach agreement believes reduced purchase quantity within terms agreement dominion energy cannot determine outcome timing matter commitments contingencies abandoned nnd project sceg agent santee cooper entered engineering construction procurement contract westinghouse wectec 2008 design construction nnd project sceg’s ownership share 55 various difficulties encountered connection project ability westinghouse wectec adhere established budgets construction schedules affected many variables including unanticipated difficulties encountered connection project engineering con combined notes consolidated financial statements continued struction project components constrained financial resources contractors regulatory legal training construction processes associated securing approvals permits licenses necessary amendments within projected time frames availability labor materials estimated costs efficiency project labor also contractor supplier performance issues difficulties timely meeting critical regulatory requirements contract disputes changes key contractors subcontractors matters preceded filing bankruptcy protection westinghouse wectec march 2017 subject comprehensive analyses performed scana santee cooper based results scana’s analysis light santee cooper’s decision suspend construction nnd project july 2017 scana determined stop construction units pursue recovery costs incurred connection construction abandonment provisions base load review act means decision scana became focus numerous legislative regulatory legal proceedings remain unresolved described heading legal proceedings september 2017 sceg agent santee cooper filed bankruptcy court proofs claim unliquidated damages westinghouse wectec proofs claim based upon anticipatory repudiation material breach westinghouse wectec contract assert westinghouse wectec claims based thereon may related thereto sceg santee cooper remain responsible claims may made westinghouse wectec relating contract westinghouse’s reorganization plan confirmed bankruptcy court became effective august 2018 connection effectiveness reorganization plan contract associated nnd project deemed rejected sceg contesting approximately 285 million filed liens fairfield county south carolina asserted liens claims relate work performed westinghouse subcontractors westinghouse bankruptcy although claims arising work performed westinghouse bankruptcy westinghouse indicated unsecured creditors sought may seek amounts beyond westinghouse allocated submitted reorganization plan bankruptcy court unsecured creditor successful attempt include claim part class general unsecured creditors beyond amounts bankruptcy reorganization plan allocated westinghouse possible reorganization plan provide payment full nearly full prepetition trade creditors shortfall could significant sceg santee cooper responsible amounts owed westinghouse valid work performed westinghouse subcontractors nnd project westinghouse bankruptcy filing termination interim assessment agreement sceg believe claims asserted related interim assessment agreement period exceed amounts previously funded whether relating claims already paid remaining paid sceg intends oppose previously unasserted claim asserted whether directly indirectly claim interim assessment agreement extent claim determined valid sceg may responsible paying 55 share thereof westinghouse subcontractors made claims westinghouse bankruptcy proceeding also filed sceg santee cooper south carolina state court damages many claimants also asserted construction liens nnd project site sceg also intends oppose claims liens respect claims westinghouse subcontractors sceg believes sufficient amounts previously funded interim assessment agreement period pay validly asserted claims respect westinghouse subcontractor claims relate periods sceg understands claims paid pursuant westinghouse’s confirmed bankruptcy reorganization plan sceg understands amounts paid plan may satisfy claims full therefore sceg believes westinghouse subcontractors may paid substantially potentially full westinghouse dominion energy cannot assured exposure account unpaid westinghouse subcontractor claims sceg presently disputing dominion energy believes unlikely required make payments account claims extent claim determined valid sceg may responsible paying 55 share thereof environmental matters contingencies involving environmental matters including ash pond landfill closure costs affecting scana included within note 22 nuclear insurance spent nuclear fuel sceg’s maximum assessment nuclear incident priceanderson amendments act 1988 would 92 million per incident 14 million per year proportionate ownership interest summer sceg currently maintains insurance policies behalf santee cooper neil policies provide coverage summer property damage outage costs 28 billion resulting event nuclear origin neil policies aggregate subject maximum loss 28 billion single loss occurrence based current annual premium sceg’s portion retrospective premium assessment would exceed 23 million addition sceg currently maintains excess property insurance policy behalf santee cooper policy provides coverage summer property damage outage costs 415 million resulting event nonnuclear origin based current annual premium sceg’s portion retrospective premium assessment would exceed 2 million sceg entered contract doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 longterm purchase agreements scana following longterm commitments noncancelable cancelable certain conditions third party used secure financing facility provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities expire various dates 2046 capacity payments contracts generally based fixed dollar amounts per month lease commitments scana obligated various operating leases land office space furniture equipment rail cars airplanes leases expire various dates 2057 unaudited pro forma information dominion energy incurred transaction costs 27 million recorded operations maintenance expense consolidated statements income year end december 31 2018 costs consist professional fees miscellaneous costs following unaudited pro forma financial information reflects consolidated results operations dominion energy assuming scana combination taken place january 1 2018 unaudited pro forma financial information presented illustrative purposes may change dominion energy finalizes valuation certain assets acquired liabilities assumed acquisition date unaudited pro forma financial information necessarily indicative consolidated results operations would achieved future consolidated results operations combined company 1 amounts include adjustments nonrecurring costs directly related scana combination acquisition dominion energy questar september 2016 dominion energy completed dominion energy questar combination dominion energy questar rockiesbased integrated natural gas company consisting questar gas wexpro dominion energy questar pipeline became whollyowned subsidiary dominion energy questar gas regulated gas distribution operations utah southwestern wyoming southeastern idaho wexpro develops produces natural gas reserves supplied questar gas costofservice framework dominion energy questar pipeline provides fercregulated interstate natural gas transportation storage services utah wyoming western colorado dominion energy questar combination provides dominion energy pipeline infrastructure provides principal source gas supply western states dominion energy questar’s regulated businesses also provide balance dominion energy’s electric gas operations accordance terms dominion energy questar combination closing share issued outstanding dominion energy questar common stock converted right receive 2500 per share cash total consideration 44 billion based 1755 million shares dominion energy questar outstanding closing dominion energy financed dominion energy questar combination 1 august 2016 issuance 14 billion 2016 equity units 2 august 2016 issuance 13 billion senior notes 3 september 2016 borrowing 12 billion term loan agreement 4 500 million proceeds april 2016 issuance common stock purchase price allocation dominion energy questar’s assets acquired liabilities assumed measured estimated fair value closing date included gas infrastructure operating segment majority operations acquired subject ratesetting authority ferc well utah commission andor wyoming commission therefore accounted pursuant asc 980 regulated operations fair values dominion energy questar’s assets liabilities subject ratesetting cost recovery provisions provide revenues derived costs including return investment assets liabilities included rate base fair values assets liabilities equal carrying values accordingly neither assets liabilities acquired pro forma financial information reflect adjustments related amounts fair value dominion energy questar’s assets acquired liabilities assumed subject ratesetting provisions discussed determined using income approach addition fair value dominion energy questar’s 50 interest white river hub accounted equity method determined using market approach income approach valuations considered level 3 fair value measurements due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risk inherent future cash flows future market prices excess purchase price estimated fair values assets acquired liabilities assumed recognized goodwill closing date goodwill reflects value associated enhancing dominion energy’s regulated portfolio businesses including expected increase demand lowcarbon natural gasfired generation western states expected continued growth rateregulated businesses located defined service area stable regulatory environment goodwill recognized deductible income tax purposes deferred taxes recorded related goodwill table shows allocation purchase price assets acquired liabilities assumed closing reflects following adjustments preliminary valuation recognized measurement period fourth quarter 2016 certain modifications made preliminary valuation amounts acquired property plant equipment current liabilities deferred income taxes resulting 6 million net decrease goodwill related primarily combined notes consolidated financial statements continued sale questar fueling company december 2016 described sale questar fueling company third quarter 2017 certain modifications made valuation amounts regulatory liabilities current liabilities deferred income taxes resulting 6 million net increase goodwill recorded dominion energy’s consolidated balance sheets modifications relate primarily finalization dominion energy questar’s 2016 tax return period january 1 2016 dominion energy questar combination well certain regulatory adjustments 1 includes 40 million equity method investment white river hub fair value adjustment equity method investment white river hub considered equity method goodwill amortized 2 nonregulated property plant equipment excluding land depreciated remaining useful lives primarily ranging 9 18 years 3 includes 301 million shortterm debt amounts remain outstanding december 31 2018 well 250 million variable interest rate term loan due august 2017 paid july 2017 4 unsecured senior mediumterm notes maturities range 2017 2048 bear interest rates 298 720 regulatory matters transaction required approval dominion energy questar’s shareholders clearance federal trade commission hartscottrodino act approval utah commission wyoming commission february 2016 federal trade commission granted antitrust approval dominion energy questar combination hartscottrodino act may 2016 dominion energy questar’s shareholders voted approve dominion energy questar combination august 2016 september 2016 approvals granted utah commission wyoming commission respectively information regarding transaction also provided idaho commission acknowledged dominion energy questar combination october 2016 directed dominion energy questar notify idaho commission makes filings utah commission approval dominion energy questar combination utah wyoming dominion energy agreed following • contribution 75 million dominion energy questar’s qualified nonqualified definedbenefit pension plans postemployment benefit plans within six months closing date contribution made january 2017 • increasing dominion energy questar’s historical level corporate contributions charities 1 million per year least five years • withdrawal questar gas’ general rate case filed july 2016 utah commission agreement file general rate case utah commission adjust base distribution nongas rates prior july 2019 unless otherwise ordered utah commission addition questar gas agreed file general rate case wyoming commission requested rate effective date earlier january 2020 questar gas’ ability adjust rates various riders affected results operations unaudited pro forma information impact dominion energy questar combination dominion energy’s operating revenue net income attributable dominion energy consolidated statements income twelve months ended december 31 2016 increase 379 million 73 million respectively dominion energy incurred transaction transition costs 2018 2017 2016 9 million 26 million 58 million recorded operations maintenance expense respectively 16 million recorded interest related charges 2016 dominion energy’s consolidated statements income costs consist amortization financing costs charitable contribution commitment described employeerelated expenses professional fees miscellaneous costs following unaudited pro forma financial information reflects consolidated results operations dominion energy assuming dominion energy questar combination taken place january 1 2016 unaudited pro forma financial information presented illustrative purposes necessarily indicative consolidated results operations would achieved future consolidated results operations combined company 1 amounts include adjustments nonrecurring costs directly related dominion energy questar combination contribution dominion energy questar pipeline dominion energy midstream october 2016 dominion energy entered contribution agreement dominion energy contributed dominion energy questar pipeline dominion energy midstream upon closing agreement december 1 2016 dominion energy midstream became owner issued outstanding membership interests dominion energy questar pipeline exchange consideration consisting dominion energy midstream common convertible preferred units combined value 467 million cash payment 823 million 300 million considered debtfinanced distribution total 13 billion addition terms contribution agreement dominion energy midstream repurchased 6656839 common units dominion energy repaid 301 million promissory note dominion energy december 2016 cash proceeds transactions utilized december 2016 repay 12 billion term loan agreement borrowed september 2016 since dominion energy consolidates dominion energy midstream financial reporting purposes transactions associated contribution agreement eliminated upon consolidation see note 5 tax impacts transactions sale questar fueling company december 2016 dominion energy completed sale questar fueling company proceeds sale 28 million net transaction costs gain loss recorded dominion energy’s consolidated statements income sale resulted measurement period adjustments net assets acquired dominion energy questar see purchase price allocation section additional details measurement period adjustments recorded whollyowned merchant solar projects acquisitions following table presents significant completed acquisitions whollyowned merchant solar projects dominion energy 1 purchase price primarily allocated property plant equipment 2 includes acquisition cost 3 april 2017 dominion energy discontinued efforts acquisition additional 20 mw solar project solar frontier americas holding llc addition 2016 dominion energy acquired 100 equity interests seven solar projects virginia north carolina south carolina aggregate purchase price 32 million allocated property plant equipment projects cost 421 million total including initial acquisition costs generate 221 mw combined one projects commenced commercial operations 2016 remaining projects commenced commercial operations 2017 longterm power purchase interconnection operation maintenance agreements executed projects described projects included power generation operating segment dominion energy claimed federal investment tax credits solar projects sale interest merchant solar projects september 2015 dominion energy signed agreement sell noncontrolling interest consisting 33 equity interests thencurrently whollyowned merchant solar projects 24 solar projects totaling 425 mw sunedison december 2015 sale interest 15 solar projects closed 184 million sale interest remaining projects completed january 2016 117 million upon closing sunedison sold interest projects terra nova renewable partners nonwhollyowned merchant solar projects acquisitions four brothers three cedars june 2015 dominion energy acquired 50 units four brothers sunedison 64 million consideration four brothers operates four solar projects located utah produce sell electricity renewable energy credits facilities began commercial operations third quarter 2016 generating 320 mw cost approximately 670 million september 2015 dominion energy acquired 50 units three cedars sunedison 43 million consideration three cedars operates three solar projects located utah produce sell electricity renewable energy credits facilities began commercial operations third quarter 2016 generating 210 mw cost approximately 450 million four brothers three cedars facilities operate longterm power purchase interconnection operation maintenance agreements dominion energy claimed 99 federal investment tax credits projects combined notes consolidated financial statements continued dominion energy assumed majority agreements provide administrative support services connection operations maintenance facilities technical management services solar facilities costs related services provided agreements immaterial years ended december 31 2018 2017 2016 november 2016 nrg acquired 50 units four brothers three cedars previously held sunedison subsequent dominion energy’s acquisition four brothers three cedars sunedison nrg made contributions four brothers three cedars 301 million aggregate december 31 2017 reflected noncontrolling interests consolidated balance sheets august 2018 nrg’s ownership four brothers three cedars transferred gip dominion energy dominion energy gas blue racer see note 9 discussion transactions related blue racer note 4 operating revenue companies’ operating revenue subsequent adoption revised guidance revenue recognition contracts customers consists following 1 see notes 9 24 amounts attributable related parties affiliates 2 amounts include 241 million 206 million year ended december 31 2018 primarily consisting ngl sales dominion energy dominion energy gas respectively considered goods transferred point time addition amounts include 17 million 11 million sales renewable energy credits dominion energy virginia power year ended december 31 2018 respectively considered goods transferred point time 3 amounts include 15 million alternative revenue dominion energy virginia power year ended december 31 2018 table discloses aggregate amount transaction price allocated fixedprice performance obligations unsatisfied partially unsatisfied end reporting period companies expect recognize revenue revenues relate contracts containing fixed prices companies earn associated revenue time stand ready perform services provided disclosure include revenue related performance obligations part contract original durations one year less addition disclosure include expected consideration related performance obligations companies elect recognize revenue amount right invoice contract assets represent entity’s right consideration exchange goods services entity transferred customer december 31 2018 december 31 2017 dominion energy’s contract asset balances 42 million 46 million respectively dominion energy gas’ contract asset balances 58 million 66 million december 31 2018 december 31 2017 respectively dominion energy dominion energy gas’ contract assets recorded deferred charges assets consolidated balance sheets contract liabilities represent entity’s obligation transfer goods services customer entity received consideration amount due customer december 31 2018 december 31 2017 dominion energy’s contract liability balances 106 million 132 million respectively december 31 2018 december 31 2017 virginia power’s contract liability balances 22 million 50 million respectively december 31 2018 december 31 2017 dominion energy gas’ contract liability balances 40 million 41 million respectively year ended december 31 2018 dominion energy virginia power dominion energy gas recognized revenue 94 million 25 million 41 million respectively beginning contract liability balances companies fulfilled obligations provide service customers companies’ contract liabilities recorded current liabilities deferred credits liabilities consolidated balance sheets companies’ operating revenue prior adoption revised guidance revenue recognition contracts customers consisted following note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently companies routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material combined notes consolidated financial statements continued 2017 tax reform act included broad range tax reform provisions affecting companies discussed note 2 2017 tax reform act reduced corporate income tax rate 35 21 tax years beginning december 31 2017 date enactment deferred tax assets liabilities remeasured based upon new 21 enacted tax rate expected apply temporary differences realized settled specific provisions related regulated public utilities 2017 tax reform act generally allow continued deductibility interest expense changed tax depreciation certain property acquired september 27 2017 continued certain rate normalization requirements accelerated depreciation benefits indicated note 2 certain companies’ operations including accounting income taxes subject regulatory accounting treatment regulated operations many changes deferred taxes represent amounts probable collection refund customers recorded either increase regulatory asset liability 2017 tax reform act included provisions stipulate excess deferred taxes may passed back customers certain accelerated tax depreciation benefits potential refunds deferred taxes may determined regulators see note 13 information companies accounted effects 2017 tax reform act although changes could occur additional guidance issued finalized addition certain states companies operate may conform provisions 2017 tax reform act ultimate resolution clarification matters may result favorable unfavorable impacts net income cash flows taxrelated assets liabilities could material changes deferred taxes resulting 2017 tax reform act companies’ interpretations proposed regulations issued 2018 recorded either increase regulatory liability adjustment deferred tax provision continuing operations details income tax expense continuing operations including noncontrolling interests follows 2017 tax reform act reduced statutory federal income tax rate 21 beginning january 2018 accordingly current income taxes deferred income taxes originate 2018 recorded new 21 rate dominion energy less 1 million state deferred income tax expense result reversal deferred taxes upon sale interest blue racer fairless manchester dominion energy’s current federal income taxes primarily include recognition 47 million benefit related carryback claim specified liability losses involving prior tax years accounting reduction corporate income tax rate decreased deferred income tax expense 851 million dominion energy 93 million virginia power 197 million dominion energy gas year ending december 31 2017 decrease deferred income taxes dominion energy primarily relates remeasurement deferred taxes merchant operations includes effects virginia power dominion energy gas virginia power dominion energy gas certain regulatory assets liabilities yet charged returned customers rates earn return including unrecognized pension postretirement benefits remeasurement deferred taxes regulatory balances charged continuing operations 2017 ratemaking purposes dominion energy gas’ subsidiary deti follows cash method pension contributions deferred taxes recorded pension balances required gaap included component rates therefore remeasurement deferred taxes charged continuing operations 2017 2016 dominion energy realized taxable gain resulting contribution dominion energy questar pipeline dominion energy midstream contribution related transactions resulted increases tax basis dominion energy questar pipeline’s assets number dominion energy midstream’s common convertible preferred units held noncontrolling interests direct tax effects transactions included provision current income taxes 212 million offsetting benefit deferred income taxes 96 million charged common shareholders’ equity federal tax liability reduced 129 million tax credits generated 2016 otherwise would resulted additional credit carryforwards 17 million benefit provided domestic production activities deduction benefits indirect effects contribution transaction reflected dominion energy’s 2016 current federal income tax expense continuing operations including noncontrolling interests statutory us federal income tax rate reconciles companies’ effective income tax rate follows companies’ rateregulated entities deferred taxes reverse weighted average rate used originate deferred tax liability cases 35 companies recorded estimate portion excess deferred income tax amortization 2018 changes estimates amounts probable collection return customers reversal excess deferred income taxes impact effective tax rate may ultimately impact rates charged customers described note 13 consolidated financial statements companies decreased revenue increased regulatory liabilities offset deferred tax impacts accordance applicable regulatory commission orders formula rate mechanisms 2018 companies applied provisions recently proposed regulations addressing availability federal bonus depreciation period beginning september 27 2017 december 31 2017 application changes increased dominion energy’s 2017 net operating loss carryforward benefit recognized 21 rate result dominion energy’s effective tax rate reflects 23 million increase deferred income tax expense associated remeasurement deferred tax asset application proposed regulations dominion energy gas impact income tax expense changes remeasurement deferred tax liabilities increased regulatory liabilities 35 million effects changes virginia power immaterial amounts adjustments represent companies’ best estimate based available information could subject change based additional guidance yet finalized regulations addition changes estimates amounts probable return collection customers increased deferred income tax expense virginia power 23 million increased regulatory liabilities 31 million dominion energy gas similar changes estimates decreased income tax expense 11 million regulatory liabilities 16 million changes also impacted dominion energy addition dominion energy dominion energy gas’ effective tax rates reflect impacts state legislative change enacted second quarter 2018 retroactive january 1 2018 2017 companies’ effective tax rates reflect net benefit remeasurement deferred taxes resulting lower corporate income tax rate promulgated 2017 tax reform act completion audits state tax authorities resulted recognition previously unrecognized tax benefits december 31 2016 virginia power’s unrecognized tax benefits included state refund claims open tax years 2011 management believed settlement claims including interest thereon within next twelve months remote june 2017 virginia power received accepted cash offer settle refund claims result settlement virginia power decreased unrecognized tax benefits 8 million recognized 2 million tax benefit impacted effective tax rate also connection settlement virginia power realized interest income 11 million reflected income consolidated statements income 2016 dominion energy’s effective tax rate reflects valuation allowance state credit expected utilized dominion energy subsidiary files separate state return combined notes consolidated financial statements continued companies’ deferred income taxes consist following significant impact reflected 2017 tax reform act adjustment net accumulated deferred income tax liability reduction corporate income tax rate 21 addition amounts recognized deferred income tax expense impacts 2017 tax reform act decreased accumulated deferred income tax liability 31 billion dominion energy 19 billion virginia power 08 billion dominion energy gas december 31 2017 dominion energy december 31 2017 balance sheet reflected impact 2017 tax reform act regulatory liabilities increased regulatory liabilities 42 billion created corresponding deferred tax asset 11 billion virginia power regulatory liabilities increased 26 billion created deferred tax asset 07 billion dominion energy gas regulatory liabilities increased 10 billion created deferred tax asset 02 billion adjustments impact 2017 cash flows december 31 2018 dominion energy following deductible loss credit carryforwards december 31 2018 virginia power following deductible loss credit carryforwards december 31 2018 dominion energy gas following deductible loss credit carryforwards reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion energy subsidiaries unrecognized tax benefits 37 million 31 million 45 million december 31 2018 2017 2016 respectively dominion energy change unrecognized tax benefits increased income tax expense 5 million 2018 decreased income tax expense 9 million 18 million 2017 2016 respectively virginia power unrecognized tax benefits 2 million 3 million 9 million december 31 2018 2017 2016 respectively virginia power change unrecognized tax benefits decreased income tax expense 2 million 6 million 2018 2017 respectively increased income tax expense 1 million 2016 dominion energy gas unrecognized tax benefits less 1 million december 31 2018 2017 5 million december 31 2016 dominion energy gas change unrecognized tax benefits decreased income tax expense less 1 million 5 million 11 million 2018 2017 2016 respectively dominion energy participates irs compliance assurance process provides opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions agreed irs 2018 dominion energy submitted carryback claims specified liability losses involving prior tax years claims subject irs examination exception claims irs completed audit tax years 2017 statute limitations yet expired tax years 2012 although dominion energy received final letter indicating changes taxable income tax year 2017 material adjustments expected irs examination tax year 2018 ongoing reasonably possible settlement negotiations expiration statutes limitations could result decrease unrecognized tax benefits 2019 18 million dominion energy less 1 million virginia power dominion energy gas changes occur revisions accrual interest tax underpayments overpayments earnings could increase 17 million dominion energy less 1 million virginia power dominion energy gas otherwise regard 2018 prior years dominion energy virginia power dominion energy gas cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2019 major states dominion energy operates earliest tax year remaining open examination follows 1 considered major state dominion energy gas’ operations 2 considered major state virginia power’s operations companies also obligated report adjustments resulting irs settlements state tax authorities addition dominion energy utilizes operating losses tax credits generated years statute limitations expired amounts generally subject examination note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact companies’ nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion energy applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments including held nuclear decommissioning dominion energy’s rabbi pension postretirement benefit plan trusts accordance requirements discussed virginia power applies fair value measurements certain assets liabilities including commodity interest rate derivative instruments investments including held nuclear decommissioning trust accordance requirements discussed dominion energy gas applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments including held pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described inputs assumptions fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including industry publications lesser extent broker quotes evaluating pricing information provided designated contract market settlement pricing services brokers companies consider ability transact quoted price ie quotes based active market inactive market extent pricing models used pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases unobservable inputs developed substantiated using historical information avail combined notes consolidated financial statements continued able market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty sources options contracts optionlike characteristics observable pricing information available external sources dominion energy virginia power generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value dominion energy virginia power use option models special circumstances including limited spread approximation model swing option model contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity derivative contracts • forward commodity prices • transaction prices • price volatility • price correlation • volumes • commodity location • interest rates • credit quality counterparties companies • credit enhancements • time value interest rate derivative contracts • interest rate curves • credit quality counterparties companies • notional value • credit enhancements • time value foreign currency derivative contracts • foreign currency forward exchange rates • interest rates • credit quality counterparties companies • notional value • credit enhancements • time value investments • quoted securities prices indices • securities trading information including volume restrictions • maturity • interest rates • credit quality levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels • level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments certain exchangetraded derivatives exchangelisted equities us international equity securities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion energy virginia power benefit plan trust funds dominion energy dominion energy gas rabbi trust funds dominion energy • level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include commodity forwards swaps interest rate swaps foreign currency swaps cash equivalents corporate debt instruments government securities fixed income investments held nuclear decommissioning trust funds dominion energy virginia power benefit plan trust funds dominion energy dominion energy gas rabbi trust funds dominion energy • level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 companies consist longdated commodity derivatives ftrs certain natural gas power options modeled commodity derivatives fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability alternative investments consisting investments partnerships joint ventures alternative investments held nuclear decommissioning benefit plan trust funds generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date alternative investments recorded nav classified fair value hierarchy transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations companies enter certain physical financial forwards futures options swaps considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures contracts option model used value level 3 physical financial options discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices original sales prices volumes level 3 fair value measurements certain forward market prices implied price volatilities considered unobservable following table presents dominion energy’s quantitative information level 3 fair value measurements december 31 2018 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets combined notes consolidated financial statements continued sensitivity fair value measurements changes significant unobservable inputs follows nonrecurring fair value measurements dominion energy see note 9 information regarding impairment charge recognized associated dominion energy’s equity method investment fowler ridge atlantic coast pipeline guarantee agreement october 2017 dominion energy entered guarantee agreement connection atlantic coast pipeline’s obligation 34 billion revolving credit facility see note 22 information guarantee agreement associated atlantic coast pipeline’s revolving credit facility dominion energy recorded liability 30 million fair value guarantee inception associated guarantee agreement fair value estimated using discounted cash flow method considered level 3 fair value measurement due use significant unobservable input related interest rate differential interest rate charged guaranteed revolving credit facility estimated interest rate would charged loan guaranteed dominion energy gas fourth quarter 2018 subsequent announcement sale dominion energy’s interest blue racer dominion energy gas conducted review strategic alternatives remaining gathering processing assets dgp based evaluation dgp’s longlived assets recoverability probability weighted approach dominion energy gas determined assets impaired result evaluation dominion energy gas recorded charge 219 million 165 million aftertax impairment assets related charges consolidated statements income write dgp’s property plant equipment estimated fair value 190 million fair value property plant equipment estimated using income approach market approach valuation considered level 3 fair value measurement due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risks inherent future cash flows market prices recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion energy dominion energy gas’ pension postretirement benefit plans presented note 21 dominion energy following table presents dominion energy’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts excludes 220 million 88 million assets december 31 2018 2017 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change dominion energy’s assets liabilities measured fair value recurring basis included level 3 fair value category combined notes consolidated financial statements continued virginia power following table presents virginia power’s quantitative information level 3 fair value measurements december 31 2018 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trusts excludes 160 million 27 million assets december 31 2018 2017 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2018 2017 2016 dominion energy gas following table presents dominion energy gas’ assets liabilities derivatives measured fair value recurring basis hierarchy level including current noncurrent portions following table presents net change dominion energy gas’ derivative assets liabilities measured fair value recurring basis included level 3 fair value category combined notes consolidated financial statements continued gains losses included earnings level 3 fair value category years ended december 31 2018 2017 2016 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2018 2017 2016 fair value financial instruments substantially companies’ financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash restricted cash equivalents customer receivables affiliated receivables shortterm debt affiliated current borrowings payables affiliates accounts payable representative fair value shortterm nature instruments companies’ financial instruments recorded fair value carrying amounts estimated fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issuances shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments december 31 2018 2017 includes valuation certain fair value hedges associated dominion energy’s fixed rate debt 20 million 22 million respectively 3 carrying amount includes amounts represent unamortized debt issuance costs discount premium 4 carrying amount includes amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments note 7 derivatives hedge accounting activities see note 2 companies’ accounting policies objectives strategies using derivative instruments see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross companies’ consolidated balance sheets dominion energy’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared virginia power dominion energy gas’ derivative contracts include overthecounter transactions overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit cases forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized companies’ consolidated balance sheets well letters credit forms security included tables subject offset master netting similar arrangements would reduce net exposure see note 23 information regarding creditrelated contingent features companies derivative instruments dominion energy balance sheet presentation tables present dominion energy’s derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid 1 excludes 7 million 4 million derivative assets december 31 2018 2017 respectively subject master netting similar arrangements 1 excludes 1 million derivative liabilities december 31 2018 2017 subject master netting similar arrangements combined notes consolidated financial statements continued volumes following table presents volume dominion energy’s derivative activity december 31 2018 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil 3 maturity determined based final settlement period 4 euro equivalent volumes  250000000 ineffectiveness aoci years ended december 31 2018 2017 2016 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness immaterial amounts excluded assessment effectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci dominion energy’s consolidated balance sheet december 31 2018 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates fair value gains losses derivative instruments following tables present fair values dominion energy’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets dominion energy’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets dominion energy’s consolidated balance sheets 3 current derivative liabilities presented current liabilities dominion energy’s consolidated balance sheets 4 noncurrent derivative liabilities presented deferred credits liabilities dominion energy’s consolidated balance sheets following tables present gains losses dominion energy’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion energy’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income 3 amounts recorded dominion energy’s consolidated statements income classified interest related charges 4 amounts recorded dominion energy’s consolidated statements income classified income combined notes consolidated financial statements continued 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income virginia power balance sheet presentation tables present virginia power’s derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid 1 excludes 26 million 11 million derivative assets december 31 2018 2017 respectively subject master netting similar arrangements 1 excludes 9 million 5 million derivative liabilities december 31 2018 2017 respectively subject master netting similar arrangements volumes following table presents volume virginia power’s derivative activity december 31 2018 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 maturity determined based final settlement period ineffectiveness aoci years ended december 31 2018 2017 2016 gains losses hedging instruments determined ineffective immaterial following table presents selected information related losses cash flow hedges included aoci virginia power’s consolidated balance sheet december 31 2018 amounts reclassified aoci earnings generally offset recognition hedged transactions eg interest payments earnings thereby achieving realization interest rates contemplated underlying risk management strategies vary expected amounts presented result changes interest rates combined notes consolidated financial statements continued fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets virginia power’s consolidated balance sheets 3 current derivative liabilities presented current liabilities virginia power’s consolidated balance sheets 4 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases dominion energy gas balance sheet presentation tables present dominion energy gas’ derivative asset liability balances type financial instrument gross amounts recognized consolidated balance sheets netted derivative instruments cash collateral received paid combined notes consolidated financial statements continued volumes following table presents volume dominion energy gas’ derivative activity december 31 2018 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 maturity determined based final settlement period 2 euro equivalent volumes 250000000 ineffectiveness aoci years ended december 31 2018 2017 2016 gains losses hedging instruments determined ineffective immaterial following table presents selected information related gains losses cash flow hedges included aoci dominion energy gas’ consolidated balance sheet december 31 2018 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates fair value gains losses derivative instruments following table presents fair values dominion energy gas’ derivatives presented consolidated balance sheets 1 current derivative assets presented current assets dominion energy gas’ consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets dominion energy gas’ consolidated balance sheets 3 current derivative liabilities presented current liabilities dominion energy gas’ consolidated balance sheets 4 noncurrent derivative liabilities presented deferred credits liabilities dominion energy gas’ consolidated balance sheets following tables present gains losses dominion energy gas’ derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion energy gas’ consolidated statements income 2 amounts recorded dominion energy gas’ consolidated statements income classified interest related charges 3 amounts recorded dominion energy gas’ consolidated statements income classified income note 8 earnings per share following table presents calculation dominion energy’s basic diluted eps 1 dilutive securities 2018 consist primarily forward sale agreements effective april 2018 december 2018 dilutive securities 2016 consist primarily 2013 equity units see notes 17 19 information 2014 equity units excluded calculation diluted eps year ended december 31 2016 dilutive stock price threshold met 2016 equity units excluded calculation diluted eps years ended december 31 2018 2017 2016 dilutive stock price threshold met see note 17 information dominion energy midstream convertible preferred units potentially dilutive securities effect calculation diluted eps years ended december 31 2018 2017 2016 see note 19 information combined notes consolidated financial statements continued note 9 investments dominion energy equity debt securities rabbi trust securities equity debt securities cash equivalents dominion energy’s rabbi trusts classified trading totaled 111 million 112 million december 31 2018 2017 respectively decommissioning trust securities dominion energy holds equity debt securities cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion energy’s decommissioning trust funds summarized 1 effective january 2018 unrealized gains losses equity securities including previously classified cost method investments included income nuclear decommissioning trust regulatory liability discussed note 2 unrealized gains losses equity securities 2017 fixed income securities included aoci nuclear decommissioning trust regulatory liability discussed note 2 3 includes pending sales securities 5 million december 31 2017 4 fair value securities unrealized loss position 833 million 565 million december 31 2018 2017 respectively portion unrealized gains losses relates equity securities held within dominion energy’s nuclear decommissioning trusts summarized 1 included income nuclear decommissioning trust regulatory liability discussed note 2 fair value dominion energy’s debt securities readily determinable fair values held nuclear decommissioning trust funds december 31 2018 contractual maturity follows presented selected information regarding dominion energy’s equity debt securities readily determinable fair values held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 dominion energy recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 5 million 13 million december 31 2017 2016 respectively virginia power virginia power holds equity debt securities cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 effective january 2018 unrealized gains losses equity securities including previously classified cost method investments included income nuclear decommissioning trust regulatory liability discussed note 2 unrealized gains losses equity securities 2017 fixed income securities included aoci nuclear decommissioning trust regulatory liability discussed note 2 3 includes pending sales securities 6 million december 31 2018 2017 4 fair value securities unrealized loss position 404 million 234 million december 31 2018 2017 respectively portion unrealized gains losses relates equity securities held within virginia power’s nuclear decommissioning trusts summarized 1 included income nuclear decommissioning trust regulatory liability discussed note 2 fair value virginia power’s debt securities readily determinable fair values held nuclear decommissioning trust funds december 31 2018 contractual maturity follows presented selected information regarding virginia power’s equity debt securities readily determinable fair values held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 combined notes consolidated financial statements continued virginia power recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 2 million 8 million december 31 2017 2016 respectively equity method investments dominion energy dominion energy gas investments dominion energy dominion energy gas account equity method accounting follows 1 comprised dominion energy midstream’s interest 2593 dominion energy gas’ interest 2407 see note 15 information 2 liability less 1 million 17 million associated nedpower recorded deferred credits liabilities consolidated balance sheets december 31 2018 2017 respectively see additional discussion nedpower dominion energy’s equity earnings investments totaled 197 million 14 million 111 million 2018 2017 2016 respectively included income dominion energy’s consolidated statements income dominion energy received distributions investments 209 million 419 million 104 million 2018 2017 2016 respectively december 31 2018 2017 carrying amount dominion energy’s investments exceeded share underlying equity net assets 161 million 249 million respectively december 31 2018 differences comprised 146 million equity method goodwill amortized 15 million related basis differences dominion energy’s investments wind projects amortized useful lives underlying assets atlantic coast pipeline amortized term credit facility december 31 2017 differences comprised 176 million equity method goodwill 73 million related basis differences dominion energy’s investments blue racer wind projects atlantic coast pipeline dominion energy gas’ equity earnings investment totaled 24 million 2018 21 million 2017 2016 dominion energy gas received distributions investment 28 million 24 million 22 million 2018 2017 2016 respectively december 31 2018 2017 carrying amount dominion energy gas’ investment exceeded share underlying equity net assets 8 million difference reflects equity method goodwill amortized may 2016 dominion energy gas sold 065 noncontrolling partnership interest iroquois transcanada approximately 7 million resulted 5 million 3 million aftertax gain included income dominion energy gas’ consolidated statements income dominion energy atlantic coast pipeline september 2014 dominion energy along duke southern company gas announced formation atlantic coast pipeline atlantic coast pipeline partnership agreement includes provisions allow dominion energy option purchase additional ownership interest atlantic coast pipeline maintain leading ownership percentage october 2016 dominion energy purchased additional 3 membership interest atlantic coast pipeline duke 14 million december 31 2018 members hold following membership interests dominion energy 48 duke 47 southern company gas 5 atlantic coast pipeline focused constructing approximately 600mile natural gas pipeline running west virginia north carolina subsidiaries affiliates three members plan customers pipeline 20year contracts atlantic coast pipeline considered equity method investment dominion energy ability exercise significant influence control investee see note 15 information deti provides services atlantic coast pipeline totaled 203 million 129 million 95 million 2018 2017 2016 respectively included operating revenue dominion energy dominion energy gas’ consolidated statements income amounts receivable related services 13 million 12 million december 31 2018 2017 respectively composed entirely accrued unbilled revenue included receivables dominion energy dominion energy gas’ consolidated balance sheets october 2017 dominion energy entered guarantee agreement support portion atlantic coast pipeline’s obligation credit facility see note 22 information dominion energy contributed 414 million 310 million 184 million 2018 2017 2016 respectively atlantic coast pipeline dominion energy received distributions 36 million 270 million 2018 2017 respectively atlantic coast pipeline distributions received 2016 third fourth quarters 2018 ferc stop work order together delays obtaining permits necessary construction along construction delays due judicial actions impacted cost schedule project result project cost estimates increased 60 billion 65 billion 70 billion 75 billion excluding financing costs atlantic coast pipeline expects achieve late 2020 inservice date least key segments project remainder may extend early 2021 alternatively takes longer resolve judicial issues appeal supreme court us full inservice could extend end 2021 total project cost estimated increase additional 250 million resulting total project cost estimates 725 billion 775 billion excluding financing costs abnormal weather work delays including due judicial regulatory action conditions may result cost schedule modifications future could result material impact dominion energy’s cash flows financial position andor results operations blue racer december 2012 dominion energy formed joint venture caiman provide midstream services natural gas producers operating utica shale region ohio portions pennsylvania blue racer equal partnership dominion energy caiman dominion energy contributing midstream assets caiman contributing private equity capital december 2016 dominion energy gas repurchased portion western system blue racer 10 million december 2018 dominion energy sold 50 limited partnership interest blue racer upfront cash consideration 105 billion additional consideration 150 million subject increase interest costs effective march 2019 payable upon purchaser’s availability cash additional consideration recorded fair value 150 million date sale following discounted cash flow model included within receivables consolidated balance sheets december 31 2018 valuation considered level 3 fair value measurement due use judgment unobservable inputs including projected timing amount future cash flows discount rate reflecting risks inherent future cash flows result sale dominion energy recognized gain 546 million 390 million aftertax included income consolidated statements income also purchaser agreed pay additional consideration contingent upon achievement certain financial performance milestones blue racer 2019 2021 pursuant purchase agreement aggregate exceed 300 million represents gain contingency result dominion energy recognize additional gain unless consideration realizable fowler ridge nedpower fourth quarter 2017 dominion energy recorded charge 126 million 76 million aftertax income consolidated statements income reflecting share longlived asset impairment property plant equipment recorded nedpower resulted losses excess dominion energy’s investment balance dominion energy recorded excess losses due commitment provide financial support nedpower resulting liability 17 million december 31 2017 recorded deferred credits liabilities consolidated balance sheets result impairment recorded nedpower dominion energy evaluated equity method investment fowler ridge similar windpowered merchant generation facility determined fair value thantemporarily impaired recorded impairment charge 32 million 20 million aftertax income consolidated statements income fair value 81 million estimated using discounted cash flow method considered level 3 fair value measurement due use significant unobservable inputs related timing amount future equity distributions based investee’s future wind generation operating costs catalyst old river hydroelectric limited partnership september 2018 dominion energy completed sale 25 limited partnership interest catalyst old river hydroelectric limited partnership received proceeds 91 million sale resulted gain 87 million 63 million aftertax included income dominion energy’s consolidated statement income note 10 property plant equipment major classes property plant equipment respective balances companies follows combined notes consolidated financial statements continued jointlyowned power stations dominion energy virginia power’s proportionate share jointlyowned power stations december 31 2018 follows 1 units jointly owned virginia power 2 unit jointly owned dominion energy coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion energy virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income sale certain retail energy marketing assets october 2017 dominion energy entered agreement sell certain assets associated nonregulated retail energy marketing operations total consideration 143 million subject customary approvals certain adjustments december 2017 first phase agreement closed 79 million resulted recognition 78 million 48 million aftertax benefit included gains sales assets dominion energy’s consolidated statements income october 2018 second phase agreement closed 63 million resulted recognition 65 million 49 million aftertax benefit included gains sales assets dominion energy’s consolidated statements income pursuant agreement dominion energy entered commission agreement buyer upon first closing december 2017 buyer pay commission connection right use dominion energy’s brand marketing materials services tenyear term sale certain merchant generation facilities december 2018 dominion energy completed sale fairless manchester total consideration 12 billion subject customary closing adjustments dominion energy recognized gain 210 million 198 million aftertax included gains sales assets dominion energy’s consolidated statements income aftertax gain reflects dominion energy’s assessment morelikelythannot conclusion utilization state tax incentives reduce income tax expense associated sale facilities acquisition solar projects september 2017 virginia power entered agreements acquire two solar development projects north carolina first acquisition closed october 2018 facility commenced commercial operations december 2018 cost 140 million including initial acquisition cost second acquisition expected close prior project commencing commercial operations expected end 2019 cost approximately 140 million constructed including initial acquisition cost projects expected generate approximately 155 mw combined virginia power anticipates claiming federal investment tax credits solar projects february 2019 virginia power completed acquisition solar development project virginia project expected commence commercial operations first quarter 2019 cost approximately 37 million constructed including initial acquisition cost project expected generate approximately 20 mw virginia power anticipates claiming federal investment tax credits solar project august 2018 virginia power entered agreements acquire two solar development projects north carolina virginia first acquisition expected close prior project commencing commercial operations expected end 2019 cost approximately 120 million constructed including initial acquisition cost second acquisition expected close prior project commencing commercial operations expected end 2020 cost approximately 130 million including initial acquisition cost projects expected generate approximately 155 mw combined virginia power anticipates claiming federal investment tax credits solar projects assignment tower rental portfolio virginia power rents space certain electric transmission towers various wireless carriers communications antennas equipment march 2017 virginia power sold rental portfolio vertical bridge towers ii llc 91 million cash proceeds subject virginia power’s fercregulated tariff required return half proceeds customers virginia power recorded 6 million operating revenue 11 million income 2018 2017 respectively 29 million remaining recognized ratably 2023 assignments shale development rights december 2013 dominion energy gas closed agreements two natural gas producers convey time approximately 100000 acres marcellus shale development rights underneath several natural gas storage fields agreements provided payments dominion energy gas subject customary adjustments approximately 200 million period nine years overriding royalty interest gas produced acreage 2013 dominion energy gas received approximately 100 million cash proceeds 2014 dominion energy gas received 16 million additional cash proceeds resulting postclosing adjustments march 2015 dominion energy gas one natural gas producers closed amendment agreement included immediate conveyance approximately 9000 acres marcellus shale development rights twoyear extension term original agreement conveyance development rights resulted recognition 43 million 27 million aftertax previously deferred revenue operations maintenance expense dominion energy gas’ consolidated statements income april 2016 dominion energy gas natural gas producer closed amendment agreement included immediate conveyance 32 partial interest remaining approximately 70000 acres conveyance resulted recognition remaining 35 million 21 million aftertax previously deferred revenue gains sales assets dominion energy gas’ consolidated statements income august 2017 dominion energy gas natural gas producer signed amendment agreement included finalization contractual matters previous conveyances conveyance dominion energy gas’ remaining 68 interest approximately 70000 acres elimination dominion energy gas’ overriding royalty interest gas produced acreage dominion energy gas received total consideration 130 million 65 million received 2017 65 million received september 2018 connection final conveyance result amendment 2017 dominion energy gas recognized 56 million 33 million aftertax gain included gains sales assets dominion energy gas’ consolidated statements income associated finalization contractual matters previous conveyances 9 million 5 million aftertax gain included gains sales assets dominion energy gas’ consolidated statements income associated elimination overriding royalty interest 2018 65 million 47 million aftertax gain included gains sales assets dominion energy gas’ consolidated statements income associated final conveyance acreage november 2014 dominion energy gas closed agreement natural gas producer convey time approximately 24000 acres marcellus shale development rights underneath one natural gas storage fields agreement provided payments dominion energy gas subject customary adjustments approximately 120 million period four years overriding royalty interest gas produced acreage november 2014 dominion energy gas closed agreement received proceeds 60 million associated initial conveyance approximately 12000 acres connection agreement 2016 dominion energy gas conveyed 50 interest approximately 4000 acres marcellus shale development rights received proceeds 10 million overriding royalty interest gas produced acreage transactions resulted 10 million 6 million aftertax gain july 2017 connection existing agreement dominion energy gas conveyed additional 50 interest approximately 2000 acres marcellus shale development rights received proceeds 5 million overriding royalty interest gas produced acreage transaction resulted 5 million 3 million aftertax gain gains included gains sales assets dominion energy gas’ consolidated statements income january 2018 dominion energy gas natural gas producer closed amendment agreement included conveyance dominion energy gas’ remaining 50 interest approximately 18000 acres elimination dominion energy gas’ overriding royalty interest gas produced acreage dominion energy gas received proceeds 28 million resulting approximately 28 million 20 million aftertax gain recorded gains sales assets dominion energy gas’ consolidated statements income march 2018 dominion energy gas closed agreement natural gas producer convey approximately 11000 acres utica point pleasant shale development rights underneath one natural gas storage fields agreement provided payment dominion energy gas subject customary adjustments 16 million march 2018 dominion energy gas received cash proceeds 16 million associated conveyance acreage resulting 16 million 12 million aftertax gain recorded gains sales assets dominion energy gas’ consolidated statements income june 2018 dominion energy gas closed amendment agreement natural gas producer elimination dominion energy gas’ overriding royalty interest gas produced approximately 9000 acres marcellus shale development rights underneath one natural gas storage fields previously conveyed december 2013 june 2018 dominion energy gas received proceeds 6 million associated transaction resulting 6 million 4 million aftertax gain recorded gains sales assets dominion energy gas’ consolidated statements income combined notes consolidated financial statements continued note 11 goodwill intangible assets goodwill changes dominion energy dominion energy gas’ carrying amount segment allocation goodwill presented 1 goodwill recorded corporate segment allocated primary operating segments goodwill impairment testing purposes 2 goodwill amounts contain accumulated impairment losses 3 see note 3 intangible assets companies’ intangible assets subject amortization estimated useful lives dominion energy’s amortization expense intangible assets 82 million 80 million 73 million 2018 2017 2016 respectively 2018 dominion energy acquired 127 million intangible assets primarily representing software rightofuse assets estimated weightedaverage amortization period approximately 15 years amortization expense virginia power’s intangible assets 31 million 2018 2017 29 million 2016 2018 virginia power acquired 49 million intangible assets primarily representing software estimated weightedaverage amortization period 11 years dominion energy gas’ amortization expense intangible assets 14 million 2018 2017 6 million 2016 2018 dominion energy gas acquired 14 million intangible assets primarily representing software rightofuse assets estimated weightedaverage amortization period approximately 10 years components intangible assets follows annual amortization expense intangible assets estimated follows note 12 regulatory assets liabilities regulatory assets liabilities include following 1 reflects deferred fuel expenses virginia north carolina jurisdictions dominion energy virginia power’s generation operations see note 13 information 2 primarily reflects deferrals electric transmission ferc formula rate deferral costs associated certain current prospective rider projects net income taxes refundable 2017 tax reform act virginia power deferrals costs associated certain current prospective rider projects dominion energy gas see note 13 information 3 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 4 reflects unrecovered overrecovered gas costs regulated gas operations recovered refunded filings applicable regulatory authority 5 represents unrecognized pension postretirement employee benefit costs expected recovered future rates generally expected remaining service period plan participants certain dominion energy dominion energy gas’ rateregulated subsidiaries 6 ohio legislation house bill 95 became effective september 2011 law updates natural gas legislation enabling gas companies include uptodate cost levels filing rate cases also allows gas companies seek approval capital expenditure plans gas companies recognize carrying costs associated capital investments placed service defer carrying costs plus depreciation property tax expenses recovery ratepayers future 7 reflects amounts related pjm transmission cost allocation matter see note 13 information 8 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 9 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 10 balance refundable customers related decrease revenue requirements recovery income taxes companies’ regulated electric generation electric natural gas distribution operations see note 13 information combined notes consolidated financial statements continued 11 charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers see note 13 information 12 current regulatory liabilities presented current liabilities dominion energy dominion energy gas’ consolidated balance sheets 13 amounts recorded pass effect reduced income tax rates 2017 tax reform act customers future periods reverse weighted average tax rate used build reserves remaining book life property net amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity 14 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aros 15 pipp eligible customers make reduced payments based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rider according east ohio tariff provisions see note 13 information 16 current regulatory assets presented current assets dominion energy gas’ consolidated balance sheets december 31 2018 396 million dominion energy’s 300 million virginia power’s 12 million dominion energy gas’ regulatory assets represented past expenditures currently earn return exception pjm transmission cost allocation matter majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business companies involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders andor involve significant factual issues need resolved possible companies estimate range possible loss regulatory matters companies cannot estimate statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties may represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect companies’ financial position liquidity results operations fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public util ities virginia power purchases sells electricity pjm wholesale market sells electricity wholesale purchasers virginia north carolina dominion energy’s merchant generators sell electricity pjm caiso isone wholesale markets wholesale purchasers states virginia north carolina indiana connecticut tennessee georgia california south carolina utah dominion energy’s marketbased sales tariffs authorized ferc pursuant ferc authority sell qualified facility addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return investment electric transmission infrastructure march 2010 odec north carolina electric membership corporation filed complaint ferc virginia power claiming among issues incremental costs undergrounding certain transmission line projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate settlement issues raised complaint approved ferc may 2012 march 2014 ferc issued order excluding virginia power’s transmission rates wholesale transmission customers located outside virginia incremental costs undergrounding certain transmission line projects ferc found reasonable nonvirginia wholesale transmission customers allocated incremental costs undergrounding facilities projects direct result virginia legislation virginia commission pilot programs intended benefit citizens virginia order retroactively effective march 2010 cause reallocation costs charged wholesale transmission customers loads outside virginia wholesale transmission customers loads virginia ferc determined sufficient evidence record determine magnitude underground increment held hearing determine appropriate amount undergrounding cost allocated wholesale transmission customer virginia october 2017 ferc issued order determining calculation incremental costs undergrounding transmission projects affirming costs recovered wholesale transmission customers loads located virginia ferc directed virginia power rebill wholesale transmission customers retroactively march 2010 within 30 days proceeding becomes final longer subject rehearing november 2017 virginia power north carolina electric membership corporation wholesale transmission customers filed petitions rehearing july 2018 ferc denied rehearing requests related october 2017 order determining calculation undergrounding costs several parties appealed ferc’s decision us court appeals dc circuit matter pending virginia power cannot predict outcome matter expected material effect results operations january 2019 ferc issued order denying pjm’s request waive certain provisions pjm tariff regarding liquidation portfolio ftrs owned greenhat defaulted financial obligations result ferc’s order pjm required use existing tariff provisions liquidate greenhat’s ftr portfolio allocate resulting costs pjm members february 2019 pjm filed request clarification rehearing ferc impacts order could material virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts pjm transmission rates april 2007 ferc issued order regarding transmission rate design allocation costs among pjm transmission customers including virginia power transmission service provided pjm new pjmplanned transmission facilities operate 500 kv ferc established pjm regional rate design customers pay according customer’s share region’s load recovery costs existing facilities ferc approved existing methodology whereby customer pays cost facilities located zone customer number parties appealed order us court appeals seventh circuit august 2009 court issued decision affirming ferc order regard existing facilities remanded ferc issue cost allocation associated new facilities 500 kv consideration ferc remand ferc reaffirmed earlier decision allocate costs new facilities 500 kv according customer’s share region’s load number parties filed appeals order us court appeals seventh circuit june 2014 court remanded cost allocation issue ferc december 2014 ferc issued order setting evidentiary hearing settlement proceeding regarding cost allocation issue hearing concerns costs new facilities approved pjm prior february 1 2013 transmission facilities approved february 1 2013 allocated hybrid cost allocation method approved ferc subject court review june 2016 pjm transmission owners state commissions representing substantially load pjm market submitted settlement ferc resolve outstanding issues regarding matter may 2018 ferc issued order accepting settlement agreement directed pjm make compliance filing revised tariff records result august 2018 virginia power began make payments pjm continue next 10 years totaling 276 million terms revised tariff records partially offset 265 million regulatory asset amount recovered retail rates virginia december 31 2018 virginia power’s consolidated balance sheet includes 126 million current liabilities 50 million included deferred credits liabilities amounts owed pjm fercgas july 2017 ferc audit staff communicated deti substantially completed audit deti’s compliance accounting reporting requirements ferc’s uniform system accounts provided description matters preliminary recommendations november 2017 ferc audit staff issued audit report could potential result adjustments could material dominion energy dominion energy gas’ results operations december 2017 deti provided response audit report deti requested ferc review contested findings submitted plan compliance uncontested portions report connection one uncontested issue deti recognized charge 15 million 9 million aftertax recorded within impairment assets related charges dominion energy dominion energy gas’ consolidated statements income 2017 writeoff balance regulatory asset originally established 2008 longer considered probable recovery deti recognized charge 129 million 94 million aftertax recorded primarily within impairment assets related charges dominion energy dominion energy gas’ consolidated statements income 2018 disallowance plant originally established beginning 2012 resolution one matter ferc pending final resolution audit process determination ferc management unable estimate potential impact remaining finding amounts recognized tax reform act subsequent enactment 2017 tax reform act companies’ state regulators issued orders requesting public utilities evaluate total tax impact entity’s cost service accrue regulatory liability attributable benefits reduction corporate income tax rate certain orders requested public utilities submit response state regulatory commissions detailing total tax impact utility’s cost service companies began reserve impacts costofservice reduction regulatory liabilities january 2018 continue rates reset pursuant state regulators’ approvals companies recorded reasonable estimate net income taxes refundable future rates jurisdictions operate currently assessing actions decisions could material impact companies’ results operations financial condition andor cash flows september 2018 virginia commission issued order directing virginia power submit filing quantifying impacts 2017 tax reform act advance april 1 2019 implementation required legislation october 2018 virginia power filed testimony virginia commission implement adjustments base rates reflecting actual annual reductions corporate income taxes resulting 2017 tax reform act included proposed annual revenue reduction approximately 151 million effective april 2019 december 2018 staff virginia commission proposed annual revenue reduction approximately 190 million january 2019 virginia power filed updated testimony proposed combined notes consolidated financial statements continued annual revenue reduction approximately 171 million additionally virginia power proposed issue onetime bill credit customers within 90 days effective date trueup difference final revenue reduction period january 1 2018 march 31 2019 125 million interim rate reduction implemented july 1 2018 based virginia power’s current proposed annual revenue reduction onetime bill credit expected total approximately 120 million actual credit based actual billing data customer usage 15month period matter pending august 2018 virginia power filed ferc waive protocols begin reflecting projected tax reform benefits approximately 100 million transmission formula rate prior normal formula rate process ferc granted waiver amounts began reflected customer billings november 2018 reflecting adjustment effective january 1 2018 october 2018 north carolina commission issued order requesting companies file reduce base rates expeditiously virginia power made compliance filing october 2018 submitted annual base rate revenue decrease approximately 14 million effective early 2019 virginia power also proposed issue onetime bill credit early 2019 2018 tax savings collected provisionally customers estimated approximately 13 million order allowed disposition excess deferred income taxes deferred consideration utilities’ next base rate case longer 3 years initiated quarterly reporting requirement deferred amounts matter pending may 2018 utah commission approved stipulation submitted questar gas proposing costofservice component customer rates reduced 15 million annually beginning june 2018 july 2018 utah commission approved questar gas’ request return additional 9 million utah customers representing amounts related corporate income tax reduction deferred january 1 2018 may 31 2018 additional reduction began amortizing august 1 2018 amortized oneyear period october 2018 wyoming commission approved questar gas’ request return deferred amounts surcredit beginning november 1 2018 surcredit remain effect rates become effective next wyoming general rate case impact excess deferred income taxes resulting 2017 tax reform act rates charged customers reported utah wyoming commissions first quarter 2019 october 2018 ohio commission issued order requiring rateregulated utilities file application reflecting impact 2017 tax reform act current rates january 1 2019 december 2018 east ohio filed application proposing approach establishing rates charges return tax reform benefits customers case pending directed west virginia commission hope utilizing regulatory accounting track effects 2017 tax reform act beginning january 2018 submitted testimony july 2018 detailing effects august 2018 west virginia commission approved settlement implementing base rate reductions effective september 1 2018 november 2018 west virginia commission issued order requiring hope file calculation prospective tax reform savings based 2017 financial statements using federal income tax rates reduced consolidated tax savings record regulatory liability difference amount calculated based 2017 financial statements amount included voluntary base rate reduction effective september 1 2018 december 2018 hope filed required calculation setting forth annual regulatory liability deferral amount 04 million disposition additional regulatory liability determined future rate proceeding reductions expected material impact hope’s financial condition march 2018 ferc announced actions address income tax allowance component regulated entities’ costofservice rates result 2017 tax reform act ferc required interstate natural gas pipelines make onetime informational filing ferc provide financial information allow ferc interested parties analyze impacts changes tax law actions also included reversal ferc’s policy allowing master limited partnerships recover income tax allowance costofservice rates requiring passthrough entities justify inclusion income tax allowance july 2018 ferc issued final rule adopting modifying procedures determining whether jurisdictional natural gas pipelines may collecting unjust unreasonable rates light reduction corporate income tax rate specifically final rule require master limited partnerships eliminate income tax allowances completing informational filing allows entities whollyowned corporations include income tax allowance 2018 dominion energy’s fercregulated pipelines including accounted equity method investments filed required informational reports ferc dominion energy overthrust pipeline llc white river hub dominion energy questar pipeline cove point reached resolution settlement result material impact results operations financial condition andor cash flows dominion energy waiver ferc terminating 501g proceeding january 2019 iroquois reached settlement principle customers approved would material impact dominion energy dominion energy gas expects file settlement agreement ferc first quarter 2019 ferc dockets deti decg remain open informational filings two pipelines indicated changes current rates charged customers necessary given associated uncertainty dominion energy dominion energy gas currently unable predict outcome matters however change rates permitted charged customers could material impact results operations financial condition andor cash flows regulatory matters virginia regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs underground distribution lines environmental compliance conservation energy efficiency programs renewable energy programs nuclear license renewals also contains statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission amended provides enhanced returns capital expenditures specific newlyproposed generation projects virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows grid transformation security act 2018 march 2018 gtsa reinstated base rate reviews triennial basis first review quadrennial review occurring virginia power 2021 four successive 12month test periods beginning january 1 2017 ending december 31 2020 review virginia power occur one year earlier regulation act legislation enacted february 2015 triennial review proceedings earnings 70 basis points utility’s authorized return equity might refunded customers served basis reduction future rates may reduced approved investment amounts qualifying solar wind generation facilities electric distribution grid transformation projects virginia power elects include customer credit reinvestment offset legislation declares electric distribution grid transformation projects public interest provides costs projects may recovered rate adjustment clause subject customer credit reinvestment offset costs subject customer credit reinvestment offset may recovered base rates service life projects may included base rates future triennial review proceedings triennial review virginia commission determines utility’s earnings 70 basis points authorized return equity base rates subject reduction prospectively customer refunds would due unless total customer credit reinvestment offset elected utility equals exceeds amount earnings excess 70 basis points 2021 review rate reduction limited 50 million legislation also includes provisions requiring virginia power provide current customers onetime rate credits totaling 200 million reduce base rates reflect reductions income tax expense resulting 2017 tax reform act result virginia power incurred 215 million 160 million aftertax charge connection legislation including impact certain nonjurisdictional customers follow virginia power’s jurisdictional customer rate methodology july 2018 january 2019 virginia power credited 138 million 77 million respectively current customers’ bills addition virginia power reduced base rates annual basis 125 million effective july 2018 reflect estimated effect 2017 tax reform act subject adjustment effective april 2019 may june 2018 virginia power submitted filings detailing implementation plan interim reductions rates generation distribution services pursuant gtsa july 2018 virginia power filed petition virginia commission approval first three years tenyear plan electric distribution grid transformation projects authorized gtsa first three years plan virginia power proposes focus following seven foundational components overall grid transformation plan smart meters ii customer information platform iii reliability resilience iv telecommunications infrastructure v cyber physical security vi predictive analytics vii emerging technology total estimated capital investment 20192021 816 million proposed operations maintenance expenses 102 million january 2019 virginia commission issued final order approving capital spending first three years plantotaling 68 million cyber physical security related telecommunications infrastructure virginia commission declined approve remainder proposed components first three years plan proposed spending found reasonable prudent based record proceeding virginia power intends file revised plan mid2019 address elements needed comprehensive plan outlined virginia commission order virginia fuel expenses may 2018 virginia power filed annual fuel factor virginia commission recover estimated 15 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2018 virginia power’s proposed fuel rate represented fuel revenue increase 222 million applied projected kilowatthour sales period july 1 2018 june 30 2019 august 2018 virginia commission approved virginia power’s fuel rate increase 209 million solar facility projects july 2018 virginia power filed application virginia commission cpcns construct two solar facilities colonial trail west spring grove 1 estimated cost approximately 410 million excluding financing costs colonial trail west spring grove 1 expected commence commercial operations subject regulatory approvals associated projects fourth quarter 2019 fourth quarter 2020 respectively virginia power also applied approval rider us3 associated projects proposed 10 million total revenue requirement rate year beginning march 1 2019 january 2019 virginia commission issued final order granting cpcns construct solar facilities subject 20year performance guarantee facilities 25 solar capacity factor normalized force majeure events matter regarding rider us3 pending rate adjustment clauses discussion significant riders associated various virginia power projects • virginia commission previously approved rider t1 concerning transmission rates may 2018 virginia power proposed 755 million total revenue requirement consisting 468 million transmission component virginia combined notes consolidated financial statements continued power’s base rates 287 million rider t1 total revenue requirement represents 146 million increase versus revenues produced rate year current rates august 2018 virginia commission approved total revenue requirement 630 million including rider t1 subject trueup rate year beginning september 1 2018 virginia commission’s order required adjustment rider t1 begin providing projected benefits associated 2017 tax reform act customers rates effective september 1 2018 projected benefits included underlying transmission formula rates approved ferc also august 2018 virginia power filed petition virginia commission seeking limited reconsideration rehearing approval adjust total revenue requirement 636 million november 2018 virginia commission denied petition limited reconsideration rehearing adjusted total revenue requirement 628 million • virginia commission previously approved rider u conjunction cost recovery move certain electric distribution facilities underground authorized virginia legislation march 2018 virginia power requested approval third phase conversions totaling 179 million balance 65 million second phase conversions previously approved recovery rider u virginia power also proposed total 73 million revenue requirement rate year beginning february 1 2019 continuing recovery previously approved first second phase conversions proposed second third phase conversions december 2018 virginia commission approved total 70 million annual revenue requirement effective february 1 2019 total capital investment 179 million third phase conversions balance 64 million second phase conversions previously approved recovery rider u • virginia commission previously approved riders c1a c2a connection cost recovery dsm programs october 2018 virginia power requested approval implement ten new energy efficiency programs one new demandresponse dsm program five years subject future extensions 262 million cost cap proposed total 49 million revenue requirement rate year beginning july 1 2019 represents 18 million increase previous year matter pending additional significant riders associated various virginia power projects follows coastal virginia offshore wind project november 2018 virginia power received approval virginia commission petition seeking prudency determination provided gtsa respect proposed coastal virginia offshore wind project consisting two 6 mw wind turbine generators located approximately 27 miles coast virginia beach virginia federal waters cpcn generation tie line connecting generators shore project expected cost approximately 300 million placed service end 2020 electric transmission projects november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton july 2017 virginia power received major required permits approvals proceeding construction project connection receipt permit us army corps engineers july 2017 virginia power required make payments totaling approximately 90 million fund improvements historical cultural resources near project accordingly july 2017 virginia power recorded increase property plant equipment corresponding liability payment obligations december 31 2017 virginia power made 90 million payments also july 2017 national parks conservation association filed lawsuit us district court dc circuit seeking set aside permit granted us army corps engineers project requested preliminary injunction permit august 2017 national trust historic preservation virginia filed similar lawsuit us district court dc circuit october 2017 preliminary injunction requests denied may 2018 district court granted summary judgment favor us army corps engineers virginia power dismissed lawsuits june 2018 national parks conservation association national trust historic preservation virginia appealed decision us court appeals dc circuit appeal pending also june 2018 national parks conservation association filed requests us district court district columbia us court appeals dc circuit injunction permit pending appeal us district court district columbia denied injunction request june 2018 us court appeals dc circuit similarly denied request july 2018 november 2015 virginia power filed application virginia commission cpcn convert existing transmission line 230 kv prince william county virginia loudoun county virginia construct operate new approximately five mile overhead 230 kv double circuit transmission line tap point near gainesville substation new tobeconstructed haymarket substation total estimated cost project approximately 180 million april 2017 virginia commission issued interim order instructing virginia power construct operate project along approved route virginia power could obtain necessary rightsofway otherwise virginia commission ruled virginia power construct operate project along approved alternative route june 2017 virginia commission issued final order approving alternative route project granted necessary cpcn july 2017 virginia commission retained jurisdiction case evaluate two requests reconsider decisions also july 2017 virginia power requested virginia commission stay proceeding virginia power discusses proposed route leaders prince william county december 2017 virginia commission granted part two motions reconsideration retained jurisdiction proceedings case stayed effectiveness final order march 2018 virginia power two parties seeking reconsideration entered stipulation settlement filed virginia commission agreeing project placed underground pilot program created gtsa july 2018 virginia power filed request virginia commission allow project participate underground pilot program subsequently july 2018 virginia commission issued final order granting cpcn project allowing project participate underground pilot program june 2018 virginia power filed application virginia commission cpcn rebuild operate king queen king william new kent counties virginia four separate segments 230 kv transmission line lanexa northern neck virginia february 2019 virginia power withdrew two segments application result total estimated cost project approximately 30 million matter pending additional significant virginia power electric transmission projects approved applied 2018 follows north carolina regulation august 2018 virginia power submitted annual filing north carolina commission adjust fuel component electric rates virginia power proposed total 24 million increase fuel component electric rates rate year beginning february 1 2019 mitigation alternative virginia power proposed recovering 50 february 1 2019 january 31 2020 rate period remaining 50 following rate period january 2019 north carolina commission approved virginia power’s full proposed fuel charge adjustment 24 million ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 25 pipeline system march 2015 east ohio filed application ohio commission requesting approval extend pir program additional five years increase annual capital investment corresponding increases annual rateincrease caps september 2016 ohio commission approved stipulation filed jointly east ohio staff ohio commission settle east ohio’s pending application requested pir program associated cost recovery continue another fiveyear term calendar years 2017 2021 east ohio permit ted increase annual capital expenditures 200 million 2018 3 per year thereafter subject cost recovery rate increase caps proposed east ohio april 2018 ohio commission approved east ohio’s application adjust pir cost recovery rates 2017 costs filing reflects gross plant investment 2017 204 million cumulative gross plant investment 14 billion revenue requirement 165 million amr program 2007 east ohio began installing automated meter reading technology 12 million customers ohio amr program approved ohio commission completed 2012 although capital investment added east ohio approved recover depreciation property taxes carrying charges return east ohio another rate case april 2018 ohio commission approved east ohio’s application adjust amr cost recovery rate 2017 costs filing reflects revenue requirement approximately 5 million pipp plus program ohio pipp plus program eligible customers make reduced payments based ability pay bill difference customer’s total bill pipp amount deferred collected pipp rider accordance combined notes consolidated financial statements continued rules ohio commission may 2018 east ohio filed annual update pipp rider ohio commission july 2018 east ohio’s annual update pipp rider automatically approved ohio commission 45day waiting period date filing revised rider rate reflects recovery twelvemonth period july 2018 june 2019 projected deferred program costs approximately 10 million april 2018 june 2019 net refund overrecovery accumulated arrearages approximately 4 million march 31 2018 uex rider east ohio approval uex rider recovers bad debt expense customers participating pipp plus program uex rider adjusted annually achieve dollar recovery east ohio’s actual writeoffs uncollectible amounts september 2018 ohio commission approved east ohio’s application requesting approval uex rider reflect refund overrecovered accumulated bad debt expense approximately 11 million march 31 2018 recovery prospective net bad debt expense projected total 16 million twelvemonth period april 2018 march 2019 dsm rider east ohio approval dsm rider recovers expenditures related dsm programs november 2018 east ohio filed application ohio commission seeking approval adjustment dsm rider recover total 4 million includes overrecovery costs preceding 12month period application approved ohio commission january 2019 west virginia regulation may 2018 hope filed prep application west virginia commission requesting approval recover prep costs related 31 million 36 million projected capital investment 2018 2019 respectively application also includes trueup prep costs related 2017 actual capital investment 28 million sets forth 8 million annual prep costs recovered proposed rates effective november 2018 october 2018 west virginia commission approved prep rates effective november 2018 approved rates recover 7 million annual prep costs related actual cumulative prep investment december 31 2017 48 million projected prep investment calendar years 2018 2019 31 million 29 million respectively utah wyoming regulation fuel deferral may 2018 questar gas submitted filings utah commission wyoming commission approximately 86 million gas cost decrease reflecting forecasted decreases commodity costs utah commission wyoming commission approved filings may 2018 rates effective june 2018 october 2018 questar gas submitted filings utah commission wyoming commission approximately 48 million gas cost decrease reflecting forecasted decreases commodity costs utah commission wyoming commission approved filings october 2018 rates effective november 2018 october 2018 utah commission denied questar gas’ request preapproval construct lng peaking storage facility liquefaction rate 82 million cubic feet per day questar gas reviewing order assessing options include filing supplemental information utah commission reconsideration infrastructure replacement tracker 2018 questar gas filed applications utah commission increase infrastructure replacement surcharge collect additional 11 million revenue 2019 related 85 million 2018 capital investment utah commission approved applications fourth quarter 2018 fercgas cove point march 2018 cove point submitted annual electric power cost adjustment ferc requesting approval recover 30 million ferc approved adjustment march 2018 june 2015 cove point executed two binding precedent agreements approximately 150 million eastern market access project january 2018 cove point received ferc authorization construct operate project facilities expected placed service second half 2019 october 2018 cove point announced evaluating alternatives proposed charles county maryland compressor station initially part project december 2018 working project customers alternative solutions decided pursue construction location resulting revised project estimate approximately 45 million writeoff 37 million pretax 28 million aftertax recorded within impairment assets related charges dominion energy’s consolidated statements income deti september 2018 deti submitted annual transportation cost rate adjustment ferc requesting approval recover 37 million also september 2018 deti submitted annual electric power cost adjustment ferc requesting approval recover 7 million october 2018 ferc approved adjustments august 2018 deti executed binding precedent agreement customer west loop project expected cost approximately 95 million provide 150000 dth per day firm transportation service pennsylvania ohio delivery proposed combinedcycle natural gasfired electric power generation facility located columbiana county ohio december 2018 deti filed application request ferc authorization construct operate maintain project facilities expected service end 2021 note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain companies’ longlived assets dominion energy virginia power’s aros primarily associated decom missioning nuclear generation facilities ash pond landfill closures dominion energy gas’ aros primarily include plugging abandonment gas oil wells interim retirement natural gas gathering transmission distribution storage pipeline components companies also identified recognized aros related retirement dominion energy’s lng facility dominion energy dominion energy gas’ storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed dominion energy virginia power’s generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2017 2018 follows 1 includes 263 million 282 million reported current liabilities december 31 2017 2018 respectively 2 reflects future ash pond landfill closure costs certain utility generation facilities see note 22 information 3 includes 146 million 153 million reported deferred credits liabilities remainder recorded current liabilities december 31 2017 2018 respectively dominion energy virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2018 2017 aggregate fair value dominion energy’s trusts consisting primarily equity debt securities totaled 49 billion 51 billion respectively december 31 2018 2017 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 24 billion periods note 15 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie dominion energy december 31 2018 dominion energy owned general partner 609 common subordinated units 375 convertible preferred interests dominion energy midstream owned preferred equity interest general partner interest cove point january 2019 dominion energy acquired outstanding partnership interests owned dominion energy dominion energy midstream became whollyowned subsidiary dominion energy dominion energy previously concluded dominion energy midstream vie due limited partners lacking characteristics controlling financial interest dominion energy primary beneficiary dominion energy midstream dominion energy midstream primary beneficiary cove point power direct activities significantly impact economic performance well absorb losses benefits could significant december 31 2018 dominion energy owns manager 67 membership interest certain merchant solar facilities discussed note 2 dominion energy concluded entities vies due members lacking characteristics controlling financial interest addition 2016 dominion energy created wholly owned subsidiary sbl holdco holding company interest vie merchant solar facilities accordingly sbl holdco vie dominion energy primary beneficiary sbl holdco merchant solar facilities power direct activities significantly impact economic performance well obligation absorb losses benefits could significant dominion energy’s securities due within one year longterm debt include 31 million 299 million respectively debt issued sbl holdco net issuance costs nonrecourse dominion energy secured sbl holdco’s interest certain merchant solar facilities dominion energy owns 48 membership interest atlantic coast pipeline see note 9 details regarding combined notes consolidated financial statements continued nature entity dominion energy concluded atlantic coast pipeline vie insufficient equity finance activities without additional subordinated financial support dominion energy concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance power direct shared among multiple unrelated parties dominion energy obligated provide capital contributions based ownership percentage dominion energy’s maximum exposure loss limited current future investment well obligations guarantee provided see note 22 information dominion energy virginia power dominion energy virginia power’s nuclear decommissioning trust funds dominion energy’s rabbi trusts hold investments limited partnerships similar type entities see note 9 details dominion energy virginia power concluded partnership investments vies due limited partners lacking characteristics controlling financial interest dominion energy virginia power concluded neither primary beneficiary power direct activities significantly impact vies’ economic performance dominion energy virginia power obligated provide capital contributions partnerships required partnership agreement based ownership percentages dominion energy virginia power’s maximum exposure loss limited current future investments dominion energy dominion energy gas dominion energy previously concluded iroquois vie nonaffiliated iroquois equity holder ability limited period time transfer ownership interests another iroquois equity holder affiliate end first quarter 2016 right longer existed result dominion energy concluded iroquois longer vie virginia power virginia power longterm power capacity contracts three nonutility generators contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests contracts two nonutility generators expired 2017 leaving remaining aggregate summer generation capacity approximately 218 mw evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance remaining entity remaining terms virginia power’s contract years entity expected operate contractual relationship expires remaining contract expires 2021 virginia power subject risk loss potential vie remaining purchase commitments totaled 150 million december 31 2018 virginia power paid 50 million 86 million 144 million electric capacity nonutility generators 18 million 24 million 31 million electric energy nonutility generators years ended december 31 2018 2017 2016 respectively dominion energy gas deti engaged oversee construction subsequently operate maintain projects undertaken atlantic coast pipeline based overall direction oversight atlantic coast pipeline’s members affiliate deti holds membership interest atlantic coast pipeline therefore deti considered variable interest atlantic coast pipeline members atlantic coast pipeline hold power direct construction operations maintenance activities entity deti concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance deti obligation absorb losses vie see note 24 information associated related party receivable balances virginia power dominion energy gas virginia power dominion energy gas purchased shared services des affiliated vie 335 million 126 million 340 million 126 million 346 million 123 million years ended december 31 2018 2017 2016 respectively virginia power dominion energy gas’ consolidated balance sheets included amounts due des 107 million 46 million respectively december 31 2018 36 million 14 million respectively december 31 2017 recorded payables affiliates consolidated balance sheets virginia power dominion energy gas determined neither primary beneficiary des neither power direct activities significantly impact economic performance well obligation absorb losses benefits could significant des provides accounting legal finance certain administrative technical services dominion energy subsidiaries including virginia power dominion energy gas virginia power dominion energy gas obligation absorb allocated shares des costs note 16 shortterm debt credit agreements companies use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties dominion energy march 2018 dominion energy replaced two existing joint revolving credit facilities 60 billion joint revolving credit facility commercial paper letters credit outstanding well capacity available credit facilities follows 1 weightedaverage interest rates outstanding commercial paper supported dominion energy’s credit facilities 293 161 december 31 2018 2017 respectively 2 credit facility matures march 2023 used companies support bank borrowings issuance commercial paper well support combined 20 billion letters credit 3 credit facilities replaced march 2018 60 billion joint revolving credit facility facilities scheduled mature april 2020 used support bank borrowings issuance commercial paper well support combined 20 billion letters credit connection scana combination dominion energy intends terminate scana sceg psnc’s existing credit facilities add sceg coborrower 60 billion joint revolving credit facility first quarter 2019 certain regulatory approvals obtained january 2019 virginia power sceg coborrowers filed virginia commission south carolina commission respectively approval february 2019 virginia commission approved request questar gas’ shortterm financing supported access coborrower joint revolving credit facility discussed dominion energy virginia power dominion energy gas december 31 2018 sublimit questar gas 250 million addition credit facilities mentioned sbl holdco 30 million credit facilities original stated maturity date december 2017 automatic oneyear renewals maturity sbl holdco term loan agreement 2023 dominion solar projects iii inc 25 million credit facilities original stated maturity date may 2018 automatic oneyear renewals maturity dominion solar projects iii inc term loan agreement 2024 december 31 2018 amounts outstanding either facilities february june 2018 dominion energy borrowed 950 million 500 million respectively 364day term loan agreements bore interest variable rate september 2018 principal outstanding plus accrued interest borrowings repaid march 2018 dominion energy midstream entered 500 million revolving credit facility credit facility scheduled mature march 2021 bore interest variable rate used support bank borrowings issuance commercial paper well support 250 million letters credit december 31 2018 dominion energy midstream 73 million outstanding credit facility february 2019 dominion energy midstream terminated facility subsequent repaying outstanding balance plus accrued interest october 2018 dominion energy entered credit agreement allows dominion energy issue approximately 21 million letters credit facility terminates june 2020 december 31 2018 dominion energy 21 million letters credit outstanding agreement virginia power march 2018 dominion energy replaced two existing joint revolving credit facilities 60 billion joint revolving credit facility virginia power’s shortterm financing supported access coborrower joint revolving credit facility credit facility used working capital support combined commercial paper programs companies general corporate purposes virginia power’s share commercial paper letters credit outstanding joint credit facilities dominion energy dominion energy gas questar gas follows 1 weightedaverage interest rates outstanding commercial paper supported credit facilities 294 165 december 31 2018 2017 respectively 2 full amount facility available virginia power less amounts outstanding coborrowers dominion energy dominion energy gas questar gas sublimit virginia power set within facility limit changed option companies multiple times per year december 31 2018 sublimit virginia power 15 billion virginia power liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion energy credit facility matures march 2023 used support bank borrowings issuance commercial paper well support 20 billion sublimit whichever less letters credit 3 facilities replaced march 2018 60 billion joint revolving credit facility full amount facilities available virginia power less amounts outstanding coborrowers dominion energy dominion energy gas questar gas facilities scheduled mature april 2020 used support bank borrowings issuance commercial paper well support 20 billion sublimit whichever less letters credit combined notes consolidated financial statements continued addition credit facility commitments mentioned virginia power also 100 million credit facility maturity date april 2020 march 2018 virginia power redeemed variable rate taxexempt financings supported credit facility terminated facility dominion energy gas march 2018 dominion energy replaced two existing joint revolving credit facilities 60 billion joint revolving credit facility dominion energy gas’ shortterm financing supported access coborrower joint revolving credit facility credit facility used working capital support combined commercial paper programs companies general corporate purposes dominion energy gas’ share commercial paper letters credit outstanding joint credit facilities dominion energy virginia power questar gas follows 1 weightedaverage interest rates outstanding commercial paper supported credit facilities 258 157 december 31 2018 2017 respectively 2 maximum 15 billion facility available dominion energy gas assuming adequate capacity available giving effect uses coborrowers dominion energy virginia power questar gas sublimit dominion energy gas set within facility limit changed option companies multiple times per year december 31 2018 sublimit dominion energy gas 750 million dominion energy gas liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion energy credit facility matures march 2023 used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit 3 facilities replaced march 2018 60 billion joint revolving credit facility maximum combined 15 billion facilities available dominion energy gas assuming adequate capacity available giving effect uses coborrowers dominion energy virginia power questar gas credit facilities scheduled mature april 2020 used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit note 17 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2018 combined notes consolidated financial statements continued 2 amount includes foreign currency remeasurement adjustments 3 financings relate certain pollution control equipment virginia power’s generating facilities march 2018 virginia power redeemed certain variable rate taxexempt financings supported 100 million credit facility terminated facility december 2018 virginia power redeemed 14 million economic development authority county chesterfield solid waste sewage disposal revenue bonds due 2031 4 november december 2018 dominion energy redeemed certain senior notes prior stated maturity see discussion senior note redemptions 5 represents debt assumed dominion energy merger former cng subsidiary 6 represents debt obligations questar gas see note 3 information 7 represents debt obligations eagle solar debt nonrecourse dominion energy secured eagle solar’s interest certain merchant solar facilities 8 represents debt associated sbl holdco dominion solar projects iii inc debt nonrecourse dominion energy secured sbl holdco dominion solar projects iii inc’s interest certain merchant solar facilities 9 represents debt obligations dgi subsidiary 10 includes debt obligations cove point secured dominion energy’s common equity interest cove point 11 february 2019 dominion energy midstream repaid 300 million variable rate term loan due december 2019 terminated credit facility due march 2021 subsequent repaying 73 million outstanding balance credit facility borrowings presented within current liabilities dominion energy’s consolidated balance sheets december 31 2018 12 represents debt obligations dominion energy questar pipeline see note 3 information 13 represents valuation certain fair value hedges associated dominion energy’s fixed rate debt 14 2017 excludes 250 million dominion energy questar pipeline’s senior notes matured february 2018 using proceeds january 2018 issuance private placements 100 million 150 million senior notes mature 2028 2038 respectively 15 includes 20 million estimated mandatory prepayments due within one year based estimated cash flows excess debt service sbl holdco dominion solar projects iii inc based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2018 follows 1 excludes mandatory prepayments associated sbl holdco dominion solar projects iii inc based cash flows excess debt service december 31 2018 20 million estimated mandatory prepayments due within one year included securities due within one year dominion energy’s consolidated balance sheets 2 february 2019 dominion energy midstream repaid 300 million variable rate term loan due december 2019 terminated credit facility due march 2021 subsequent repaying 73 million outstanding balance credit facility borrowings presented within current liabilities dominion energy’s consolidated balance sheets december 31 2018 companies’ shortterm credit facility longterm debt agreements contain customary covenants default provisions december 31 2018 events default covenants senior note redemptions november 2018 december 2018 dominion energy redeemed following outstanding series senior notes 2011 series 445 senior notes due 2021 2014 series b 250 senior notes due 2019 2014 series c 3625 senior notes due 2024 2018 series floating rate senior notes due 2020 aggregate outstanding principal 22 billion aggregate redemption price paid 22 billion represents principal amount outstanding accrued unpaid interest applicable makewhole premium 34 million total charges 69 million including makewhole premium recognized recorded interest expense dominion energy’s consolidated statements income enhanced junior subordinated notes june 2006 september 2006 dominion energy issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids bear interest threemonth libor plus 2825 reset quarterly previously interest fixed 75 per year september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly october 2014 dominion energy issued 685 million october 2014 hybrids bear interest 575 per year october 1 2024 thereafter bear interest threemonth libor plus 3057 reset quarterly dominion energy may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion energy may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion energy may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion energy executed rccs connection issuance june 2006 hybrids september 2006 hybrids terms rccs dominion energy covenants benefit designated covered debtholders may designated time dominion energy shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion energy received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion energy amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days proceeds dominion energy receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price first quarter 2016 dominion energy purchased cancelled 38 million 4 million june 2006 hybrids september 2006 hybrids respectively july 2016 dominion energy launched tender offer purchase 200 million aggregate additional june 2006 hybrids september 2006 hybrids expired august 1 2016 connection tender offer dominion energy purchased cancelled 125 million 74 million june 2006 hybrids september 2006 hybrids respectively purchases conducted compliance applicable rcc also july 2016 dominion energy issued 800 million 525 july 2016 hybrids proceeds used general corporate purposes including finance tender offer july 2016 hybrids listed nyse symbol drua remarketable subordinated notes june 2013 dominion energy issued 550 million 2013 series 6125 equity units 550 million 2013 series b 60 equity units initially form corporate units july 2014 dominion energy issued 10 billion 2014 series 6375 equity units initially form corporate units corporate units listed nyse symbols dcua dcub dcuc respectively corporate unit consisted stock purchase contract 120 interest rsn issued dominion energy stock purchase contracts obligated holders purchase shares dominion energy common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion energy common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts may 2017 dominion energy successfully remarketed 10 billion 2014 series 150 rsns due 2020 pursuant terms related 2014 equity units connection remarketing interest rate junior subordinated notes reset 2579 payable semiannual basis dominion energy ceased ability redeem notes option defer interest payments march 2016 may 2016 dominion energy successfully remarketed 550 million 2013 series 107 rsns due 2021 550 million 2013 series b 118 rsns due 2019 respectively pursuant terms related 2013 equity units connection remarketings interest rate series b junior subordinated notes reset 4104 2962 respectively payable semiannual basis dominion energy ceased ability redeem notes option defer interest payments december 31 2018 securities included junior subordinated notes dominion energy’s consolidated balance sheets dominion energy receive proceeds remarketings remarketing proceeds belonged investors holding related equity units temporarily used purchase portfolio treasury securities upon maturity portfolio proceeds applied behalf investors related stock purchase contract settlement date pay purchase price dominion energy issuance 125 million shares common stock july 2017 85 million shares common stock april 2016 july 2016 see issuance common stock description common stock issued dominion energy stock purchase contracts august 2016 dominion energy issued 14 billion 2016 series 675 equity units initially form corporate units corporate units listed nyse symbol dcud net proceeds 2016 equity units used finance dominion energy questar combination see note 3 information 2016 series corporate unit consists stock purchase contract 140 interest 2016 series a1 rsn issued dominion energy 140 interest 2016 series a2 rsn issued dominion energy stock purchase contracts obli combined notes consolidated financial statements continued gate holders purchase shares dominion energy common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion energy common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts dominion energy makes quarterly interest payments rsns quarterly contract adjustment payments stock purchase contracts rates described dominion energy may defer payments stock purchase contracts rsns one consecutive periods generally beyond purchase contract settlement date payments deferred dominion energy may make cash distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion energy may make payments redeem repurchase debt securities equal right payment subordinated rsns dominion energy recorded present value stock purchase contract payments liability offset charge equity interest payments rsns recorded interest expense stock purchase contract payments charged liability accretion stock purchase contract liability recorded imputed interest expense calculating diluted eps dominion energy applies treasury stock method equity units pursuant terms 2016 equity units dominion energy expects remarket 2016 series a1 2016 series a2 rsns second third quarter 2019 following successful remarketing interest rate rsns reset interest payable semiannual basis dominion energy cease ability redeem rsns option defer interest payments proceeds remarketing belong investors related equity units held applied behalf settlement date related stock purchase contracts pay purchase price dominion energy issuance common stock terms stock purchase contracts assuming antidilution adjustments dominion energy issue 151 million 189 million shares august 2019 total 231 million shares dominion energy’s common stock reserved issuance connection stock purchase contracts selected information dominion energy’s equity units presented 1 payments 64 million 101 million made 2018 2017 respectively including payments remarketed 2014 series notes stock purchase contract liability 47 million 111 million december 31 2018 2017 respectively 2 maturity dates 700 million series a1 rsns 700 million series a2 rsns august 15 2021 august 15 2024 respectively 3 annual interest rate applies series a1 rsns series a2 rsns note 18 preferred stock dominion energy authorized issue 20 million shares preferred stock however none issued outstanding december 31 2018 2017 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference however none issued outstanding december 31 2018 2017 note 19 equity issuance common stock dominion energy dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans currently dominion energy issuing new shares common stock direct stock purchase plans 2018 dominion energy received cash proceeds net fees commissions 25 billion issuance approximately 36 million shares common stock various programs including forward sale agreements described resulting approximately 681 million shares common stock outstanding december 31 2018 proceeds include cash 315 million received issuance 45 million shares dominion energy direct® employee savings plans july 2017 dominion energy issued 125 million shares related stock purchase contracts entered part dominion energy’s 2014 equity units received proceeds 10 billion april 2016 july 2016 dominion energy issued 85 million shares related stock purchase contracts entered part dominion energy’s 2013 equity units received 11 billion total proceeds additionally dominion energy completed market issuance equity april 2016 102 million shares received proceeds 756 million registered underwritten public offering portion net proceeds used finance dominion energy questar combination see note 3 information june 2017 dominion energy filed sec shelf registration sale debt equity securities including ability sell common stock atthemarket program also june 2017 dominion energy entered three separate sales agency agreements effect sales program pursuant may offer time 500 million aggregate amount common stock sales common stock made means privately negotiated transactions nyse market prices transactions agreed upon dominion energy sales agents conformance applicable securities laws january 2018 dominion energy provided sales instructions one sales agents issued 66 million shares atthemarket issuances received cash proceeds 495 million net fees commissions paid 5 million following issuances dominion energy remaining ability issue stock 2017 sales agency agreements completed program february 2018 dominion energy entered six separate sales agency agreements effect sales new atthemarket program pursuant may offer time 10 billion aggregate amount common stock agreements replaced sales agency agreements entered dominion energy june 2017 sales common stock made means private negotiated transactions nyse market prices transactions agreed upon dominion energy sales agents conformance applicable securities laws fourth quarter 2018 dominion energy provided sales instructions two sales agents issued 27 million shares atthemarket issuances received cash proceeds 197 million net fees commissions paid 2 million following issuances dominion energy 801 million remaining ability issue stock sales agency agreements dominion energy entered march 2018 closed april 2018 separate forward sale agreements goldman sachs co llc credit suisse capital llc forward purchasers underwriting agreement credit suisse securities usa llc goldman sachs co llc representatives several underwriters named therein relating aggregate 20 million shares dominion energy common stock underwriting agreement granted underwriters 30day option purchase additional three million shares dominion energy common stock underwriters exercised respect approximately 21 million shares april 2018 dominion energy entered separate forward sale agreements forward purchasers respect additional shares december 2018 dominion energy received proceeds 14 billion deducting underwriting discounts deducting expenses subject forward price adjustments forward sale agreements upon physical settlement 221 million shares see note 3 consolidated financial statements information issuance dominion energy common stock january 2019 connection scana combination also january 2019 dominion energy acquired outstanding partnership interests dominion energy midstream owned dominion energy issuance common stock noted virginia power 2018 2017 2016 virginia power issue shares common stock dominion energy shares reserved issuance dominion energy approximately 76 million shares reserved available issuance dominion energy direct® employee stock awards employee savings plans director stock compensation plans issuances connection stock purchase contracts atthemarket program see note 17 information repurchase common stock dominion energy repurchase shares 2018 2017 plan repurchase shares 2019 except shares tendered employees satisfy tax withholding obliga combined notes consolidated financial statements continued tions vested restricted stock count stock repurchase authorization purchase dominion energy midstream units september 2015 dominion energy initiated program purchase market 50 million common units representing limited partner interests dominion energy midstream expired september 2016 dominion energy purchased approximately 658000 common units 17 million year ended december 31 2016 january 2019 dominion energy acquired outstanding partnership interests dominion energy midstream owned dominion energy issuance 225 million shares common stock valued 16 billion merger accounted dominion energy following guidance change parent company’s ownership interest consolidated subsidiary dominion energy controls dominion energy midstream merger changes dominion energy’s ownership interest dominion energy midstream accounted equity transaction gain loss recognized tax effect merger presented common stock issuance dominion energy midstream units 2017 dominion energy midstream received 18 million proceeds issuance common units atthemarket program 2016 dominion energy midstream received 482 million proceeds issuance common units 490 million proceeds issuance convertible preferred units net proceeds primarily used finance portion acquisition dominion energy questar pipeline dominion energy see note 3 information holders convertible preferred units entitled receive cumulative quarterly distributions payable cash additional convertible preferred units subject certain conditions units convertible dominion energy midstream common units oneforone basis subject certain adjustments whole part option unitholders time december 1 2018 ii whole part dominion energy midstream’s option subject certain conditions time december 1 2019 immediately prior closing dominion energy’s acquisition outstanding interest dominion energy midstream noted convertible preferred unit converted common units representing limited partner interests dominion energy midstream accordance terms dominion energy midstream’s partnership agreement may 2018 subordinated units dominion energy midstream held dominion energy converted common units 11 ratio following payment dominion energy midstream’s distribution first quarter 2018 june 2018 dominion energy general partner exercised incentive distribution right reset defined dominion energy midstream’s partnership agreement received 267 million common units representing limited partner interests dominion energy midstream result increase ownership interest dominion energy midstream dominion energy recorded decrease noncontrolling interest correspond ing increase shareholders’ equity 375 million reflecting change carrying value interest net assets dominion energy midstream held others accumulated comprehensive income loss presented table summary aoci component dominion energy following table presents dominion energy’s changes aoci component net tax 1 see table details reclassifications following table presents dominion energy’s reclassifications aoci component combined notes consolidated financial statements continued virginia power following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications following table presents virginia power’s reclassifications aoci component dominion energy gas following table presents dominion energy gas’ changes aoci component net tax 1 see table details reclassifications following table presents dominion energy gas’ reclassifications aoci component stockbased awards 2005 2014 incentive compensation plans permit stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan options outstanding either plan december 31 2018 approximately 22 million shares available future grants plans goalbased stock awards granted lieu cashbased performance grants certain officers achieved certain targeted level share ownership december 31 2018 unrecognized compensation cost related nonvested goalbased stock awards immaterial dominion energy measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion energy’s results years ended december 31 2018 2017 2016 include 48 million 45 million 33 million respectively compensation costs 12 million 16 million 11 million respectively income tax benefits related dominion energy’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion energy’s consolidated statements income excess tax benefits classified financing cash flow restricted stock restricted stock grants made officers dominion energy’s ltip may also granted certain key nonofficer employees fair value dominion energy’s restricted stock awards equal closing price dominion energy’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2018 2017 2016 december 31 2018 unrecognized compensation cost related nonvested restricted stock awards totaled 49 million expected recognized weightedaverage period 21 years fair value restricted stock awards vested 23 million 21 million 21 million 2018 2017 2016 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion energy stock applicable federal state local tax withholding rates cashbased performance grants cashbased performance grants made dominion energy’s officers dominion energy’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved february 2016 cashbased performance grant made officers payout performance grant occurred january 2018 based achievement two performance metrics 2016 2017 tsr relative companies listed members philadelphia utility index end performance period roic total payout grant 12 million combined notes consolidated financial statements continued february 2017 two cashbased performance grants made officers dominion energy transitioned twoyear performance period threeyear performance period payout twoyear grant occurred january 2019 based achievement two performance metrics 2017 2018 tsr relative companies members dominion energy’s compensation peer group roic additional partial payout based dominion energy’s priceearnings ratio relative members dominion energy’s compensation peer group total payout twoyear grant 13 million liability 13 million accrued award payout threeyear cashbased performance grant expected occur march 15 2020 based achievement two performance metrics 2017 2018 2019 tsr relative companies members dominion energy’s compensation peer group roic additional opportunities earn portion awards based dominion energy’s absolute tsr relative priceearnings ratio performance december 31 2018 targeted amount threeyear grant 14 million liability 10 million accrued award february 2018 cashbased performance grant made officers payout threeyear cashbased performance grant expected occur march 15 2021 based achievement two performance metrics 2018 2019 2020 tsr relative companies members dominion energy’s compensation peer group roic additional opportunities earn portion awards based dominion energy’s absolute tsr relative priceearnings ratio performance december 31 2018 targeted amount threeyear grant 16 million liability 5 million accrued award note 20 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2018 virginia commission restricted payment dividends virginia power north carolina commission order approving scana combination limited cumulative dividends payable dominion energy virginia power psnc amount retained earnings closing scana combination plus ii future earnings recorded virginia power psnc date addition notice north carolina commission required payment dividends causes equity component virginia power psnc’s capital structure fall 45 ohio commission may prohibit public service company including east ohio declaring paying dividend affiliate found detrimental public interest december 31 2018 ohio commission restricted payment dividends east ohio pursuant scana merger approval order amount sceg dividends paid must reasonable consistent longterm payout ratio electric utility industry gas distribution industry specific restriction payment dividends sceg utah commission may prohibit public service company including questar gas declaring paying dividend affiliate found detrimental public interest december 31 2018 utah commission restricted payment dividends questar gas certain agreements associated companies’ credit facility contains restrictions ratio debt total capitalization limitations restrict companies’ ability pay dividends receive dividends subsidiaries december 31 2018 connection scana combination terms merger agreement dominion energy could declare set aside pay dividends make distributions whether cash stock property respect capital stock regular quarterly cash dividends january 2018 january 2019 part merger agreement dominion energy midstream november 2018 january 2019 dominion energy could declare set aside pay dividends make distributions whether cash stock property respect capital stock regular quarterly cash dividends see note 17 description potential restrictions dividend payments dominion energy connection deferral interest payments certain junior subordinated notes equity units initially form corporate units note 21 employee benefit plans dominion energy dominion energy gasdefined benefit plans dominion energy provides certain retirement benefits eligible active employees retirees qualifying dependents dominion energy gas participates number dominion energysponsored retirement plans terms benefit plans dominion energy reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion energy maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion energy’s funding policy contribute annually amount accordance provisions erisa pension programs also provide benefits certain retired executives companysponsored nonqualified employee benefit plans nonqualified plans funded contributions grantor trusts dominion energy also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension benefits dominion energy gas employees represented collective bargaining units covered dominion energy pension plan defined benefit pension plan sponsored dominion energy provides benefits multiple dominion energy subsidiaries pension benefits dominion energy gas employees represented collective bargaining units covered separate pension plans east ohio deti plan provides benefits employees deti hope employee compensation basis allocating pension costs obligations deti hope determining east ohio’s share total pension costs retiree healthcare life insurance benefits dominion energy gas employees represented collective bargaining units covered dominion energy retiree health welfare plan sponsored dominion energy provides certain retiree healthcare life insurance benefits multiple dominion energy subsidiaries retiree healthcare life insurance benefits dominion energy gas employees represented collective bargaining units covered separate postretirement benefit plans east ohio deti plan provides benefits deti hope employee headcount basis allocating postretirement benefit costs obligations deti hope determining east ohio’s share total postretirement benefit costs pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates rate compensation increases dominion energy uses december 31 measurement date employee benefit plans including dominion energy gas participates dominion energy uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost pension plans including dominion energy gas participates marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion energy’s pension postretirement benefit plans hold investments trusts fund employee benefit payments dominion energy’s pension postretirement plan assets experienced aggregate actual returns losses 605 million 16 billion 2018 2017 respectively versus expected returns 806 million 767 million respectively dominion energy gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns losses 129 million 335 million 2018 2017 respectively versus expected returns 178 million 165 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans 2016 dominion energy dominion energy gas employees represented collective bargaining units engaged actuary conduct experience study employees demographics fiveyear period compared significant assumptions used determine pension postretirement benefit obligations periodic costs assumptions primarily included mortality retirement rates termination rates salary increase rates changes assumptions implemented result experience study resulted increases 290 million 38 million pension postretirement benefits obligations respectively december 31 2016 dominion energy 24 million 9 million pension postretirement benefits obligations respectively december 31 2016 dominion energy gas addition changes increased net periodic benefit costs 42 million dominion energy 2017 increase net periodic benefit costs dominion energy gas 2017 immaterial plan amendments remeasurements fourth quarter 2017 dominion energy remeasured pension postretirement benefit plans result voluntary involuntary separation programs dominion energy questar settlement related remeasurement resulted reduction pension benefit obligation approximately 75 million increase accumulated postretirement benefit obligation approximately 2 million discount rates used 2017 pension cost related settlement 446 december 31 2016 451 january 31 2017 405 june 30 september 30 2017 assumptions used consistent measurement december 31 2016 first quarter 2017 dominion energy dominion energy gas remeasured postretirement benefit plan result amendment changed post65 retiree medical coverage certain current future local 69 retirees effective july 1 2017 remeasurement resulted decrease dominion energy dominion energy gas’ accumulated postretirement benefit obligation 73 million 61 million respectively result regulatory accounting remeasurement immaterial impact net income dominion energy dominion energy gas discount rate used remeasurement 430 assumptions used consistent measurement december 31 2016 also first quarter 2017 dominion energy recorded 7 million 4 million aftertax charge including 6 million 4 million aftertax dominion energy gas result additional payments associated new collective bargaining agreement reflected operations maintenance expense consolidated statements income third quarter 2016 dominion energy remeasured postretirement benefit plan result amendment changed post65 retiree medical coverage certain current future local 50 retirees effective april 1 2017 remeasurement resulted decrease dominion energy’s accumulated postretirement benefit obligation 37 million impact remeasurement net periodic benefit credit recognized prospectively remeasurement date increased net periodic benefit credit 2016 9 million discount rate used remeasurement 371 demographic mortality assumptions updated using planspecific studies mortality improvement scales expected longterm rate return used consistent measurement december 31 2015 combined notes consolidated financial statements continued funded status following table summarizes changes pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status dominion energy dominion energy gas employees represented collective bargaining units 1 2017 amounts relate primarily plan amendment changed post65 retiree medical coverage certain current future local 69 retirees effective july 1 2017 2 2017 amount relates primarily settlement curtailment result voluntary involuntary separation programs dominion energy questar 3 reflected deferred credits liabilities dominion energy gas’ consolidated balance sheets abo dominion energy’s defined benefit pension plans 78 billion 82 billion december 31 2018 2017 respectively abo defined benefit pension plans covering dominion energy gas employees represented collective bargaining units 689 million 724 million december 31 2018 2017 respectively funding policies dominion energy evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion energy determines amount contributions current year time 2018 dominion energy dominion energy gas made contributions qualified defined benefit pension plans dominion energy expects make 21 million minimum required contributions 2019 contributions currently expected 2019 dominion energy gas certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion energy’s subsidiaries including dominion energy gas fund postretirement benefit costs vebas dominion energy’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion energy’s contributions vebas pertained dominion energy gas employees totaled 12 million 2018 2017 dominion energy expects contribute approximately 12 million dominion energy vebas 2019 pertains dominion energy gas employees dominion energy dominion energy gas expect pension postretirement plan assets returned 2019 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets dominion energy dominion energy gas employees represented collective bargaining units following table provides information abo fair value plan assets dominion energy’s pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid dominion energy dominion energy gas’ employees represented collective bargaining units plans plan assets dominion energy’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk participating employer various pension plans sponsored dominion energy dominion energy gas subject dominion energy’s investment policies plans minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments us equity includes investments largecap midcap smallcap companies located us nonus equity includes investments largecap smallcap companies located outside us including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity real estate investment trusts investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies dominion energy also utilizes commoncollective trust funds investment vehicle defined benefit plans commoncollective trust fund pooled fund operated bank trust company investment assets various organizations individuals welldiversified portfolio commoncollective trust funds grouped assets follow various investment strategies strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations combined notes consolidated financial statements continued plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies fur ther reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 fair values dominion energy dominion energy gas’ employees represented collective bargaining units pension plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 excludes net assets related pending sales securities 12 million net accrued income 21 million includes net assets related pending purchases securities 22 million december 31 2018 excludes net assets related pending sales securities 11 million net accrued income 19 million includes net assets related pending purchases securities 15 million december 31 2017 3 excludes net assets related pending sales securities 3 million net accrued income 5 million includes net assets related pending purchases securities 5 million december 31 2018 excludes net assets related pending sales securities 3 million net accrued income 4 million includes net assets related pending purchases securities 3 million december 31 2017 fair values dominion energy dominion energy gas’ employees represented collective bargaining units postretirement plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 excludes net assets related pending sales securities 1 million net accrued income 2 million includes net assets related pending purchases securities 2 million december 31 2018 excludes net assets related pending sales securities 1 million net accrued income 2 million includes net assets related pending purchases securities 1 million december 31 2017 combined notes consolidated financial statements continued plan’s investments determined based fair values investments underlying investments determined follows • cash equivalentsinvestments held primarily shortterm notes treasury bills valued cost plus accrued interest • common preferred stocksinvestments valued closing price reported active market individual securities traded • insurance contractsinvestments group annuity contracts john hancock entered 1992 stated fair value based fair value underlying securities provided managers include investments us government securities corporate debt instruments state municipal debt securities • corporate debt instrumentsinvestments valued using pricing models maximizing use observable inputs similar securities includes basing value yields currently available comparable securities issuers similar credit ratings quoted prices available identical similar instruments instrument valued discounted cash flows approach maximizes observable inputs current yields similar instruments includes adjustments certain risks may observable credit liquidity risks broker quote available • government securitiesinvestments valued using pricing models maximizing use observable inputs similar securities • commoncollective trust fundscommoncollective trust funds invest debt equity securities instruments characteristics similar funds’ benchmarks primary objectives funds seek investment returns approximate overall performance benchmark indexes benchmarks major equity indices fixed income indices money market indices focus growth income liquidity strategies applicable investments commoncollective trust funds stated nav determined issuer commoncollective trust funds based fair value underlying investments held fund less liabilities nav used practical expedient estimate fair value commoncollective trust funds unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment • alternative investmentsinvestments real estate funds private equity funds debt funds hedge funds stated fair value based nav plan’s proportionate share partnership joint venture alternative investment’s fair value determined reference audited financial statements nav statements provided investment manager nav used practical expedient estimate fair value net periodic benefit credit cost service cost component nonservice cost components net periodic benefit credit cost reflected operations maintenance expense income respectively consolidated statements income components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities dominion energy dominion energy gas’ employees represented collective bargaining units plans follows 1 assumptions used determine net periodic cost following year 2 society actuaries model used determine healthcare cost trend rates updated 2014 new model converges ultimate trend rate much quickly previous models combined notes consolidated financial statements continued components aoci regulatory assets liabilities dominion energy dominion energy gas’ employees represented collective bargaining units plans recognized components net periodic benefit credit cost follows 1 december 31 2018 35 billion 43 million related pension benefits postretirement benefits 20 billion 41 million respectively included aoci remainder included regulatory assets liabilities december 31 2017 32 billion 157 million related pension benefits postretirement benefits 19 billion 87 million respectively included aoci remainder included regulatory assets liabilities 2 december 31 2018 555 million related pension benefits 200 million included aoci remainder included regulatory assets liabilities 37 million related postretirement benefits included entirely regulatory assets liabilities december 31 2017 367 million related pension benefits 134 million included aoci remainder included regulatory assets liabilities 24 million related postretirement benefits included entirely regulatory assets liabilities following table provides components aoci regulatory assets liabilities dominion energy dominion energy gas’ employees represented collective bargaining units plans december 31 2018 expected amortized components net periodic benefit credit cost 2019 expected longterm rates return plan assets discount rates healthcare cost trend rates mortality critical assumptions determining net periodic benefit credit cost dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions used dominion energy’s pension postretirement plans including dominion energy gas participates including discount rates expected longterm rates return healthcare cost trend rates mortality rates dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans including dominion energy gas participates using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset classes’ volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major capital market assumptions • investment allocation plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans including dominion energy gas participates mortality rates developed actual projected plan experience postretirement benefit plans dominion energy’s actuary conducts experience study periodically part process select best estimate mortality dominion energy considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate 2016 dominion energy conducted new experience study scheduled result updated mortality assumptions plans including dominion energy gas participates assumed healthcare cost trend rates significant effect amounts reported dominion energy’s retiree healthcare plans including dominion energy gas participates one percentage point change assumed healthcare cost trend rates would following effects dominion energy dominion energy gas’ employees represented collective bargaining units postretirement benefit plans dominion energy gas employees represented collective bargaining units virginia powerparticipation defined benefit plans virginia power employees dominion energy gas employees represented collective bargaining units covered dominion energy pension plan described participating employers virginia power dominion energy gas subject dominion energy’s funding policy contribute annually amount accordance erisa 2018 virginia power dominion energy gas made con tributions dominion energy pension plan contributions plan currently expected 2019 virginia power’s net periodic pension cost related plan 126 million 110 million 79 million 2018 2017 2016 respectively dominion energy gas’ net periodic pension credit related plan 38 million 37 million 45 million 2018 2017 2016 respectively net periodic pension credit cost reflected operations maintenance expense respective consolidated statements income funded status various dominion energy subsidiary groups employee compensation basis determining share total pension costs participating dominion energy subsidiaries see note 24 virginia power dominion energy gas amounts due tofrom dominion energy related plan retiree healthcare life insurance benefits virginia power employees dominion energy gas employees represented collective bargaining units covered dominion energy retiree health welfare plan described virginia power’s net periodic benefit credit cost related plan 51 million 42 million 29 million 2018 2017 2016 respectively dominion energy gas’ net periodic benefit credit cost related plan 7 million 5 million 4 million 2018 2017 2016 respectively net periodic benefit credit cost reflected operations maintenance expenses respective consolidated statements income employee headcount basis determining share total postretirement benefit costs participating dominion energy subsidiaries see note 24 virginia power dominion energy gas amounts due tofrom dominion energy related plan dominion energy holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power dominion energy gas’ employees participate investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash virginia power dominion energy gas provide dominion energy shares employee benefit plan contributions certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power dominion energy gas fund postretirement benefit costs vebas 2018 2017 virginia power made contributions veba expect contribute veba 2019 dominion energy gas made contributions vebas employees represented collective bargaining units 2018 2017 expect contribute 2019 defined contribution plans dominion energy also sponsors defined contribution employee savings plans cover substantially employees 2018 2017 2016 dominion energy recognized 51 million 45 million 44 million respectively employer matching contributions plans dominion energy gas participates employee savings plans specific dominion energy gas cover multiple dominion energy subsidiaries 2018 2017 2016 dominion energy gas recognized 8 million 7 million 7 million respectively employer matching contributions plans virginia power also participates employee savings plans 2018 2017 2016 virginia power recognized 20 million 19 million 19 million respectively employer matching contributions plans organizational design initiative first quarter 2016 companies announced organizational design initiative reduced total workforces 2016 goal organizational design initiative streamline leadership structure push decision making lower also improving efficiency year ended december 31 2016 dominion energy recorded 65 million 40 million aftertax charge including 33 million 20 million aftertax virginia power 8 million 5 million aftertax dominion energy gas primarily reflected operations maintenance expense consolidated statements income due severance pay costs related organizational design initiative terms severance organizational design initiative consistent companies’ existing severance plans note 22 commitments contingencies result issues generated ordinary course business companies involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect companies’ financial position liquidity results operations combined notes consolidated financial statements continued environmental matters companies subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements mats rule requires coal oilfired electric utility steam generating units meet strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases virginia power ceased operating coal units yorktown power station april 2017 comply rule june 2017 doe issued order pjm direct virginia power operate yorktown power station’s units 1 2 needed avoid reliability issues virginia peninsula order effective 90 days reissued upon pjm’s request necessary required electricity transmission upgrades completed beginning august 2017 pjm filed requests 90day renewals doe order doe granted current renewal effective march 2019 sierra club challenged doe order certain renewal requests denied doe december 2018 epa issued proposed rule reverse previous finding appropriate necessary regulate toxic emissions power plants however emissions standards requirements mats rule would remain place epa proposing remove coal oil fired power plants list sources regulated mats although litigation mats rule outcome epa’s rulemaking still pending regulation remains effect virginia power complying applicable requirements rule expect adverse impacts operations time ozone standards october 2015 epa issued final rule tightening ozone standard 75ppb 70ppb comply standard april 2016 virginia power submitted nox reasonable available control technology analysis unit 5 possum point power station december 2016 vdeq determined nox reductions required unit 5 october 2017 virginia power proposed install nox controls mid2019 expected cost range 25 million 35 million april 2018 virginia power submitted application vdeq containing alternative plan compliance lieu installing nox controls unit 5 possum point alter native plan includes operating restrictions ozone season 2021 allowing continued operation meet pjm capacity commitments calls permanent retirement unit 2021 january 2019 vdeq issued state operating permit requires either installation operation selective noncatalytic nox reduction technology june 2019 virginia power enter agreement vdeq june 2019 committing retiring unit june 2021 ozone season operating restrictions interim addition virginia power placed two natural gasfired units facility cold reserve december 2018 virginia power currently evaluating options dominion energy virginia power unable estimate expenditures associated matter however could material dominion energy virginia power’s results operations financial condition andor cash flows epa published final nonattainment designations october 2015 ozone standard june 2018 states august 2021 develop plans address new standard states developed implementation plans standard companies unable predict whether extent new rules ultimately require additional controls expenditures required implement additional controls could material impact companies’ results operations cash flows nox voc emissions april 2016 pennsylvania department environmental protection issued final regulations effective date january 2017 reduce nox voc emissions combustion sources comply regulations dominion energy gas installed emission control systems existing engines several compressor stations pennsylvania completed december 2018 compliance costs associated engineering installation controls compliance demonstration regulation approximately 35 million oil gas nsps august 2012 epa issued nsps impacting new modified facilities natural gas production gathering sectors made revisions nsps natural gas processing transmission facilities rules establish equipment performance specifications emissions standards control voc emissions natural gas production wells tanks pneumatic controllers compressors upstream sector june 2016 epa issued new nsps regulation oil natural gas sector regulate methane voc emissions new modified facilities transmission storage gathering boosting production processing facilities projects commenced construction september 2015 required comply regulation october 2018 epa published proposed rule reconsidering amending portions 2016 rule including limited fugitive emissions requirements well sites compressor stations proposed rule final dominion energy dominion energy gas implementing 2016 regulation dominion energy dominion energy gas still evaluating whether potential impacts results operations financial condition andor cash flows related matter material ghg regulation carbon regulations august 2016 epa issued draft rule proposing reaffirm source’s obligation obtain psd title v permit ghgs triggered permitting requirements first triggered nonghg conventional pollutants regulated new source review program set significant emissions rate 75000 tons per year co2 equivalent emissions source would required apply bact ghg emissions epa ultimately takes final action rulemaking companies cannot predict impact financial statements addition epa continues evaluate policy regarding consideration co2 emissions biomass projects determining whether stationary source meets psd title v applicability thresholds including application bact unclear final policy affect virginia power’s altavista hopewell southampton power stations converted coal biomass prior biomass deferral policy however expenditures comply new requirements could material dominion energy virginia power’s financial statements methane emissions july 2015 epa announced next generation voluntary natural gas star program natural gas star methane challenge program covers entire natural gas sector production distribution emphasis transparency increased reporting annual emissions reductions achieved implementation measures march 2016 east ohio hope deti questar gas joined epa founding partners new methane challenge program submitted implementation plans september 2016 wexpro decg dominion energy questar pipeline joined methane challenge 2018 decg joined epa’s voluntary natural gas star program july 2016 submitted implementation plan september 2016 questar gas dominion energy questar pipeline joining 2018 dominion energy dominion energy gas expect costs related programs material impact results operations financial condition andor cash flows water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms companies must comply applicable aspects cwa programs operating facilities october 2014 final regulations section 316b cwa govern existing facilities new units existing facilities employ cooling water intake structure flow levels exceeding minimum threshold became effective rule establishes national standard impingement based seven compliance options forgoes creation single technology standard entrainment instead epa delegated entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination five mandatory facility specific factors including social costbenefit test six optional facilityspecific factors rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd dominion energy virginia power 13 11 facilities respectively may subject final regulations nine units virginia power’s facilities subject regulations section 316b cwa placed cold reserve cold reserve applicable requirements section 316b cwa continue apply units dominion energy anticipates install impingement control technologies many stations oncethrough cooling systems dominion energy virginia power currently evaluating need potential entrainment controls final rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies impacts rule could material dominion energy virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts virginia power september 2015 epa released final rule revise effluent limitations guidelines steam electric power generating category final rule establishes updated standards wastewater discharges apply primarily coal oil steam generating stations affected facilities required convert wet dry closed cycle coal ash management improve existing wastewater treatment systems andor install new wastewater treatment technologies order meet new discharge limits april 2017 epa granted two separate petitions reconsideration effluent limitations guidelines final rule stayed future compliance dates rule also april 2017 us court appeals fifth circuit granted us’s request stay pending consolidated litigation challenging rule epa addresses petitions reconsideration september 2017 epa signed rule postpone earliest compliance dates certain waste streams regulations effluent limitations guidelines final rule november 2018 november 2020 however latest date compliance regulations remains december 2023 epa proposing complete new rulemaking waste streams impacts rule could material dominion energy virginia power’s results operations financial condition andor cash flows existing regulatory frameworks south carolina virginia provide rate recovery mechanisms could substantially mitigate impacts dominion energy virginia power waste management remediation cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners combined notes consolidated financial statements continued operators contaminated sites jointly severally strictly liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion energy virginia power dominion energy gas may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties also bring contribution actions seek reimbursement insurance companies result dominion energy virginia power dominion energy gas may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste companies believe matters material effect results operations financial condition andor cash flows dominion energy determined associated 22 former manufactured gas plant sites three pertain virginia power 12 pertain dominion energy gas studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none former sites companies associated investigation state federal environmental agency one former sites dominion energy conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded addition virginia power site accepted statebased voluntary remediation program june 2018 virginia power submitted proposed remedial action plan remove material site estimated cost 18 million pending vdeq approval virginia power expects begin remedial work site mid2019 result june 2018 virginia recorded charge 16 million 12 million aftertax operations maintenance expense consolidated statements income four sites dominion energy acquired scana combination associated sceg various states investigation remediation monitoring work plans approved review scdhec epa dominion energy anticipates activities sites continue 2020 estimated cost 10 million september 2018 sceg submitted updated remediation work plan one site scdhec approved would increase costs approximately 8 million sceg expects recover costs arising remediation work four sites rate recovery mechanisms due uncertainty surrounding sites companies unable make estimate potential financial statement impacts see discussion ash pond landfill closure costs legal matters companies defendants number lawsuits claims involving unrelated incidents property damage personal injury due uncertainty surrounding matters companies unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows appalachian gateway pipeline contractor litigation following completion appalachian gateway project 2012 deti received multiple change order requests claims additional payments pipeline contractor project july 2015 contractor filed complaint deti us district court western district pennsylvania march 2016 pennsylvania court granted deti’s motion transfer case us district court eastern district virginia july 2016 deti filed motion dismiss march 2017 court dismissed three eight counts complaint may 2017 contractor withdrew one counts complaint november 2017 deti contractor entered partial settlement agreement release certain claims august 2018 deti paid 14 million accordance terms settlement agreement reached parties resolving matter gas producers litigation connection appalachian gateway project dominion energy field services inc entered contracts firm purchase rights group small gas producers june 2016 gas producers filed complaint circuit court marshall county west virginia dominion energy deti dominion energy field services inc among defendants claiming contracts unenforceable seeking compensatory punitive damages third quarter 2016 dominion energy deti dominion energy field services inc served complaint also third quarter 2016 dominion energy deti consent defendants removed case us district court northern district west virginia october 2016 defendants filed motion dismiss plaintiffs filed motion remand february 2017 us district court entered order remanding matter circuit court marshall county west virginia march 2017 dominion energy voluntarily dismissed case however deti dominion energy field services inc remain parties matter april 2017 case transferred business court division west virginia january 2018 court granted motion dismiss filed defendants two counts claims pending business court division west virginia dominion energy dominion energy gas cannot currently estimate financial statement impacts could material impact financial condition andor cash flows ash pond landfill closure costs march 2015 sierra club filed lawsuit alleging cwa violations chesapeake power station march 2017 us district court eastern district virginia ruled impacted groundwater associated onsite coal ash storage units migrating adjacent surface water constituted unpermitted point source discharge violation cwa court however rejected sierra club’s claims virginia power violated specific conditions water discharge permit finding harm environment court declined impose civil penalties require excavation ash site sierra club sought july 2017 court issued final order requiring virginia power perform additional specific sediment water aquatic life monitoring around chesapeake power station period least two years court directed virginia power apply solid waste permit vdeq includes corrective measures address onsite groundwater impacts july 2017 virginia power appealed court’s july 2017 final order us court appeals fourth circuit august 2017 sierra club filed cross appeal september 2018 us court appeals fourth circuit ruled impacted groundwater associated coal ash storage chesapeake power station constitute point source pollution violation cwa station’s water discharge permit sierra club subsequently filed petition rehearing us court appeals fourth circuit denied april 2015 epa enacted final rule regulating ccr landfills existing ash ponds still receive manage ccrs inactive ash ponds receive still store ccrs dominion energy currently operates inactive ash ponds existing ash ponds ccr landfills subject final rule 11 different facilities eight virginia power rule created legal obligation dominion energy virginia power retrofit close inactive existing ash ponds certain period time well perform required monitoring corrective action postclosure care activities necessary 2015 virginia power recorded 386 million aro related future ash pond landfill closure costs 2016 virginia power recorded increase aro 238 million resulted 197 million incremental charge recorded operations maintenance expense consolidated statement income 17 million increase property plant equipment 24 million increase regulatory assets december 2016 legislation enacted creates framework epa approved state ccr permit programs august 2017 epa issued interim guidance outlining framework state ccr program approval epa enforcement authority state programs approved epa states approved programs authority enforce ccr requirements respective rules programs september 2017 epa agreed reconsider portions ccr rule response two petitions reconsideration march 2018 epa proposed certain changes ccr rule related issues remanded part pending litigation issues epa reconsidering several proposed changes would allow states approved ccr permit programs additional flexibilities implementing programs july 2018 epa promulgated first phase changes ccr rule phases ccr rule promulgated dominion energy virginia power cannot forecast potential incremental impacts costs related existing coal ash sites connection future implementation 2016 ccr legislation reconsideration ccr rule august 2018 us court appeals dc circuit issued decision pending challenges ccr rule vacating remanding epa three provisions rule dominion energy virginia power expect scope us court appeals dc circuit’s decision impact closure plans cannot forecast incremental impacts associated future changes ccr rule connection court’s remand april 2017 governor virginia signed legislation law places moratorium vdeq issuing solid waste permits closure ash ponds virginia power’s bremo chesapeake chesterfield possum point power stations may 2018 law also required virginia power conduct assessment closure alternatives ash ponds four stations include evaluation excavation recycling offsite disposal surface groundwater conditions safety virginia power completed assessments provided report december 1 2017 april 2018 governor virginia signed legislation law extending existing permit moratorium july 2019 legislation also requires virginia power solicit compile november 2018 information third parties suitability cost market demand beneficiation recycling coal ash units coal ash recycling business plan submitted legislature november 2018 extended moratorium apply permit required impoundment ccrs already removed placed another impoundment onsite removed impoundment processed connection recycling beneficial use project connection legislation second quarter 2018 virginia power recorded increase aro related environmental liability related future ash pond landfill closure costs 131 million resulted 81 million 60 million aftertax charge recorded operations maintenance expense consolidated statement income 46 million increase property plant equipment associated asset retirement costs 4 million increase regulatory assets actual aros related ccr rule may vary substantially estimates used record obligation cove point september 2014 ferc issued order granting authorization cove point construct modify operate liquefaction project cove point facility enables facility liquefy domesticallyproduced natural gas export lng march 2018 cove point received authorization ferc commence service liquefaction project commenced commercial operations april 2018 two parties separately filed petitions review ferc order us court appeals dc circuit petitions consolidated july 2016 court denied one party’s petition review ferc order authorizing liquefaction project court also issued decision remanding party’s petition review ferc order ferc explanation ferc’s decision previous transaction existing import shipper unduly discriminatory september 2017 ferc issued order remand us court appeals dc circuit reaffirmed ruling prior orders cove point violate prohibition undue discrimination agreeing capacity reduction early contract termination combined notes consolidated financial statements continued existing import shipper october 2017 party filed request rehearing ferc order remand august 2018 ferc issued rehearing order affirming clarifying previous orders appeals filed ferc’s orders final longer subject review ferc staff office enforcement division investigations conducted nonpublic investigation virginia power’s offers combustion turbines generators pjm dayahead markets april 2010 september 2014 ferc staff notified virginia power preliminary findings relating virginia power’s alleged violation ferc’s rules connection activities virginia power provided response ferc staff’s preliminary findings letter explaining virginia power’s conduct lawful refuting allegation wrongdoing matter pending virginia power recorded liability 14 million consolidated balance sheet december 31 2018 nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups institute nuclear power operations like us nuclear operators dominion energy gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisting actions staff determined started without unnecessary delay december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactors construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion energy requiring implementation safety enhancements related mitigation strategies respond extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation implemented information requests issued nrc request reactor reevaluate seismic external flooding hazards site using presentday methods information conduct walkdowns facilities ensure protection hazards current design basis reevaluate emergency communications systems staffing levels walkdowns unit completed audited nrc found adequate reevaluation emergency communications systems staffing levels completed part effort comply orders reevalua tion seismic hazards completed review nrc 2018 reevaluation external flooding hazards expected continue 2019 dominion energy virginia power currently expect compliance nrc’s information requests materially impact financial position results operations cash flows implementation period nrc staff evaluating implementation longer term tier 2 tier 3 recommendations dominion energy virginia power expect material financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2018 calculation nrc minimum financial assurance amount aggregated dominion energy virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 27 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2018 nrc minimum financial assurance amounts calculated using preliminary december 31 2018 us bureau labor statistics indices dominion energy believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion energy virginia power continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial instruments recognized nrc see note 9 additional information nuclear decommissioning trust investments nuclear insurance priceanderson amendments act 1988 provides public liability protection per site per nuclear incident basis via obligations required owners nuclear power plants allows inflationary provision adjustment every five years second quarter 2018 total liability protection per nuclear incident available participants secondary financial protection program decreased 134 billion 131 billion fourth quarter 2018 amount increased 131 billion 141 billion dominion energy virginia power purchased 450 million coverage commercial insurance pools millstone surry north anna remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us dominion energy virginia power could assessed 138 million licensed reactors exceed 21 million per year per reactor limit number incidents retrospective premium assessed nrc granted exemption march 2015 remove kewaunee secondary financial protection program exemption permitted dominion energy reduce kewaunee’s required level liability coverage 100 million reduction implemented january 2018 following removal storage spent nuclear fuel spent fuel pool current levels nuclear property insurance coverage dominion energy virginia power’s nuclear units follows 1 surry north anna share blanket property limit 200 million dominion energy virginia power’s nuclear property insurance coverage millstone surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site march 2015 nrc granted exemption allowed kewaunee reduce property insurance limit 50 million reduction implemented january 2018 following removal storage spent nuclear fuel spent fuel pool includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion energy virginia power’s maximum retrospective premium assessment current policy period 83 million 51 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion energy virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination millstone virginia power also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program dominion energy virginia power subject retrospective premium assessment policy year losses exceed funds available neil dominion energy virginia power’s maximum retrospective premium assessment current policy period 21 million 10 million respectively odec part owner north anna massachusetts municipal green mountain part owners millstone’s unit 3 responsible dominion energy virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel dominion energy virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act dominion energy virginia power’s contracts doe dominion energy virginia power previously received damages award payments settlement payments related contracts mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 settlement agreements surry north anna millstone nuclear power stations extended provide periodic payments damages incurred december 31 2019 june 2018 lawsuit kewaunee filed us court federal claims recovery spent nuclear fuel storage costs incurred period january 1 2014 december 31 2017 matter pending 2018 virginia power dominion energy received payments 16 million resolution claims incurred north anna surry period january 1 2016 december 31 2016 13 million resolution claims incurred millstone period july 1 2016 june 30 2017 virginia power dominion energy received payments 22 million resolution claims incurred north anna surry period january 1 2015 december 31 2015 14 million resolution claims incurred millstone period july 1 2015 june 30 2016 virginia power dominion energy received payments 30 million resolution claims incurred north anna surry period january 1 2014 december 31 2014 22 million resolution claims incurred millstone period july 1 2014 june 30 2015 dominion energy virginia power continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion energy’s receivables spent nuclear fuelrelated costs totaled 49 million 46 million december 31 2018 2017 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 30 million december 31 2018 2017 dominion energy virginia power continue manage spent fuel accepted doe combined notes consolidated financial statements continued longterm purchase agreements december 31 2018 virginia power following longterm commitments noncancelable cancelable certain conditions third party used secure financing facility provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts independent power producers end 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broad based economic indices december 31 2018 present value virginia power’s total commitment capacity payments 142 million capacity payments totaled 50 million 114 million 248 million energy payments totaled 42 million 72 million 126 million years ended 2018 2017 2016 respectively lease commitments companies lease real estate vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating leases initial remaining lease terms excess one year december 31 2018 follows rental expense dominion energy totaled 109 million 113 million 104 million 2018 2017 2016 respectively rental expense virginia power totaled 63 million 57 million 52 million 2018 2017 2016 respectively rental expense dominion energy gas totaled 22 million 34 million 37 million 2018 2017 2016 respectively majority rental expense reflected operations maintenance expense consolidated statements income july 2016 dominion energy signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 365 million fund estimated project costs project expected completed mid2019 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 281 million december 31 2018 project terminated certain events default dominion energy could required pay 899 funded amount specific full recourse events dominion energy could required pay 100 funded amount fiveyear lease term commence construction substantially complete facility able occupied end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 87 project costs difference project costs sale proceeds guarantees surety bonds letters credit october 2017 dominion energy entered guarantee agreement support portion atlantic coast pipeline’s obligation 34 billion revolving credit facility also entered october 2017 stated maturity date october 2021 dominion energy’s maximum potential loss exposure terms guarantee limited 48 outstanding borrowings revolving credit facility equal percentage dominion energy’s ownership atlantic coast pipeline december 31 2018 atlantic coast pipeline borrowed 14 billion revolving credit facility borrowed additional 113 million january february 2019 dominion energy’s consolidated balance sheet includes liability 21 million 28 million associated guarantee agreement december 31 2018 2017 respectively addition december 31 2018 dominion energy issued additional 48 million guarantees primarily support equity method investees amounts related guarantees recorded dominion energy also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties subsidiaries fail perform pay contracts counterparties seek performance payment dominion energy would obligated satisfy obligation extent liability subject guarantee incurred one dominion energy’s consolidated subsidiaries liability included consolidated financial statements dominion energy required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion energy currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2018 dominion energy issued following subsidiary guarantees 1 guarantees related commodity commitments certain subsidiaries guarantees provided counterparties order facilitate physical financial transaction related commodities services 2 guarantees related certain dgi subsidiaries’ regarding aspects running nuclear facility 3 guarantees related cove point support terminal services transportation construction cove point two guarantees maximum limit therefore included amount 4 includes guarantees facilitate development solar projects also includes guarantees entered dgi behalf certain subsidiaries facilitate acquisition development solar projects 5 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects insurance programs due uncertainty worker’s compensation claims parental guarantee stated limit also included guarantees related certain dgi subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower december 31 2018 dominion energy’s maximum remaining cumulative exposure equity funding agreements 4 million 2019 maximum annual future contribution approximately 4 million 6 excludes dominion energy’s guarantee construction new corporate office property discussed within lease commitments additionally december 31 2018 dominion energy purchased 171 million surety bonds including 72 million virginia power 26 million dominion energy gas authorized issuance letters credit financial institutions 88 million facilitate commercial transactions subsidiaries third parties terms surety bonds companies obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business companies may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law companies unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2018 companies believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position note 23 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction companies maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2018 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion energy diversified energy company dominion energy transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest rocky mountain southeast regions us dominion energy believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion energy exposed significant concentration credit risk receivables arising electric gas utility operations dominion energy’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion energy transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2018 dominion energy’s credit exposure totaled 145 million amount investment grade counterparties including internally rated represented 69 single counterparty whether investment grade noninvestment grade exceeded 47 million exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2018 virginia power’s credit exposure totaled 10 million amounts investment grade counterparties single counterparty exceeded 9 million exposure combined notes consolidated financial statements continued dominion energy gas dominion energy gas transacts mainly major companies energy industry residential commercial energy consumers transactions principally occur northeast midatlantic midwest regions us dominion energy gas believe geographic concentration contributes overall exposure credit risk addition result large diverse customer base dominion energy gas exposed significant concentration credit risk receivables arising gas utility operations dominion energy gas’ gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2018 dominion energy gas’ credit exposure totaled 8 million amount investment grade counterparties including internally rated represented 93 single counterparty whether investment grade noninvestment grade exceeded 5 million exposure 2018 deti provided service 307 customers approximately 96 storage transportation revenue provided firm services ten largest customers provided approximately 38 total storage transportation revenue thirty largest provided approximately 71 total storage transportation revenue east ohio distributes natural gas residential commercial industrial customers ohio using rates established ohio commission approximately 99 east ohio revenues derived regulated gas distribution services east ohio’s bad debt risk mitigated regulatory framework established ohio commission see note 13 information ohio’s pipp uex riders mitigate east ohio’s overall credit risk creditrelated contingent provisions majority dominion energy’s derivative instruments contain creditrelated contingent provisions require dominion energy provide collateral upon occurrence specific events primarily credit rating downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2018 2017 dominion energy would required post additional 1 million 62 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion energy posted collateral december 31 2018 2017 related derivatives creditrelated contingent provisions liability position fully collateralized cash aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2018 2017 1 million 65 million respectively include impact offsetting asset positions creditrelated contingent provisions virginia power dominion energy gas material december 31 2018 2017 see note 7 information derivative instruments note 24 relatedparty transactions virginia power dominion energy gas engage related party transactions primarily dominion energy subsidiaries affiliates virginia power dominion energy gas’ receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power dominion energy gas included dominion energy’s consolidated federal income tax return applicable combined income tax returns dominion energy filed various states see note 2 information dominion energy’s transactions equity method investments described note 9 discussion significant related party transactions follows virginia power transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised forward commodity purchases manage commodity price risks associated purchases natural gas see notes 7 19 information december 31 2018 virginia power’s derivative assets liabilities affiliates 26 million 10 million respectively december 31 2017 virginia power’s derivative assets liabilities affiliates 11 million 5 million respectively virginia power participates certain dominion energy benefit plans described note 21 december 31 2018 2017 virginia power’s amounts due dominion energy associated dominion energy pension plan reflected noncurrent pension postretirement benefit liabilities consolidated balance sheets 632 million 505 million respectively december 31 2018 2017 virginia power’s amounts due dominion energy associated dominion energy retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 254 million 199 million respectively des affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage financial statements years presented include costs certain general administrative corporate expenses assigned des virginia power basis direct allocated methods accordance virginia power’s services agreements des costs incurred cannot determined specific identification costs allocated based proportional level effort devoted des resources attributable entity determined reference number employees salaries wages similar measures relevant des serv ice management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable presented significant transactions des affiliates 1 includes capitalized expenditures 145 million 144 million 144 million year ended december 31 2018 2017 2016 respectively virginia power borrowed funds dominion energy shortterm borrowing arrangements 224 million 33 million shortterm demand note borrowings dominion energy december 31 2018 2017 respectively weightedaverage interest rate borrowings 294 165 december 31 2018 2017 respectively virginia power outstanding borrowings net repayments dominion energy money pool nonregulated subsidiaries december 31 2018 2017 interest charges related virginia power’s borrowings dominion energy immaterial years ended december 31 2018 2017 2016 issuances virginia power’s common stock dominion energy 2018 2017 2016 dominion energy gas transactions related parties dominion energy gas transacts affiliates certain quantities natural gas commodities market prices ordinary course business additionally dominion energy gas provides transportation storage services affiliates dominion energy gas also enters certain contracts affiliates related parties including construction services presented separately contracts involving commodities services december 31 2018 2017 dominion energy gas’ commodity derivatives affiliates see notes 7 19 information see note 9 information regarding transactions affiliate dominion energy gas participates certain dominion energy benefit plans described note 21 december 31 2018 2017 dominion energy gas’ amounts due dominion energy associated dominion energy pension plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 772 million 734 million respectively dominion energy gas’ amounts due dominion energy associated dominion energy retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 14 million 7 million december 31 2018 2017 respectively des affiliates provide accounting legal finance certain administrative technical services dominion energy gas dominion energy gas provides certain services related parties including technical services financial statements years presented include costs certain general administrative corporate expenses assigned des dominion energy gas basis direct allocated methods accordance dominion energy gas’ services agreements des costs incurred cannot determined specific identification costs allocated based proportional level effort devoted des resources attributable entity determined reference number employees salaries wages similar measures relevant des service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable costs services follow 1 includes capitalized expenditures 37 million 45 million 49 million year ended december 31 2018 2017 2016 respectively 2 amounts primarily attributable atlantic coast pipeline related party vie following table presents affiliated related party balances reflected dominion energy gas’ consolidated balance sheets 1 represents amounts due atlantic coast pipeline related party vie 2 amounts presented current liabilities dominion energy gas’ consolidated balance sheets 3 amounts presented deferred charges assets dominion energy gas’ consolidated balance sheets dominion energy gas’ borrowings irca dominion energy totaled 218 million 18 million december 31 2018 2017 respectively weightedaverage interest rate borrowings 278 160 december 31 2018 2017 respectively interest charges related dominion energy gas’ total borrowings dominion energy immaterial 2018 2017 2016 combined notes consolidated financial statements continued note 25 operating segments companies organized primarily basis products services sold us description operations included companies’ primary operating segments follows 1 includes remaining producer services activities addition operating segments companies also report corporate segment dominion energy corporate segment dominion energy includes corporate service company functions including unallocated debt addition corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources 2018 dominion energy reported aftertax net expenses 608 million corporate segment 88 million net expenses attributable specific items related operating segments net expenses specific items 2018 primarily related impact following items • 219 million 164 million aftertax charge related impairment certain gathering processing assets attributable gas infrastructure • 215 million 160 million aftertax charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers attributable • power generation 109 million aftertax • power delivery 51 million aftertax • 170 million 134 million aftertax net loss related investments nuclear decommissioning trust funds attributable power generation • 124 million 88 million aftertax charge disallowance fercregulated plant attributable gas infrastructure • 81 million 60 million aftertax charge associated primarily asset retirement obligations ash ponds landfills certain utility generation facilities connection enactment virginia legislation april 2018 attributable power generation • 70 million 52 million aftertax charge associated major storm damage service restoration attributable power delivery partially offset • 828 million 619 million aftertax benefit associated sale certain merchant generation facilities equity method investments attributable • power generation 229 million aftertax • gas infrastructure 390 million aftertax 2017 dominion energy reported aftertax net benefits 389 million corporate segment 861 million net benefits attributable specific items related operating segments net benefits specific items 2017 primarily related impact following items • 979 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act primarily attributable • gas infrastructure 324 million • power generation 655 million partially offset • 158 million 96 million aftertax charges associated equity method investments windpowered generation facilities attributable power generation 2016 dominion energy reported aftertax net expenses 484 million corporate segment 180 million net expenses attributable specific items related operating segments net expenses specific items 2016 primarily related impact following items • 197 million 122 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable power generation • 59 million 36 million aftertax charge related organizational design initiative attributable • power delivery 5 million aftertax • gas infrastructure 12 million aftertax • power generation 19 million aftertax following table presents segment information pertaining dominion energy’s operations intersegment sales transfers dominion energy based contractual arrangements may result intersegment profit loss eliminated consolidation virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s power delivery power generation segments corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources 2018 virginia power reported aftertax net expense 312 million specific items attributable operating segments corporate segment net expenses specific items 2018 primarily related impact following items • 215 million 160 million aftertax charge associated virginia legislation enacted march 2018 requires onetime rate credits certain amounts utility customers attributable • power generation 109 million aftertax • power delivery 51 million aftertax • 81 million 60 million aftertax charge associated primarily asset retirement obligations ash ponds landfills certain utility generation facilities connection enactment virginia legislation april 2018 attributable power generation • 70 million 52 million aftertax charge associated major storm damage service restoration attributable power delivery combined notes consolidated financial statements continued 2017 virginia power reported aftertax net benefit 74 million specific items attributable operating segments corporate segment net benefit specific items 2017 primarily related impact following item • 93 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act attributable power generation 2016 virginia power reported aftertax net expenses 173 million specific items attributable operating segments corporate segment net expenses specific items 2016 primarily related impact following item • 197 million 121 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable power generation following table presents segment information pertaining virginia power’s operations dominion energy gas corporate segment dominion energy gas primarily includes specific items attributable dominion energy gas’ operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion energy gas result dominion energy’s basis net assets contributed 2018 dominion energy gas reported aftertax net expenses 251 million corporate segment 244 million net expenses attributable operating segment net expenses specific items 2018 primarily related impact following items • 219 million 165 million aftertax charge related impairment gathering processing assets • 124 million 88 million aftertax charge disallowance fercregulated plant 2017 dominion energy gas reported aftertax net benefit 179 million corporate segment 174 million net expenses attributable operating segment net benefit specific items 2017 primarily related impact following item • 185 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act 2016 dominion energy gas reported aftertax net expenses 3 million corporate segment 7 million net expenses attributable operating segment net expense specific items 2016 primarily related impact following item • 8 million 5 million aftertax charge related organizational design initiative combined notes consolidated financial statements continued following table presents segment information pertaining dominion energy gas’ operations note 26 quarterly financial data unaudited summary companies’ quarterly results operations years ended december 31 2018 2017 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion energy dominion energy’s 2018 results include impact following significant items • fourth quarter results include 536 million aftertax gains sale certain merchant generation facilities equity method investments partially offset 164 million aftertax impairment charge certain gathering processing assets • second quarter results include 89 million aftertax charge disallowance fercregulated plant • first quarter results include 160 million aftertax charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers dominion energy’s 2017 results include impact following significant item • fourth quarter results include 851 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act partially offset 96 million aftertax charges associated equity method investments windpowered generation facilities virginia power virginia power’s quarterly results operations follows virginia power’s 2018 results include impact following significant item • first quarter results include 160 million aftertax charge associated virginia legislation enacted march 2018 required onetime rate credits certain amounts utility customers virginia power’s 2017 results include impact following significant item • fourth quarter results include 93 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act dominion energy gas dominion energy gas’ quarterly results operations follows dominion energy gas’s 2018 results include impact following significant items • fourth quarter results include 165 million aftertax impairment charge certain gathering processing assets • second quarter results include 89 million aftertax charge disallowance fercregulated plant dominion energy gas’s 2017 results include impact following significant item • fourth quarter results include 197 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act item 9 item 8 financial statements supplementary data index page report management’s responsibilities report independent registered public accounting firm consolidated statements income years ended december 31 2005 2004 2003 consolidated balance sheets december 31 2005 2004 consolidated statements common shareholder’s equity comprehensive income december 31 2005 2004 2003 years ended consolidated statements cash flows years ended december 31 2005 2004 2003 notes consolidated financial statements report management’s responsibilities accelerated filer defined exchange act rule 12b2 required comply securities exchange commission rules implementing section 404 sarbanesoxley act 2002 december 31 2007 management responsible information representations contained consolidated financial statements sections annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity accounting principles generally accepted united states america financial information form 10k consistent consolidated financial statements management maintains system internal control designed provide reasonable assurance reasonable cost assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal control therefore cannot provide absolute assurance objectives established internal controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 2005 system internal control adequate accomplish intended objectives consolidated financial statements audited deloitte touche llp independent registered public accounting firm engaged dominion’s audit committee comprised entirely independent directors deloitte touche llp’s audit conducted accordance standards public company accounting oversight board united states board directors also serves audit committee meets periodically independent registered public accounting firm internal auditors management discuss auditing internal accounting control financial reporting matters ensure properly discharging responsibilities management recognizes responsibility fostering strong ethical climate affairs conducted according highest standards personal corporate conduct responsibility characterized reflected code ethics addresses potential conflicts interest compliance domestic foreign laws confidentiality proprietary information full disclosure public information march 1 2006 report independent registered public accounting firm board directors virginia electric power company audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “company” december 31 2005 2004 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2005 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2005 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements company changed methods accounting adopt new accounting standards conditional asset retirement obligations 2005 asset retirement obligations contracts involved energy trading derivative contracts held trading purposes derivative contracts price adjustment feature consolidation variable interest entities 2003 deloitte touche llp richmond virginia march 1 2006 consolidated statements income accompanying notes integral part consolidated financial statements consolidated balance sheets accompanying notes integral part consolidated financial statements consolidated statements common shareholder’s equity comprehensive income accompanying notes integral part consolidated financial statements consolidated statements cash flows accompanying notes integral part consolidated financial statements notes consolidated financial statements note 1 nature operations virginia electric power company virginia public service company whollyowned subsidiary dominion resources inc dominion regulated public utility generates transmits distributes electricity within area approximately 30000 square miles virginia northeastern north carolina serve approximately 23 million retail customer accounts including governmental agencies wholesale customers rural electric cooperatives municipalities virginia service area comprises 65 virginia’s total land area accounts 80 population may 1 2005 became member pjm interconnection llc pjm regional transmission organization rto result integrated control area pjm energy markets discussed note 8 december 31 2005 completed transfer indirect whollyowned subsidiary virginia power energy marketing inc vpem dominion series dividend distributions exchange capital contribution vpem provides fuel risk management services us dominion affiliates engages energy trading activities vpem trading relationships beyond geographic limits retail service territory bought sold natural gas electricity energyrelated commodities result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation addition discontinued operations vpem included corporate segment results terms “company” “we” “our” “us” used throughout report depending context use may represent following legal entity virginia electric power company one virginia power electric company’s consolidated subsidiaries operating segments entirety virginia electric power company including virginia north carolina operations consolidated subsidiaries manage daily operations three primary operating segments generation energy delivery addition report corporate functions segment corporate also includes specific items attributable operating segments excluded profit measures evaluated management assessing segment performance allocating resources among segments note 2 significant accounting policies general make certain estimates assumptions preparing consolidated financial statements accordance accounting principles generally accepted united states america generally accepted accounting principles estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates consolidated financial statements include eliminating intercompany transactions balances accounts company majorityowned subsidiaries variable interest entities vies determined primary beneficiary certain amounts 2004 2003 consolidated financial statements footnotes reclassified conform 2005 presentation operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers customer accounts receivable december 31 2005 2004 included 263 million 251 million respectively accrued unbilled revenue based estimated amounts electric energy delivered yet billed utility customers estimate unbilled utility revenue based historical usage applicable customer rates weather factors total daily electric generation supplied adjusting estimated losses energy transmission primary types sales service activities reported operating revenue include · regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services subject costofservice rate regulation · revenue consists primarily excess generation sold marketbased rates miscellaneous service revenue electric distribution operations miscellaneous revenue electric fuel purchased energydeferred costs permitted regulatory authorities differences actual electric fuel purchased energy expenses levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset recovery fuel rate revenue excess current period expenses recognized regulatory liability effective january 1 2004 fuel factor provisions virginia retail customers locked earlier july 1 2007 termination capped rates onetime adjustment fuel factor effective july 1 2007 december 31 2010 deferred fuel accounting result approximately 12 cost fuel used electric generation energy purchases used serve utility customers subject deferral accounting prior amendments virginia electric utility restructuring act virginia restructuring act virginia fuel factor statute 2004 approximately 93 cost fuel used electric generation energy purchases used serve utility customers subject deferral accounting deferred costs associated virginia jurisdictional portion expenditures incurred 2003 continue reported regulatory assets subject recovery future rates income taxes file consolidated federal income tax return participate intercompany tax allocation agreement dominion subsidiaries current income taxes based notes consolidated financial statements continued taxable income determined separate company basis however prior repeal public utility holding company act 1935 act effective 2006 cash payments dominion limited statement financial accounting standards sfas 109 accounting income taxes requires asset liability approach accounting income taxes deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes permitted regulatory authorities treatment temporary differences may differ requirements sfas 109 accordingly regulatory asset recognized probable future revenues provided payment deferred tax liabilities establish valuation allowance likely portion deferred tax asset realized deferred investment tax credits amortized service lives properties giving rise credits december 31 2005 consolidated balance sheet includes 113 million current taxes payable dominion recorded accrued interest payroll taxes 11 million noncurrent taxes payable dominion recorded deferred credits liabilities december 31 2004 consolidated balance sheet included 24 million current taxes payable dominion recorded accrued interest payroll taxes cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 2005 2004 accounts payable includes 39 million 41 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows consider cash equivalents include cash hand cash banks temporary investments purchased remaining maturity three months less derivative instruments use derivative instruments futures swaps forwards options financial transmission rights ftrs manage commodity currency exchange financial market risks business operations also managed portfolio commodity contracts held trading purposes part vpem’s strategy market energy manage related risks sfas 133 accounting derivative instruments hedging activities requires derivatives except exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accountingnormal purchases normal salesmay elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenue resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates statement income presentation · financiallysettled derivativesnot held trading purposes designated hedging instruments unrealized changes fair value settlements presented operations maintenance expense net basis · physicallysettled derivativesnot held trading purposes designated hedging instruments effective october 1 2003 unrealized changes fair value settlements physical derivative sales contracts presented revenue unrealized changes fair value settlements physical derivative purchase contracts reported expenses periods prior october 1 2003 unrealized changes fair value physically settled derivative contracts presented operations maintenance expense net basis recognize revenue expense nonderivative energyrelated contracts gross basis time contract performance settlement termination derivative instruments designated hedging instruments designate certain derivative instruments cash flow fair value hedges accounting purposes derivatives designated hedges relationship hedging instrument hedged item formally documented well risk management objective strategy using hedging instrument assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also may elect exclude certain gains losses hedging instruments measurement hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings discontinue hedge accounting prospectively derivatives ceased highly effective hedges cash flow hedgesprior transfer vpem portion hedge strategies represented cash flow hedges variable price risk associated purchase sale natural gas continue use foreign currency forward contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions hedging variability cash flows changes fair value derivative reported accumulated comprehensive income loss aoci extent effective offsetting changes hedged item earnings affected hedged item cash flow hedge transactions discontinue hedge accounting occurrence forecasted transaction determined longer probable reclassify derivative gains losses reported aoci earnings forecasted item included earnings occur earlier becomes probable forecasted transaction occur notes consolidated financial statements continued fair value hedgesprior transfer vpem also used fair value hedges mitigate fixed price exposure inherent certain natural gas inventory continue use designated interest rate swaps fair value hedges manage interest rate exposure certain fixedrate longterm debt fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value statement income presentationgains losses derivatives designated hedges recognized included operating revenue operating expenses interest related charges consolidated statements income specific line item classification determined based nature risk underlying individual hedge strategies portion gains losses hedging instruments determined ineffective portion gains losses hedging instruments excluded measurement hedging relationship’s effectiveness gains losses attributable changes time value options changes difference spot prices forward prices included operations maintenance expense discussed note 8 december 31 2005 completed transfer vpem dominion vpem manages portfolio commodity contracts held trading nontrading purposes result transfer vpem dominion derivatives longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation valuation methods fair value based actively quoted market prices available absence actively quoted market prices seek indicative price information external sources including broker quotes industry publications pricing information external sources available must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis options contracts optionlike characteristics pricing information available external sources generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different valuation models assumptions could material effect contract’s estimated fair value nuclear decommissioning trust funds account classify investments marketable debt equity securities held nuclear decommissioning trust funds availableforsale securities accordingly reported fair value realized gains losses otherthantemporary declines fair value included earnings unrealized gains losses reported component aoci net tax analyze securities classified availableforsale determine whether decline fair value considered otherthantemporary use several criteria evaluate otherthantemporary declines including length time market value lower cost percentage decline compared average cost expected fair value security market value security less cost eight months decline value greater 50 average cost security written fair value end reporting period one criteria met analysis performed evaluate expected recovery value based thirdparty price targets thirdparty price targets security’s average cost one criteria met decline considered otherthantemporary security written fair value end reporting period property plant equipment property plant equipment including additions replacements recorded original cost including labor materials asset retirement costs direct indirect costs including capitalized interest cost repairs maintenance including minor additions replacements charged expense incurred 2005 2004 2003 capitalized interest costs 6 million 7 million 18 million respectively electric distribution transmission property subject costofservice rate regulation depreciable cost property less salvage value charged accumulated depreciation retirement cost removal collections utility customers expenditures representing asset retirement obligations aros recorded regulatory liabilities regulatory assets generationrelated nonutility property cost removal associated aros charged expense incurred record gains losses upon retirement generationrelated nonutility property based upon difference proceeds received property’s undepreciated basis retirement date depreciation property plant equipment computed straightline method based projected service lives depreciation rates utility property plant equipment follows nonutility property plant equipment depreciated using straightline method 25 years nuclear fuel used electric generation amortized estimated service life unitsofproduction basis notes consolidated financial statements continued emissions allowances emissions allowances issued environmental protection agency epa permit holder allowance emit certain gaseous byproducts fossil fuel combustion including sulfur dioxide so2 nitrogen oxide nox allowances may transacted third parties consumed emissions generated allowances allocated acquired generation operations held primarily consumption classified intangible assets reported assets consolidated balance sheets carrying amounts based cost acquire allowances issued directly us epa carried zero cost emissions allowances amortized periods consumed amortization reflected depreciation amortization consolidated statements income report purchases sales allowances investing activities consolidated statements cash flows gains losses resulting sales operations maintenance expense consolidated statements income impairment longlived intangible assets perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable assets written fair value sum expected future undiscounted cash flows less carrying amounts regulatory assets liabilities utility operations subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred regulatory assets amortized expense regulatory liabilities amortized income recovery period authorized regulator asset retirement obligations recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value retirement activities performed amounts capitalized costs related tangible longlived assets since relevant market information available estimate fair value using discounted cash flow analyses report accretion aros due passage time operations maintenance expense amortization debt issuance costs defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issues note 3 newly adopted accounting standards sfas 153 july 1 2005 adopted sfas 153 exchanges nonmonetary assetsan amendment apb opinion 29 requires commercially substantive exchange transactions fair values assets exchanged reliably determinable recorded fair value whether exchanges similar productive assets amends exception fair value measurements accounting principles board apb opinion 29 accounting nonmonetary transactions nonmonetary exchanges similar productive assets replaces exception exchanges commercial substance impact results operations financial condition related adoption sfas 153 expect ongoing application sfas 153 material impact results operations financial condition fin 47 adopted financial accounting standards board fasb interpretation 47 accounting conditional asset retirement obligations fin 47 december 31 2005 fin 47 clarifies entity required recognize liability fair value conditional asset retirement obligation incurredgenerally upon acquisition construction development andor normal operation asset fair value liability reasonably estimated conditional asset retirement obligation legal obligation perform asset retirement activity timing andor method settlement conditional future event may within control entity uncertainty timing andor method settlement required factored measurement liability sufficient information exists adoption fin 47 resulted recognition aftertax charge 4 million representing cumulative effect change accounting principle presented pro forma net income 2005 2004 2003 applied provisions fin 47 january 1 2003 applied provisions fin 47 january 1 2003 asset retirement obligations january 1 2003 would increased 7 million asset retirement obligations december 31 2003 december 31 2004 would increased 8 million notes consolidated financial statements continued fin 46r adopted fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r interests vies considered special purpose entities march 31 2004 fin 46r addresses identification consolidation vies entities controllable voting interests vies’ equity investors bear residual economic risks rewards proportion voting rights impact results operations financial position related adoption see note 14 sfas 143 effective january 1 2003 adopted sfas 143 accounting asset retirement obligations provides accounting requirements recognition measurement liabilities associated retirement tangible longlived assets effect adopting sfas 143 2003 compared estimate net income reflecting continuation former accounting policies increase net income 160 million increase comprised 139 million aftertax benefit representing cumulative effect change accounting principle increase income cumulative effect change accounting principle 21 million eitf 023 january 1 2003 adopted emerging issues task force eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities rescinded eitf issue 9810 accounting contracts involved energy trading risk management activities adopting eitf 023 resulted discontinuance fair value accounting nonderivative contracts held trading purposes contracts recognized revenue expense time contract performance settlement termination eitf 9810 rescission effective nonderivative energy trading contracts initiated october 25 2002 nonderivative energy trading contracts initiated prior october 25 2002 recognized charge 90 million 55 million aftertax cumulative effect change accounting principle january 1 2003 eitf 0311 october 1 2003 adopted eitf issue 0311 reporting realized gains losses derivative instruments subject fasb statement 133 “held trading purposes” defined eitf issue 023 eitf 0311 addresses classification income statement related amounts derivative contracts income statement amounts related periods prior october 1 2003 presented originally reported see note 2 statement 133 implementation issue c20 connection request reconsider interpretation sfas 133 fasb issued statement 133 implementation issue c20 interpretation meaning ‘not clearly closely related’ paragraph 10b regarding contracts price adjustment feature issue c20 establishes criteria determining whether contract’s pricing terms contain broad market indices eg consumer price index could qualify normal purchase sale therefore subject fair value accounting several contracts qualified normal purchase sales contracts issue c20 guidance however adoption issue c20 required contracts initially recorded fair value october 1 2003 resulting recognition aftertax charge 101 million representing cumulative effect change accounting principle normal purchase sales contracts changes fair value recognized fin 46r december 31 2003 adopted fin 46r interests special purpose entities resulting consolidation special purpose lessor entity constructed financed leased power generation project result consolidated balance sheet december 31 2003 reflects additional 364 million net property plant equipment deferred charges 370 million related debt resulted additional depreciation expense approximately 10 million 2005 2004 cumulative effect 2003 adopting fin 46r interests special purpose entity aftertax charge 4 million representing depreciation amortization expense associated consolidated assets 2002 established virginia power capital trust ii sold trust preferred securities third party investors received proceeds sale trust preferred securities exchange junior subordinated notes issued us held trust upon adoption fin 46r began reporting longterm debt junior subordinated notes held trust rather trust preferred securities result 2005 2004 reported interest expense junior subordinated notes rather preferred distribution expense trust preferred securities note 4 recently issued accounting standards sfas 154 may 2005 fasb issued sfas 154 accounting changes error corrections sfas 154 applies voluntary changes accounting principle requires retrospective application prior periods’ financial statements voluntary change accounting principle unless impracticable determine either periodspecific effects cumulative effect change apply provisions sfas 154 voluntary accounting changes january 1 2006 note 5 operating revenue operating revenue consists following notes consolidated financial statements continued note 6 income taxes details income tax expense continuing operations follows continuing operations statutory us federal income rate reconciles effective income tax rates follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes net deferred income taxes consist following 1 december 31 2005 2004 total net deferred income tax liabilities include 1 million 2 million respectively current deferred tax liabilities reported current liabilities december 31 2005 following loss credit carryforwards · federal loss carryforwards less 1 million expire unutilized period 2023 2024 · state loss carryforwards 169 million expire unutilized period 2019 2023 · federal state minimum tax credits 38 million expire routinely audited federal state tax authorities interpretation tax laws involves uncertainty since tax authorities may interpret differently establish liabilities taxrelated contingencies accordance sfas 5 accounting contingencies review light changing facts circumstances ultimate resolution income tax matters may result favorable unfavorable adjustments could material december 31 2005 consolidated balance sheet included 13 million income taxrelated contingent liabilities december 31 2004 consolidated balance sheet included significant income taxrelated contingent liabilities american jobs creation act 2004 jobs act jobs act several provisions energy companies including deduction related taxable income derived qualified production activities electric generation activities qualify production activities jobs act jobs act limits deduction lesser taxable income derived qualified production activities consolidated federal taxable income dominion subsidiaries qualified production activities deduction 2005 limited minimal amount note 7 hedge accounting activities exposed impact market fluctuations price natural gas electricity energyrelated products marketed purchased well currency exchange interest rate risks business operations use derivative instruments manage exposure risks designate derivative instruments fair value cash flow hedges accounting purposes allowed sfas 133 years ended december 31 2005 2004 recognized net income 11 million gains 1 million losses respectively hedge ineffectiveness 4 million 3 million gains respectively attributable differences spot prices forward prices excluded measurement effectiveness connection fair value hedges natural gas inventory following table presents selected information related cash flow hedges included aoci consolidated balance sheet december 31 2005 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes interest rates foreign exchange rates notes consolidated financial statements continued note 8 discontinued operationsvpem transfer december 31 2005 completed transfer vpem dominion series dividend distributions resulted transfer negative investment vpem dominion exchange capital contribution 633 million gain loss recognized transfer vpem provides fuel risk management services us acting agent one indirect whollyowned subsidiaries continue provide services following transfer vpem also engages energy trading activities provides price risk management services dominion affiliates use derivative contracts owned vpem certain derivative contracts reported fair value consolidated balance sheets changes fair value reflected earnings price risk management activities performed behalf dominion affiliates generated derivative gains losses affected consolidated financial statements result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation net basis vpem’s results 2005 2004 2003 include revenues 807 million 373 million 250 million respectively losses income taxes 746 million 259 million 2005 2004 respectively income taxes 2003 44 million vpem’s results also include following affiliated transactions december 31 2004 consolidated balance sheet included derivative assets 84 million derivative liabilities 34 million related transactions vpem affiliates note 9 nuclear decommissioning trust funds hold marketable debt equity securities nuclear decommissioning trust funds fund future decommissioning costs nuclear plants decommissioning trust funds december 31 2005 2004 summarized 1 2005 approximately 2 million unrealized losses relate primarily equity securities loss position greater one year 2004 approximately 1 million unrealized losses relate primarily equity securities loss position greater one year fair values debt securities within nuclear decommissioning trust funds december 31 2005 contractual maturity follows gross realized gains sale availableforsale securities totaled 19 million 27 million 25 million 2005 2004 2003 respectively gross realized losses totaled 8 million 24 million 13 million 2005 2004 2003 respectively determining realized gains losses cost securities determined specific identification basis note 10 property plant equipment major classes property plant equipment respective balances notes consolidated financial statements continued jointlyowned utility plants proportionate share jointlyowned utility plants december 31 2005 follows coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest report share operating costs appropriate operating expense electric fuel energy purchases operations maintenance depreciation amortization taxes etc consolidated statements income note 11 intangible assets intangible assets subject amortization estimated useful lives amortization expense intangible assets 38 million 27 million 25 million 2005 2004 2003 respectively material acquisitions intangible assets 2005 2004 components intangible assets follows annual amortization expense intangible assets estimated 35 million 2006 30 million 2007 25 million 2008 21 million 2009 15 million 2010 note 12 regulatory assets liabilities regulatory assets liabilities include following 1 income taxes recoverable future rates resulting recognition additional deferred income taxes recognized ratemaking practices 2 cost decommissioning department energy’s doe uranium enrichment facilities represents unamortized portion required contributions fund decommissioning decontaminating doe’s uranium enrichment facilities contributions began 1992 continue 15year period escalation inflation costs currently recovered fuel rates june 30 2007 3 connection settlement 2003 virginia fuel rate proceeding agreed recover previously incurred costs june 30 2007 without return portion unrecovered balance remaining costs recovered totaled 139 million december 31 2005 4 federal energy regulatory commission ferc conditionally authorized deferral startup costs incurred connection joining rto ongoing administration fees paid pjm deferred 35 million startup costs administration fees 4 million associated carrying costs expect recovery virginia jurisdictional retail customers commence end virginia retail rate cap period subject regulatory approval 5 north carolina utilities commission north carolina commission authorized deferral previously incurred costs associated termination certain longterm power purchase agreements nonutility generators related costs amortized original term agreement 6 rates charged customers regulated business include provision cost future activities remove assets expected incurred time retirement december 31 2005 approximately 163 million regulatory assets represented past expenditures earn return expenditures consist primarily rto startup costs administration fees cost terminating certain power purchase agreements portion deferred fuel costs note 13 asset retirement obligations aros primarily associated decommissioning nuclear generation facilities however 2005 recognized additional aros due adoption fin 47 clarified sufficient information available reasonably estimate fair value conditional aros additional aros totaled 8 million relate future abatement asbestos generation facilities obligations result certain safety environmental activities required perform asbestos disturbed also aros related certain electric transmission distribution assets located property hydroelectric generation facilities currently sufficient information estimate reasonable range expected retirement dates assets thus aros notes consolidated financial statements continued assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed generally occur expected retirement abandonment dates determined operational planning changes aros 2005 follows established trusts dedicated funding future decommissioning nuclear plants december 31 2005 2004 aggregate fair value trusts consisting primarily debt equity securities totaled 12 billion 11 billion respectively note 14 variable interest entities fin 46r addresses consolidation vies entity considered vie fin 46r sufficient equity finance activities without assistance variable interest holders equity investors lack following characteristics controlling financial interest · control voting rights · obligation absorb expected losses · right receive expected residual returns fin 46r requires primary beneficiary vie consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity receives majority vie’s expected losses expected residual returns certain variable pricing terms longterm power capacity contracts cause contracts considered potential variable interests counterparties six potential vies existing power purchase agreements signed prior december 31 2003 provided sufficient information us perform fin 46r evaluation since determined interest two potential vies significant addition may 2005 paid 215 million divest interest longterm power tolling contract 551 megawatt combined cycle facility located batesville mississippi considered potential vie decided divest interest longterm power tolling contract connection reconsideration scope certain trading activities including conducted behalf affiliates dominion’s ongoing strategy focus business activities within energy intensive northeast midatlantic midwest regions united states december 31 2005 information received three remaining potential vies continue efforts obtain information complete evaluation relationship potential vies sufficient information ultimately obtained remaining purchase commitments three potential vie supplier entities 20 billion december 31 2005 paid 196 million 199 million 199 million electric generation capacity 243 million 149 million 134 million electric energy entities years ended december 31 2005 2004 2003 respectively october 2005 reached agreement principle restructure three longterm power purchase contracts two potential variable interest entities restructured contracts expire 2015 2017 expected reduce capacity energy payments approximately 44 million 6 million respectively remaining term contracts transaction became effective february 2006 result cash outlay charge earnings total debt held entities approximately 320 million completing fin 46r analysis concluded although interest contracts result pricing terms represent variable interests potential variable interest entities primary beneficiary 2005 entered four longterm contracts unrelated limited liability corporations llcs purchase synthetic fuel produced coal certain variable pricing terms contracts protect equity holders variability cost coal purchases therefore llcs determined vies completing fin 46r analysis concluded although interests contracts result pricing terms represent variable interests llcs primary beneficiary paid 205 million llcs coal synthetic fuel produced coal yearended december 31 2005 subject risk loss contractual arrangements obligation vies purchase synthetic fuel vies produce according terms applicable purchase contracts accordance fin 46r consolidate variable interest lessor entity financed leased power generation project consolidated balance sheets december 31 2005 2004 reflect net property plant equipment 348 million 346 million respectively 370 million debt related entity debt nonrecourse us secured entity’s property plant equipment note 15 shortterm debt credit agreements use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing level borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations may 2005 entered 25 billion fiveyear revolving credit facility dominion consolidated natural gas company cng whollyowned subsidiary dominion replaced 15 billion threeyear facility dated may 2004 750 million threeyear facility dated may 2002 credit facility also used support 125 billion letters credit december 31 2005 total outstanding commercial paper supported joint credit facility 14 billion borrowings 905 million weighted average interest notes consolidated financial statements continued rate 446 december 31 2004 total outstanding commercial paper supported previous credit agreements 573 million borrowings 267 million weighted average interest rate 235 december 31 2005 total outstanding letters credit supported joint credit facility 892 million less 1 million issued behalf december 31 2004 total outstanding letters credit supported joint credit facilities 183 million issued behalf dominion subsidiaries january 2006 issued 450 million 54 senior notes mature 2016 550 million 60 senior notes mature 2036 used proceeds issuance repay shortterm debt note 16 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2005 2 substantially property subject lien mortgage securing mortgage bonds due early redemption 512 million first refunding mortgage bonds 2005 incurred 25 million prepayment penalties related charges recognized interest expense consolidated statement income 3 represents debt associated special purpose lessor entity consolidated accordance fin 46r debt nonrecourse us secured entity’s property plant equipment 348 million 346 million december 31 2005 2004 respectively 4 december 15 2008 225 million 410 callable puttable enhanced securitiessm due 2038 subject redemption par plus accrued interest unless holders related options exercise rights purchase remarket notes 5 certain pollution control equipment generating facilities pledged support financings variable rate taxexempt financings supported standalone 200 million threeyear credit facility terminates may 2006 february 2006 facility replaced fiveyear credit facility terminates february 2011 6 represents changes fair value certain fixed rate longterm debt associated fair value hedging relationships notes consolidated financial statements continued based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2005 follows millions shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2005 events default covenants junior subordinated notes payable affiliated trust 2002 established subsidiary capital trust virginia power capital trust ii trust finance subsidiary hold 100 voting interests trust sold 16 million 7375 trust preferred securities 400 million representing preferred beneficial interests 97 beneficial ownership assets held trust exchange 400 million realized sale trust preferred securities 12 million common securities represent remaining 3 beneficial ownership interest assets held capital trust issued 412 million 2002 7375 junior subordinated notes junior subordinated notes due july 30 2042 trust junior subordinated notes constitute 100 trust’s assets trust must redeem trust preferred securities junior subordinated notes repaid maturity redeemed prior maturity previous accounting guidance consolidated trust consolidated financial statements accordance fin 46r ceased consolidate trust december 31 2003 instead report longterm debt consolidated balance sheet junior subordinated notes issued us held trust distribution payments trust preferred securities issued trust considered fully unconditionally guaranteed us related agreements taken consideration guarantee agreement provides guarantee distribution payments trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon payment amounts due junior subordinated notes payment junior subordinated notes deferred may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes note 17 preferred stock authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares outstanding december 31 2005 2004 upon involuntary liquidation dissolution windingup company share would entitled receive 100 plus accrued dividends cumulative holders outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series preferred stock subject mandatory redemption outstanding december 31 2005 1 7312006 10247 commencing 812006 amounts decline steps thereafter 10000 812013 2 8312006 10245 commencing 912006 amounts decline steps thereafter 10000 912013 3 dividend rate 550 12202007 rate determined according periodic auctions periods established us time auction process series callable prior 12202007 note 18 shareholder’s equity common stock 2004 approved virginia state corporation commission virginia commission dominion made equity investment company purchase common stock issued 20115 shares common stock dominion cash consideration 500 million paidin capital 2005 recorded contributed capital 633 million related transfer investment vpem dominion 200 million connection conversion shortterm borrowings 2004 recorded 11 million paidin capital connection reduction amounts payable dominion accumulated comprehensive income presented table summary aoci component note 19 dividend restrictions 1935 act related regulations issued securities exchange commission sec impose restrictions notes consolidated financial statements continued transfer receipt funds registered holding company like dominion subsidiaries including us restrictions include general prohibition loans advances made subsidiaries benefit registered holding company 1935 act registered holding companies subsidiaries may pay dividends retained earnings unless sec specifically authorizes payments capital accounts 2004 sec granted relief authorizing nonutility subsidiaries pay dividends capital unearned surplus situations subsidiary received excess cash asset sale engaged restructuring returning capital associate company bound foregoing restrictions dividends imposed 1935 act february 8 2006 effective date 1935 act repealed energy policy act 2005 virginia commission may prohibit public service company declaring paying dividend affiliate found public interest december 31 2005 virginia commission restricted payment dividends certain agreements associated joint credit facility dominion cng contain restrictions ratio debt total capitalization limitations restrict ability pay dividends dominion receive dividends subsidiaries december 31 2005 see note 16 description potential restrictions dividend payments connection deferral distribution payments trust preferred securities note 20 employee benefit plans participate defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer subject dominion’s funding policy generally contribute annually amount accordance provisions employment retirement income security act 1974 net periodic pension cost 56 million 40 million 23 million 2005 2004 2003 respectively contributions pension plan 108 million 2003 contribute pension plan 2005 2004 participate plans provide certain retiree health care life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service net periodic benefit cost related plans 42 million 44 million 44 million 2005 2004 2003 respectively certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly fund postretirement benefit costs voluntary employees’ beneficiary associations contributions retiree health care life insurance plans 32 million 34 million 31 million 2005 2004 2003 respectively also participate dominionsponsored employee savings plans cover substantially employees employer matching contributions 11 million 11 million 10 million incurred 2005 2004 2003 respectively note 21 commitments contingencies result issues generated ordinary course business involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money believe final disposition proceedings material effect financial position liquidity results operations longterm purchase agreements december 31 2005 following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2023 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2005 present value total commitment capacity payments 28 billion capacity payments totaled 472 million 570 million 611 million energy payments totaled 378 million 293 million 289 million 2005 2004 2003 respectively first quarter 2005 paid 42 million cash assumed 62 million debt connection termination longterm power purchase agreement acquisition related generating facility used pandarosemary lp nonutility generator provide electricity us purchase price allocated assets acquired liabilities assumed based estimated fair values date acquisition connection termination agreement recorded aftertax charge 47 million second quarter 2005 paid 215 million divest interest longterm power tolling contract 551megawatt combined cycle facility located batesville mississippi recorded aftertax charges 8 million 112 million 2005 2004 respectively related divestiture contract october 2005 reached agreement principle restructure three longterm power purchase contracts restructured contracts expire 2015 2017 expected reduce capacity energy payments approximately 44 million 6 million respectively remaining term contracts transaction became effective february 2006 result cash outlay charge earnings lease commitments lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2005 follows notes consolidated financial statements continued rental expense totaled 32 million 40 million 49 million 2005 2004 2003 respectively majority reflected operations maintenance expense environmental matters subject costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations historically recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2010 excess level currently included virginia jurisdictional rates results operations decrease date may seek recovery rates environmental costs related transmission distribution operations superfund sites time may identified potentially responsible party prp superfund site environmental protection agency epa state either allow party conduct pay remedial investigation feasibility study remedial action b conduct remedial investigation action seek reimbursement parties party held jointly severally strictly liable costs parties also bring contribution actions seek reimbursement insurance companies result may responsible costs remedial investigation actions superfund act laws regulations regarding remediation waste believe currently identified sites result significant liabilities 1987 number entities identified epa prps two superfund sites located kentucky pennsylvania 2003 epa issued certificate completion remediation kentucky site future costs kentucky site limited minor operations maintenance expenditures remediation design complete pennsylvania site total remediation costs expected range 13 million 25 million based allocation formulas volume waste shipped site accrued reserve 2 million meet obligations two sites based financial assessment prps involved sites determined probable prps fully pay share costs generally seek recover costs associated environmental remediation third party insurers december 31 2005 pending possible insurance claims recognized asset offset obligations nuclear operations nuclear decommissioningminimum financial assurance nuclear regulatory commission nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities 2005 nrc minimum financial assurance amount aggregated nuclear units 13 billion satisfied combination funds collected deposited trusts real annual rate return growth funds allowed nrc june 2005 gave notice nrc canceling previous guarantee based calculations trusts contain sufficient funds meet nrc requirements without assurances nuclear insurance priceanderson act provides public 108 billion protection per nuclear incident via obligations required owners nuclear power plants priceanderson act amendment 1988 allows inflationary provision adjustment every five years purchased 300 million coverage commercial insurance pools remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor united states could assessed 1006 million four licensed reactors exceed 15 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed 2005 current level property insurance coverage 255 billion north anna surry individually exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 55 million based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination purchase insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 20 million old dominion electric cooperative part owner north anna power station responsible share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 entered contract doe disposal spent nuclear fuel doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act contract doe january 2004 dominion filed lawsuit united states notes consolidated financial statements continued court federal claims doe connection failure commence accepting spent nuclear fuel continue safely manage spent fuel accepted doe litigation coowners odec clover electric generating facility 1989 entered coal transportation agreement norfolk southern railway company norfolk southern delivery coal facility agreement provides base rate price adjustment based upon published index norfolk southern claimed october 2003 incorrect reference index used adjust base transportation rate november 2003 odec filed suit norfolk southern seeking clarify price escalation provisions transportation agreement trial court ruled norfolk southern’s favor concluding agreement specifies higher rate adjustment factor norfolk southern claims applied past adjust base rate applied future court ruled calculation underpayments past adjustments future rate adjustments believe court’s interpretation transportation agreement ruling issues case legally incorrect intend prosecute case necessary file appeal case concluded trial court liability recorded consolidated financial statements related matter guarantees surety bonds december 31 2005 issued 51 million guarantees primarily support commodity transactions subsidiaries also purchased 15 million surety bonds various purposes including providing worker compensation coverage obtaining licenses permits rightsofway terms surety bonds obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law unable develop estimate maximum potential amount future payments contracts events would obligate us yet occurred event occurred notified occurrence however december 31 2005 believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position stranded costs 1999 virginia enacted virginia restructuring act established detailed plan restructure virginia’s electric utility industry virginia restructuring act generation portion virginia jurisdictional operations longer subject costbased regulation legislation’s deregulation generation event required us discontinue application sfas 71 accounting effects certain types regulation virginia jurisdictional portion generation operations 1999 2004 amendments virginia restructuring act virginia fuel factor statute adopted amendments · extend capped base rates three onehalf years december 31 2010 unless modified terminated earlier virginia restructuring act · lock fuel factor provisions earlier july 1 2007 termination capped rates virginia restructuring act adjustment previously incurred overrecovery underrecovery fuel costs thus eliminating deferred fuel accounting virginia jurisdiction · provide onetime adjustment fuel factor effective july 1 2007 december 31 2010 unless capped rates terminated earlier virginia restructuring act adjustment previously incurred overrecovery underrecovery fuel costs · end wires charges earlier july 1 2007 termination capped rates wires charges permitted collected utilities july 1 2007 virginia restructuring act wires charges set zero 2006 rate classes virginia customers pay fee 2006 switch us competitive service provider believe capped electric retail rates applicable wires charges provided virginia restructuring act provide opportunity recover potential stranded costs depending market prices electricity factors stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market recovery potential stranded costs remains subject numerous risks even cappedrate environment include among others exposure longterm power purchase commitment losses future environmental compliance requirements changes certain tax laws nuclear decommissioning costs increased fuel costs inflation increased capital costs recovery certain items december 31 2005 exposure potential stranded costs included longterm power purchase agreements could ultimately determined market generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements notes consolidated financial statements continued note 22 fair value financial instruments substantially financial instruments recorded fair value exception instruments described reported historical cost fair values determined using available market information valuation methodologies considered appropriate management financial instruments’ carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 includes securities due within one year note 23 credit risk maintain provision credit losses based factors surrounding credit risk customers historical trends information believe based credit policies december 31 2005 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance sell electricity provide distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers exposure credit risk concentrated primarily within vpem’s energy commodity trading risk management activities performed behalf dominion affiliates transacted smaller less diverse group counterparties transactions involved large notional volumes volatile commodity prices result transfer vpem december 31 2005 significant exposure credit risk note 24 related party transactions engage related party transactions primarily affiliates dominion subsidiaries accounts receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions included dominion’s consolidated federal income tax return participate certain dominion benefit plans significant related party transactions disclosed transactions affiliates december 31 2005 transferred vpem dominion exchange 633 million contribution capital longer involved facilitating dominion’s enterprise risk management entering certain financial derivative commodity contracts affiliates vpem continue provide fuel management services us acting agent one indirect whollyowned subsidiaries addition also transact affiliates certain quantities natural gas commodities ordinary course business dominion resources services inc dominion services provides accounting legal certain administrative technical services us provide certain services affiliates including charges facilities equipment usage transactions vpem dominion services affiliates detailed transactions dominion lease principal office building dominion agreement expires 2008 lease agreement accounted capital lease capitalized cost property lease net accumulated amortization approximately 5 million 8 million december 31 2005 2004 respectively rental payments lease 3 million 2005 2004 2003 borrowed funds dominion shortterm longterm borrowing arrangements december 31 2004 vpem borrowings dominion shortterm demand notes totaling 645 million february 2005 outstanding demand note borrowings converted borrowings dominion money pool borrowed additional funds dominion shortterm demand notes september 2005 200 million subsequently converted contributed capital third quarter december 31 2005 subsequent vpem transfer vpem independent us borrowed funds dominion money pool fund repayment shortterm borrowings behalf vpem therefore december 31 2005 remaining outstanding shortterm note borrowings dominion however remaining nonregulated subsidiaries outstanding dominion money pool borrowings totaling 12 million december 31 2005 2004 borrowings dominion longterm note totaled 220 million incurred interest charges related shortterm longterm borrowings dominion 9 million 6 million 1 million 2005 2004 2003 respectively 2004 approved virginia commission dominion made equity investment company purchase notes consolidated financial statements continued common stock issued 20115 shares common stock dominion cash consideration 500 million used proceeds part pay 345 million shortterm demand note dominion also 2004 recorded 11 million paidin capital connection reduction amounts payable dominion related party transactions upon adoption fin 46r interests special purpose entities december 31 2003 ceased consolidate virginia power capital trust ii finance subsidiary company junior subordinated notes issued us held trust reported longterm debt reported 30 million 31 million interest expense junior subordinated notes payable affiliated trust 2005 2004 respectively 30 million distributions mandatorily redeemable trust preferred securities 2003 note 25 operating segments result transfer vpem dominion december 31 2005 nature composition primary operating segments changed reflect discontinued operations vpem corporate segment vpem formerly reflected energy generation corporate segments segment information prior years recast conform new segment structure organized primarily basis products services sold united states majority revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among delivery energy generation segments manage operations following segments delivery includes regulated electric distribution customer service business delivery segment subject costofservice rate regulation accordingly applies sfas 71 energy includes tariffbased electric transmission operations subject costofservice rate regulation accordingly applies sfas 71 generation includes portfolio electric generating facilities energy supply operations corporate includes corporate functions well discontinued operations vpem contribution net income primary operating segments determined based measure profit executive management believes represents segments’ core earnings result certain specific items attributable segments included profit measures evaluated executive management assessing segment’s performance allocating resources among segments 2005 reported net expenses 58 million corporate segment attributable operating segments net expenses 2005 primarily related impact following · 77 million 47 million aftertax charge resulting termination longterm power purchase agreement attributable generation · 13 million 8 million aftertax charge related sale interest longterm power tolling contract attributable generation · 6 million 4 million aftertax charge cumulative effect accounting change result adoption fin 47 2004 reported net expenses 155 million corporate segment attributable operating segments net expenses 2004 primarily related impact following · 184 million 112 million aftertax charge related interest longterm power tolling contract divested 2005 attributable generation · 71 million 43 million aftertax charge resulting termination three longterm power purchase agreements attributable generation · 12 million 7 million aftertax charge related agreement settle class action lawsuit involving dispute rights lease fiberoptic cable along portion electric transmission corridor attributable energy partially offset · 18 million 11 million aftertax benefit reduction expenses accrued 2003 associated hurricane isable restoration activities attributable delivery 2003 reported net expenses 225 million corporate segment attributable operating segments net expenses 2003 primarily related impact following · 21 million net aftertax charge representing cumulative effect adopting new accounting principles described note 3 consolidated financial statements including · sfas 143 139 million aftertax benefit attributable generation 140 million aftertax benefit delivery 1 million aftertax charge · statement 133 implementation issue c20 101 million aftertax charge attributable generation · eitf 023 55 million aftertax charge attributable energy · fin 46r 4 million aftertax charge attributable generation · 197 million 122 million aftertax incremental electric utility restoration expenses associated hurricane isabel attributable primarily delivery · 126 million 77 million aftertax charges associated termination two longterm power purchase agreements restructuring certain electric sales contracts attributable generation · 8 million 5 million aftertax charge severance costs workforce reductions attributable delivery 3 million generation 2 million notes consolidated financial statements continued following table presents segment information pertaining operations 1 represents vpem assets reported corporate segment notes consolidated financial statements continued note 26 quarterly financial data unaudited summary quarterly results operations years ended december 31 2005 2004 follows amounts reflect adjustments consisting normal recurring accruals necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors described note 8 reported operations vpem discontinued operations beginning fourth quarter 2005 prior quarters 2005 2004 restated conform presentation differences amounts previously reported quarterly reports forms 10q 2005 2004 result reporting results operations vpem discontinued operations 2005 results include impact following significant item · first quarter results include 47 million net aftertax charge connection termination longterm power purchase agreement 2004 results include impact following significant items · third quarter results include 21 million aftertax benefit related termination longterm power purchase agreement · fourth quarter results include 112 million aftertax charge related sale interest longterm power tolling contract divested 2005 · fourth quarter results include 64 million aftertax charges related termination two longterm power purchase agreements item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2011 2010 related consolidated statements income equity comprehensive income cash flows three years period ended december 31 2011 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements 2009 dominion changed methods accounting adopt new accounting standard impairment framework oil gas properties also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 27 2012 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 27 2012 dominion resources inc consolidated statements income 1 includes income tax expense 21 million 16 million 2010 2009 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 billion shares authorized 570 million shares 581 million shares outstanding december 31 2011 2010 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements equity 1 includes atthemarket issuances debtforcommon stock exchange 2 see note 3 additional information 3 includes subsidiary preferred dividends related noncontrolling interests 17 million 2011 2010 2009 4 see note 16 consolidation vie october 2011 5 shares issued excess principal amounts related converted securities see note 18 information convertible securities accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income 1 comprehensive income year ended december 31 2009 excludes 20 million 12 million aftertax adjustment aoci representing cumulative effect change accounting principle related recognition presentation otherthantemporary impairments accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows 1 2009 amount includes 5 million cash classified held sale dominion’s consolidated balance sheet 2 2009 amount includes 2 million cash classified held sale dominion’s consolidated balance sheet accompanying notes integral part dominion’s consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2011 2010 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2011 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 27 2012 virginia electric power company consolidated statements income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 500000 shares 300000 shares authorized december 31 2011 2010 respectively 274723 shares outstanding december 31 2011 2010 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity 1 see note 3 additional information accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income 1 comprehensive income year ended december 31 2009 excludes 3 million 2 million aftertax adjustment aoci representing cumulative effect change accounting principle related recognition presentation otherthantemporary impairments accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power regulated public utility generates transmits distributes electricity sale virginia north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s common stock owned dominion’s operations also include regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states lng import storage facility maryland regulated gas transportation distribution operations ohio west virginia dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations dominion manages daily operations three primary operating segments dvp dominion generation dominion energy dominion also reports corporate segment includes corporate service company functions including unallocated debt net impact operations sale peoples discussed note 4 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 26 discussion dominion’s virginia power’s operating segments note 2 significant accounting policies general dominion virginia power make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates dominion’s virginia power’s consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries vies dominion determined primary beneficiary dominion virginia power report certain contracts instruments investments fair value see note 7 information fair value measurements dominion maintains pension postretirement benefit plans virginia power participates certain plans see note 22 information plans certain amounts 2010 2009 consolidated financial statements footnotes reclassified conform 2011 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion inclusive virginia power applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers companies collect sales consumption consumer utility taxes however amounts excluded revenue dominion’s customer receivables december 31 2011 2010 included 423 million 466 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2011 2010 included 360 million 397 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers primary types sales service activities reported operating revenue dominion follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity  regulated gas sales consist primarily stateregulated retail natural gas sales related distribution services  nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties  gas transportation storage consists primarily regulated sales gathering transmission distribution storage services associated derivative activity also included regulated gas distribution charges retail distribution service customers opting alternate suppliers  revenue consists primarily sales oil ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences virginia power’s actual electric fuel purchased energy expenses dominion’s purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed virginia power participates intercompany tax sharing agreement dominion subsidiaries current income taxes based taxable income loss determined separate company basis accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities dominion virginia power recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets except amounts presented net amounts receivable amounts prepaid tax authorities dominion virginia power recognize changes estimated interest payable net underpayments income taxes interest expense changes interest receivable related net overpayments income taxes estimated penalties may result settlement uncertain tax positions recognized income consolidated statements income 2011 dominion recognized interest income 12 million interest expense 7 million reduction penalties less 1 million 2010 dominion recognized reduction interest expense 18 million reduction penalties less 1 million 2009 dominion recognized reduction interest expense 19 million reduction penalties 2 million dominion accrued interest receivable 48 million interest payable 10 million penalties payable less 1 million december 31 2011 interest receivable 27 million interest penalties payable less 1 million december 31 2010 2011 virginia power recognized interest income 12 million penalties immaterial virginia power accrued interest receivable 17 million december 31 2011 virginia power’s interest penalties immaterial 2010 2009 december 31 2011 virginia power’s consolidated balance sheet included 18 million current federal income taxes receivable 34 million current state income taxes payable 110 million noncurrent federal state income taxes payable december 31 2010 virginia power’s consolidated balance sheet included 46 million prepaid federal state income taxes 102 million noncurrent federal state income taxes payable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment december 31 2011 2010 dominion’s accounts payable included 75 million 56 million respectively checks outstanding yet presented payment december 31 2011 2010 virginia power’s accounts payable included 40 million 28 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion virginia power use derivative instruments futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations derivatives exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold combined notes consolidated financial statements continued reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance dominion virginia power offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 319 million 244 million associated cash collateral december 31 2011 2010 respectively dominion margin liabilities 66 million 62 million associated cash collateral december 31 2011 2010 respectively virginia power margin assets 41 million associated cash collateral december 31 2011 virginia power’s margin assets associated cash collateral material december 31 2010 virginia power’s margin liabilities associated cash collateral material december 31 2011 2010 manage price risk dominion virginia power hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates part dominion’s strategy market energy manage related risks also manages portfolio commoditybased financial derivative instruments held trading purposes dominion uses established policies procedures manage risks associated price fluctuations energy commodities uses various derivative instruments reduce risk creating offsetting market positions statement income presentation  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges based nature underlying risk virginia power’s generation operations changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments dominion virginia power designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges dominion virginia power formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges cash flow hedgesa majority dominion’s virginia power’s hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas energyrelated products companies also use foreign currency contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions dominion virginia power hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable fair value hedgesdominion also uses fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition dominion virginia power designated interest rate swaps fair value hedges certain fixedrate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value derivative gains losses hedged item reclassified earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting hedge accounting discontinued hedged item longer qualifies hedge accounting see note 7 information fair value measurements associated valuation methods derivatives see note 8 information derivatives property plant equipment property plant equipment including additions replacements recorded original cost consisting labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements charged expense incurred 2011 2010 2009 dominion capitalized interest costs afudc property plant equipment 85 million 102 million 76 million respectively 2011 2010 2009 virginia power capitalized afudc property plant equipment 31 million 61 million 47 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2011 2010 2009 virginia power recorded 20 million 13 million 34 million afudc related projects respectively virginia power property subject costofservice rate regulation including electric distribution electric transmission generation property certain dominion natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement gains losses recorded sales property cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation retired abandoned significantly end useful lives net carrying value reclassified plantinservice becomes probable retired abandoned dominion virginia power property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives dominion’s virginia power’s depreciation rates utility property plant equipment follows dominion’s nonutility property plant equipment depreciated using straightline method following estimated useful lives nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows dominion follows full cost method accounting gas oil ep activities subjects capitalized costs quarterly ceiling test using hedgeadjusted prices due april 2010 sale substantially appalachian ep operations dominion longer significant gas oil properties subject ceiling test calculation 2010 dominion recorded ceiling test impairment charge 21 million 13 million aftertax operations maintenance expense consolidated statement income primarily due decline hedgeadjusted prices reflecting discontinuance hedge accounting certain cash flow hedges discussed note 4 2009 dominion recorded ceiling test impairment charge 455 million 281 million aftertax operations maintenance expense consolidated statement income excluding effects hedgeadjusted prices calculating ceiling limitation impairment would 631 million 387 million aftertax 2010 dominion recognized gain sale substantially appalachian ep operations discussed note 4 emissions allowances emissions allowances permit holder allowance emit certain gaseous byproducts fossil fuel combustion including so2 nox co2 so2 nox emissions allowances issued dominion virginia power epa may also purchased sold via third party contracts co2 emissions allowances available purchase dominion quarterly auctions held participating rggi states compliance rggi requirements applies certain dominion’s merchant power stations located northeast allowances held may transacted third parties consumed emissions generated allowances allocated acquired companies’ generation operations held primarily consumption allowances held consumption classified intangible assets consolidated balance sheets carrying amounts based cost acquire allowances case business combination fair values assigned allocation purchase price acquired business portion dominion’s virginia power’s so2 nox allowances issued epa zero cost allowances amortized periods emissions generated amortization reflected dda consolidated statements income purchases sales allowances reported investing activities consolidated statements cash flows gains losses resulting sales reported operations maintenance expense consolidated statements income see note 7 discussion impairments related emissions allowances longlived intangible assets dominion virginia power perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 7 discussion impairments related certain longlived assets intangible assets finite lives combined notes consolidated financial statements continued regulatory assets liabilities accounting dominion’s regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made asset retirement obligations dominion virginia power recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses dominion reports accretion aros associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros virginia power reports accretion aros associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions accretion aros reported operations maintenance expense consolidated statements income amortization debt issuance costs dominion virginia power defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities  trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income  availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments dominion virginia power account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include  equity method investments dominion virginia power ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets dominion virginia power record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method  cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investmentsspecial considerations  fasb amended guidance recognition presentation otherthantemporary impairments dominion virginia power adopted effective april 1 2009 recognition provisions guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities prior adoption guidance dominion virginia power considered debt securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired ability ensure investments held anticipated recovery period  debt securitieseffective adoption guidance using information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss companies record credit loss earnings remaining portion unrealized loss comprehensive income credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors  equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since companies limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory used east ohio gas distribution operations valued using lifo method lifo method stored gas inventory valued 48 million december 31 2011 2010 based average price gas purchased 2011 2010 cost replacing current portion stored gas inventory exceeded amount stated lifo basis approximately 86 million 107 million respectively stored gas inventory held hope certain nonregulated gas operations valued using weightedaverage cost method gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas deliv ered received dominion values imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion parties reported current assets imbalances dominion owes parties reported current liabilities consolidated balance sheets goodwill dominion evaluates goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount note 3 newly adopted accounting standards recognition presentation otherthantemporary impairments fasb amended guidance recognition presentation otherthantemporary impairments dominion virginia power adopted effective april 1 2009 recognition provisions guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities prior adoption guidance described note 2 companies considered debt securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired ability ensure investments held anticipated recovery period upon adoption guidance debt investments held april 1 2009 dominion recorded 20 million 12 million aftertax virginia power recorded 3 million 2 million aftertax cumulative effect change accounting principle reclassify noncredit related portion previously recognized otherthantemporary impairments retained earnings aoci reflecting fixedincome investment managers’ intent ability hold debt securities recovery fair values cost bases sec final rule modernization oil gas reporting effective december 31 2009 dominion adopted sec final rule modernization oil gas reporting revised existing regulation sk regulation sx reporting requirements new requirements ceiling test calculated using average price based prior 12month period rather periodend prices due april 2010 sale substantially appalachian ep operations dominion longer significant gas oil properties subject ceiling test calculation combined notes consolidated financial statements continued note 4 dispositions sale appalachian ep operations april 2010 dominion completed sale substantially appalachian ep operations newlyformed subsidiary consol approximately 35 billion transaction includes mineral rights approximately 491000 acres marcellus shale formation dominion retained certain oil natural gas wells located near natural gas storage fields transaction generated aftertax proceeds approximately 22 billion resulted aftertax gain approximately 14 billion includes 134 million writeoff goodwill recorded second quarter 2010 results operations dominion’s appalachian ep business reported discontinued operations consolidated statements income since dominion sell entire us cost pool due sale hedge accounting discontinued certain cash flow hedges since became probable forecasted sales gas would occur connection discontinuance hedge accounting contracts dominion recognized 42 million 25 million aftertax benefit recorded operating revenue consolidated statement income reflecting reclassification gains aoci earnings contracts march 2010 sale peoples february 2010 dominion completed sale peoples png companies llc netted aftertax proceeds approximately 542 million sale resulted aftertax loss approximately 140 million including postclosing adjustments 79 million writeoff goodwill sale also resulted aftertax expenses approximately 27 million including transaction benefitrelated costs prior sale peoples income operations 12 million aftertax 2010 following table presents selected information regarding results operations peoples reported discontinued operations dominion’s consolidated statements income 1 includes loss charges related sale peoples 2 includes impact 22 million charge due reduction previously established regulatory asset loss charges related sale note 5 operating revenue dominion’s virginia power’s operating revenue consists following note 6 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently dominion virginia power routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material 2010 us federal legislation enacted allows taxpayers fully deduct qualifying capital expenditures incurred september 8 2010 end 2011 placed service 2013 otherwise provides extension fifty percent bonus depreciation allowance qualifying capital expenditures 2012 december 2011 irs issued temporary regulations provide guidance taxpayers treatment amounts paid acquire produce improve tangible property dispositions property temporary regulations generally effective expenditures made january 1 2012 changes tax treatment elected dominion required regulations effective prospectively however implementation require calculation cumulative effect changes prior years expected amount included determination dominion’s taxable income 2012 possibly fouryear period beginning 2012 irs expected issue additional procedural guidance regarding 2012 tax return filing requirements may implemented electric generation operations gas transmission distribution systems dominion believes evaluation implementation temporary regulations require extensive effort may permit require changes dominion determines whether expenditures incurred related plant equipment deducted repairs capitalized depreciated tax returns since changes concerned timing deducting expenditures tax purposes impact implementation reflected amount income taxes payable receivable cash flows operations deferred taxes except extent implementation impacts deferred taxes therefore rate base used establish customer rates regulated utilities results operations materially affected pending issuance additional procedural guidance irs progress evaluation process dominion cannot estimate impact implementing temporary regulations continuing operations details income tax expense continuing operations including noncontrolling interests follows 1 2011 dominion’s federal income tax expense includes 346 million benefit related current year operating loss expected used future years state income tax expense reflects changes amount income apportioned among states higher tax credits claims refunds previously unrecognized tax benefits due expiration statutes limitations 2 2011 virginia power’s federal income tax expense includes 54 million benefit related portion current year operating loss expected used future years also 2011 2010 virginia power’s federal income tax expense reflects amounts current year operating losses realized participation tax sharing agreement dominion subsidiaries continuing operations including noncontrolling interests statutory us federal income tax rate reconciles dominion’s virginia power’s effective income tax rate follows dominion’s virginia power’s effective tax rates 2010 reflect reductions deferred tax assets 57 million 17 million respectively resulting enactment patient protection affordable care act health care education affordability reconciliation act 2010 eliminated employer’s deduction beginning 2013 portion retiree prescription drug coverage cost reimbursed medicare part subsidy addition dominion’s effective tax rate 2010 includes higher state income taxes impact goodwill written deductible tax purposes associated sale appalachian ep operations deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes combined notes consolidated financial statements continued companies’ deferred income taxes consist following december 31 2011 dominion following deductible loss credit carryforwards  federal loss carryforwards 10 billion expire unutilized period 2021 2031  federal production tax credits 13 million expire unutilized 2031  state loss carryforwards 11 billion expire unutilized period 2014 2031 valuation allowance 866 million carryforwards established  state minimum tax credits 101 million expire  state investment tax credits 6 million expire unutilized 2014  state investment tax credits 3 million expire december 31 2011 virginia power following deductible loss credit carryforwards  federal loss carryforwards 157 million expire unutilized 2031  state minimum tax credits 1 million expire positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information amount tax return positions recognized financial statements disclosed unrecognized tax benefits unrecognized tax benefits may impact financial statements increasing income taxes payable reducing tax refunds receivable changing deferred taxes also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result claims tax benefits portions thereof may realized remeasurement amounts expected realized settlements tax authorities expiration statutes limitation dominion subsidiaries unrecognized tax benefits 184 million 133 million 95 million december 31 2011 2010 2009 respectively dominion change unrecognized tax benefits increased income tax expense 51 million 2011 38 million 2010 decreased income tax expense 26 million 2009 virginia power unrecognized tax benefits 20 million december 31 2011 14 million december 31 2010 2009 virginia power change unrecognized tax benefits increased income tax expense 6 million 2011 less 1 million 2010 decreased income tax expense 7 million 2009 portion dominion’s virginia power’s unrecognized tax benefits balances december 31 2011 represents tax positions ultimate deductibility highly certain however uncertainty timing deductibility uncertainty deductibility amounts limited timing deductibility tax liabilities recognized prior periods would subject offset availability refundable amounts later periods deductions could otherwise taken pending resolution uncertainties interest accrued period amounts would become deductible dominion subsidiaries us federal statute limitations expired years prior 2006 except dominion reserved right pursue refunds related calculation interest capitalized connection improvements inservice plant equipment years 1995 2005 irs position provides capitalized interest must also computed adjusted tax basis inservice assets idled making improvements response litigation initiated dominion march 2008 united states court federal claims ruled february 2011 sustaining irs position july 2011 dominion filed appeal united states court appeals federal circuit dominion believes ultimate resolution matter material impact cash flows results operations financial condition january 2012 appellate division irs informed dominion joint committee completed review settlement tax years 2004 2005 dominion consolidated subsidiaries since measurement unrecognized tax benefits 2011 considered results completed settlement negotiations dominion’s results operations 2012 affected 2011 irs completed fieldwork examination dominion’s consolidated tax returns tax years 2006 2007 dominion irs resolved issues except dominion reserving right pursue refund related capitalized interest issue currently litigated irs examination tax years 2008 2009 2010 begin first quarter 2012 reasonably possible resolution litigation related capitalized interest settlements payments tax authorities 2012 could reduce unrecognized tax benefits dominion virginia power 24 million 15 million respectively dominion’s unrecognized tax benefits could also reduced 18 million including 8 million virginia power recognize prior period amounts becoming otherwise deductible 2012 expiration statutes limitations changes occur revisions accrual interest tax underpayments overpayments dominion’s earnings could increase 7 million material impact virginia power’s earnings otherwise regard 2011 prior years dominion virginia power cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2012 major states dominion operates earliest tax year remaining open examination follows 1 virginia state considered major virginia power’s operations dominion virginia power also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes operating losses tax credits generated years statute limitations expired amounts subject examination discontinued operations income tax expense 2010 dominion’s discontinued operations primarily reflects impact goodwill written sale peoples deductible tax purposes reversal deferred taxes benefit offset reversal income taxrelated regulatory assets note 7 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact dominion’s virginia power’s nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion virginia power apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments including held dominion’s rabbi pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices seek price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions options contracts optionlike characteristics observable pricing information available external sources companies generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value companies use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics combined notes consolidated financial statements continued companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity foreign currency derivative contracts  forward commodity prices  forward foreign currency prices  price volatility  volumes  commodity location  interest rates  credit quality counterparties dominion virginia power  credit enhancements  time value interest rate derivative contracts  interest rate curves  credit quality counterparties dominion virginia power  credit enhancements  time value investments  quoted securities prices indices  securities trading information including volume restrictions  maturity  interest rates  credit quality  nav alternative investments dominion virginia power regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels  level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments majority exchangetraded derivatives exchangelisted equities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include nonexchange traded derivatives overthecounter commodity forwards swaps interest rate swaps foreign currency forwards options certain treasury securities money market funds corporate state municipal debt securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 dominion virginia power consist longdated commodity derivatives ftrs modeled commodity derivatives additional instruments categorized level 3 dominion include ngls natural gas peaking options alternative investments consisting investments partnerships joint ventures alternative investments held benefit plan trust funds fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ngl derivatives market illiquidity requires valuation based proxy markets always correlate actual instrument therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions generally considered liquid markets modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets alternative investments categorized level 3 due absence quoted market prices illiquidity longterm nature assets investments generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date derivative contracts dominion virginia power recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change december 31 2011 dominion’s virginia power’s net balance commodity derivatives categorized level 3 fair value measurements net liability 71 million 28 million respectively hypothetical 10 increase commodity prices would increase dominion’s virginia power’s net liability 73 million 2 million respectively hypothetical 10 decrease commodity prices would decrease dominion’s virginia power’s net liability 74 million 2 million respectively nonrecurring fair value measurements merchant power stations june 2010 dominion evaluated state line impairment due station’s relatively low level profitability combined epa’s issuance new stringent 1hour primary naaqs so2 would likely require significant environmental capital expenditures future result evaluation dominion recorded impairment charge 163 million 107 million aftertax operations maintenance expense consolidated statement income write state line’s longlived assets estimated fair value 59 million march 2011 dominion determined unlikely state line would participate may 2011 pjm capacity base residual auction would commit state line’s capacity june 2014 may 2015 determination reflected expectation margins coalfired generation remain compressed 2014 2015 period combination expectation state line may impacted time period environmental regulations would likely require significant capital expenditures result dominion evaluated state line impairment since likely state line would retired end previously estimated useful life result evaluation dominion recorded impairment charge 55 million 39 million aftertax reflected operations maintenance expense consolidated statement income write state line’s longlived assets estimated fair value less 1 million december 2010 dominion recorded impairment charge 31 million 20 million aftertax operations maintenance expense consolidated statement income write longlived assets salem harbor estimated fair value less 1 million result profitability issues management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion used income approach discounted cash flows estimate fair value state line’s salem harbor’s longlived assets impairment tests considered level 3 fair value measurements due use significant unobservable inputs including estimates future power commodity prices emissions allowances september 2010 virginia power evaluated so2 emissions allowances expected consumed generating units potential impairment due significant decline market prices since july 2010 release epa’s proposed replacement rule cair ultimately known csapr result evaluation virginia power recorded impairment charge 13 million 8 million aftertax operations maintenance expense consolidated statement income write so2 emissions allowances expected consumed estimated fair value less 1 million third quarter 2011 dominion virginia power evaluated so2 emissions allowances expected consumed generating units potential impairment due epa’s issuance csapr discussed note 23 prior issuance csapr dominion virginia power held 57 million 43 million respectively so2 emissions allowances obtained arp cair compliance due csapr’s establishment new allowance program elimination cair dominion virginia power so2 emissions allowances needed arp compliance result evaluation dominion virginia power recorded impairment charge 57 million 34 million aftertax 43 million 26 million aftertax respectively operations maintenance expense consolidated statements income write emissions allowances estimated fair value less 1 million estimate value emissions allowances impairment tests dominion utilized market approach obtaining broker quotes validate csapr’s impact emissions allowance prices however due limited market activity future so2 vintage year allowances considered level 3 fair value measurement recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s pension postretirement benefit plans presented note 22 combined notes consolidated financial statements continued dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category following table presents dominion’s gains losses included earnings level 3 fair value category virginia power following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trusts following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category including attributable change unrealized gains losses relating assets still held reporting date classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2011 2010 2009 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended 2011 2010 2009 fair value financial instruments substantially dominion’s virginia power’s financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents customer receivables shortterm debt accounts payable representative fair value shortterm nature instruments dominion’s virginia power’s financial instruments recorded fair value carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value combined notes consolidated financial statements continued 2 includes amounts represent unamortized discount premium december 31 2011 2010 includes valuation certain fair value hedges associated dominion’s fixed rate debt approximately 105 million 49 million respectively 3 includes amounts represent unamortized premium 4 includes issuance expenses 2 million december 31 2011 2010 note 8 derivatives hedge accounting activities dominion virginia power exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well currency exchange interest rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 7 information fair value measurements associated valuation methods derivatives dominion following table presents volume dominion’s derivative activity december 31 2011 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil selected information dominion’s hedge accounting activities follows 1 year ended december 31 2011 includes 1 million recorded purchased gas 4 million recorded operating revenue dominion’s consolidated statement income year ended december 31 2010 includes 1 million recorded purchased gas 4 million recorded operating revenue dominion’s consolidated statement income year ended december 31 2009 includes 5 million recorded purchased gas 1 million recorded operating revenue dominion’s consolidated statement income 2 year ended december 31 2011 includes 5 million recorded purchased gas 1 million recorded operating revenue dominion’s consolidated statement income year ended december 31 2010 includes 3 million recorded purchased gas 2 million recorded operating revenue dominion’s consolidated statement income 3 amounts excluded measurement ineffectiveness related cash flow hedges years ended december 31 2011 2010 2009 material 4 year ended december 31 2011 amount recorded operating revenue dominion’s consolidated statement income year ended december 31 2009 includes 22 million recorded operating revenue 1 million recorded electric fuel energyrelated purchases dominion’s consolidated statement income following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2011 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates sale majority dominion’s remaining ep operations resulted discontinuance hedge accounting certain cash flow hedges 2010 discussed note 4 addition changes dominion’s financing needs first second quarters 2010 resulted discontinuance hedge accounting certain cash flow hedges since determined forecasted interest payments would occur connection discontinuance hedge accounting contracts dominion recognized benefit recorded interest related charges reflecting reclassification gains aoci earnings 110 million 67 million aftertax 2010 reclassification gains aoci earnings partially offset subsequent changes fair value contracts 37 million 23 million aftertax 2010 fair value gains losses derivative instruments following tables present fair values dominion’s derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheets following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 4 amounts recorded dominion’s consolidated statements income classified electric fuel energyrelated purchases combined notes consolidated financial statements continued 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 2 amounts recorded dominion’s consolidated statements income classified interest related charges virginia power following table presents volume virginia power’s derivative activity december 31 2011 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions years ended december 31 2011 2010 2009 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable time value options changes differences spot prices forward prices fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 4 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases 3 amounts recorded virginia power’s consolidated statements income classified interest related charges note 9 earnings per share following table presents calculation dominion’s basic diluted eps 1 potentially dilutive securities consist options goalbased stock contingently convertible senior notes combined notes consolidated financial statements continued potentially dilutive securities right acquire approximately 12 million common shares year ended december 31 2009 included calculation diluted eps exercise purchase prices instruments greater average market price dominion’s common shares potentially dilutive securities excluded calculation diluted eps years ended december 31 2011 2010 note 10 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 90 million 93 million december 31 2011 2010 respectively net unrealized losses trading securities totaled less 1 million 2011 net unrealized gains trading securities totaled 5 million 11 million 2010 2009 respectively costmethod investments held dominion’s rabbi trusts totaled 17 million 18 million december 31 2011 2010 respectively decommissioning trust securities dominion holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes pending purchases securities 11 million 43 million december 31 2011 2010 respectively 3 fair value securities unrealized loss position 164 million 252 million december 31 2011 2010 respectively fair value dominion’s marketable debt securities held nuclear decommissioning trust funds december 31 2011 contractual maturity follows presented selected information regarding dominion’s marketable equity debt securities held nuclear decommissioning trust funds 1 increase proceeds primarily reflects replacement commingled funds actively managed portfolios include 1 billion proceeds reflected dominion’s consolidated statement cash flows sale temporary investments consisting time deposits treasury bills purchased following sale substantially dominion’s appalachian ep operations 2 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 dominion recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 6 million 10 million 13 million december 31 2011 2010 2009 respectively equity method investments dominion accounts equity method accounting follows dominion’s equity earnings investments totaled 35 million 2011 42 million 2010 2009 excluding 123 million distribution 2009 fowler ridge dominion received distributions investments 55 million 60 million 63 million 2011 2010 2009 respectively december 31 2011 2010 carrying amount dominion’s investments exceeded dominion’s share underlying equity net assets approximately 32 million 7 million respectively differences relate dominion’s investments wind projects primarily reflect capitalized interest construction excess cash contributions book value development assets contributed dominion’s partners projects differences generally amortized useful lives underlying assets virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes pending purchases securities 13 million 35 million december 31 2011 2010 respectively 3 fair value securities unrealized loss position 99 million 159 million december 31 2011 2010 respectively combined notes consolidated financial statements continued fair value virginia power’s debt securities december 31 2011 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities 1 increase proceeds primarily reflects replacement commingled funds actively managed portfolios 2 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments follows 1 amounts include otherthantemporary impairment losses debt securities 4 million 6 million 7 million december 31 2011 2010 2009 respectively investments dominion virginia power hold restricted cash equivalent balances primarily consist money market fund investments held trust purpose funding certain qualifying construction projects december 31 2011 2010 dominion 147 million 415 million respectively virginia power 32 million 169 million respectively restricted cash equivalents balances presented current assets investments consolidated balance sheets note 11 property plant equipment major classes property plant equipment respective balances companies follows 1 2011 amount includes 957 million due consolidation vie jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2011 follows 1 units jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income note 12 goodwill intangible assets goodwill february 2010 dominion completed sale peoples png companies llc netted aftertax proceeds approximately 542 million sale resulted aftertax loss approximately 140 million included 79 million writeoff goodwill april 2010 dominion completed sale substantially appalachian ep operations newlyformed subsidiary consol approximately 35 billion transaction resulted aftertax gain approximately 14 billion included 134 million writeoff goodwill changes dominion’s carrying amount segment allocation goodwill presented 1 goodwill amounts contain accumulated impairment losses combined notes consolidated financial statements continued intangible assets dominion’s virginia power’s intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 78 million 107 million 155 million 2011 2010 2009 respectively 2011 dominion acquired 124 million intangible assets primarily representing software licenses estimated weightedaverage amortization period approximately 11 years amortization expense virginia power’s intangible assets 22 million 2011 26 million 2010 2009 2011 virginia power acquired 26 million intangible assets primarily representing software licenses estimated weightedaverage amortization period 11 years components intangible assets follows annual amortization expense intangible assets estimated follows note 13 regulatory assets liabilities regulatory assets liabilities include following 1 primarily reflects deferred fuel expenses virginia jurisdiction virginia power’s generation operations see note 14 information 2 reflects deferrals electric transmission ferc formula rate deferral costs associated certain riders see note 14 information 3 reflects unrecovered gas costs dominion’s regulated gas operations recovered quarterly annual filings applicable regulatory authority 4 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 5 amounts recovered annual surcharge reimburse virginia power incremental sales taxes incurred due repeal public service company sales tax exemption virginia 6 reflects costs anticipated recovered base rates certain coal units expected retired 7 pipp eligible customers receive energy assistance based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rider according east ohio tariff provisions see note 14 information regarding pipp 8 represents unrecognized pension postretirement benefit costs expected recovered future rates certain dominion’s rateregulated subsidiaries 9 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 10 primarily reflects costs recognized excess amounts included regulated rates charged dominion’s regulated gas operations rates updated reflect change accounting method postretirement benefit costs 11 reflects reserve associated settlement virginia power’s 2009 base rate case proceedings associated biennial review order see note 14 information 12 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 13 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aro december 31 2011 approximately 198 million dominion’s 127 million virginia power’s regulatory assets represented past expenditures currently earn return dominion’s expenditures primarily include deferred cost fuel used electric generation expenditures expected recovered within next two years note 14 regulatory matters result issues generated ordinary course business dominion virginia power involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect dominion’s virginia power’s financial position liquidity results operations following discussion dominion’s virginia power’s material pending recent regulatory matters electric regulation virginia enactment regulation act 2007 significantly changed electric service regulation virginia instituting modified costofservice rate model respect classes customers regulation act ended virginia’s planned transition retail competition electric supply service regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs environmental compliance conservation energy efficiency programs renewable energy programs provides enhanced returns capital expenditures specific new generation projects including limited combined cycle gas generation nuclear generation clean coalcarbon capture compatible generation renewable generation projects regulation act also continues statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows 2009 base rate review pursuant regulation act virginia commission initiated review virginia power’s base rates terms conditions 2009 including review virginia power’s earnings test year 2008 march 2010 virginia commission issued virginia settlement approval order thus concluding 2009 case resolving open issues relating virginia power’s base rates fuel factor riders r c1 c2 virginia power’s fourth quarter 2009 results included charge 782 million 477 million aftertax result 2009 base rate review dominion’s 2009 results include additional charge 12 million 8 million aftertax recorded operations maintenance expense reflecting writeoff previously deferred rto costs since recovery longer probable based 2009 base rate review 2011 biennial review pursuant regulation act virginia settlement approval order march 2011 virginia power submitted base rate filing accompanying schedules support first biennial review base rates terms conditions well earnings 2009 2010 test period biennial review included determination whether virginia power’s combined notes consolidated financial statements continued earnings 2009 2010 combined test years within 50 basis points authorized roe 119 established virginia settlement approval order well authorization roe applicable base rates riders r c1 c2 used measure base rate earnings 2013 biennial review proceeding result virginia settlement approval order regulation act virginia power’s base rates subject change based 2011 biennial review november 2011 virginia commission issued biennial review order base roe virginia commission determined virginia power’s new authorized roe 109 inclusive performance incentive 50 basis points meeting certain rps targets subject outcome virginia power’s petition rehearing reconsideration described roe serve roe virginia power’s earned return compared part test periods 2013 biennial review proceeding virginia commission ordered 50 basis point rps performance incentive included roe applicable rate adjustment clauses virginia commission declined award performance incentive generating plant performance customer service operating efficiency connection biennial review instead initiate rulemaking proceeding develop performance incentive criteria applied future biennial review proceedings december 2011 virginia power filed petition virginia commission seeking rehearing reconsideration biennial review order confirm effective date newly authorized 109 base roe december 2011 virginia power also filed notice appeal virginia commission biennial review order supreme court virginia roe applicable riders c1 c2 r effective december 1 2011 roe applicable riders c1 c2 104 roe 113 applied november 30 2011 riders r effective december 1 2011 roe 114 inclusive statutory enhancement 100 basis points roe 123 inclusive statutory enhancement 100 basis points applied november 30 2011 earned return 2009 virginia commission determined virginia power earned roe approximately 133 2009 2010 combined test years exceeded authorized roe earnings band 114 124 established virginia settlement approval order based determination virginia power excess earnings virginia commission ordered virginia power refund 60 earnings upper end authorized roe earnings band approximately 78 million customers provided form credits customers’ bills amortized sixmonth period 2012 charge refund recognized operating revenues 2011 consolidated statement income actual aggregate refund amount expected total approximately 81 million taking account refunds paid certain nonjurisdictional customers pursuant customer contracts base rates existing riders c1 c2 result virginia commission’s determination credits applied customers’ bills virginia commission required regulation act directed virginia power combine existing riders c1 c2 virginia power’s base costs revenues investments file revised tariffs reflecting combination pursuant biennial review order riders thereafter considered part virginia power’s base costs revenues investments purposes future biennial review proceedings virginia commission initiated proceeding address implementation directive virginia power’s base rates otherwise remain unchanged least december 1 2013 earnings test adjustments virginia commission ruled numerous contested proposals adjust virginia power’s earnings 2009 2010 combined test periods among adjustments virginia commission approved virginia power’s ratemaking treatment fuel inventories held whollyowned subsidiaries result finding virginia power included rate base approximately 177 million 188 million fuel inventory costs 2009 2010 respectively virginia commission also adopted virginia power’s treatment includes regulatory earnings purposes aip ltip expenses 100 payout ratio virginia commission excluded expense approximately 21 million incentive plan costs exceeded payout ratio 100 allowing net recovery approximately 95 million incentive compensation expense biennial review period virginia commission denied virginia power’s ratemaking treatment expensed entire cost 2010 voluntary separation plan 2010 ruling instead amortize cost end 2011 matches costs plan period realization savings reduces 2010 operating costs turn increases 2011 operating costs approximately 103 million purposes earnings test influencing amount earned authorized roe earnings band earnings test adjustments impact consolidated financial statements addition virginia commission required virginia power recognize gain purposes earnings test approximately 44 million settlement certain interest rate hedging contracts 2010 opposed amortizing gains forecasted term planned debt instruments issued virginia power determined longer probable derivative gains would included future base rates virginia commission would allow amortization amounts future periods result virginia power removed approximately 50 million december 2011 regulatory liabilities recognized deferred derivative settlement gains interest charges consolidated statements income virginia fuel expenses may 2011 virginia power submitted annual fuel factor filing virginia commission proposing annual increase rate year beginning july 1 2011 revised factor included projected 434 million balance prior year recovered fuel expenses reduce impact customers alternative virginia power proposed recover projected prior year deferred fuel balance twoyear period beginning july 1 2011 june 2011 virginia commission approved twoyear recovery proposal resulting increase approximately 319 million annual fuel revenue rate year beginning july 1 2011 rate increase designed recover 217 million unrecovered fuel expenses prior fuel year well 102 million increase anticipated fuel expenses 2012 fuel year generation riders r connection bear garden virginia city hybrid energy center projects march 2011 virginia commission approved annual updates riders r revenue requirements 78 million 199 million respectively april 1 2011 march 31 2012 rate year utilizing 123 placeholder roe inclusive 100 basis point statutory enhancement pending virginia commission’s roe determination 2011 biennial review virginia power’s proposed revenue requirements riders r april 1 2012 march 31 2013 rate year adjusted approximately 76 million 231 million respectively pending final virginia commission approval future annual updates riders r provide revenue requirements reflecting trueups revenue requirements approved previous calendar year including roe determined biennial review order construction bear garden completed facility commenced commercial operations second quarter 2011 dsm riders c1 c2 connection virginia power’s five dsm programs approved virginia commission march 2011 virginia commission approved annual updates riders c1 c2 revenue requirements approximately 6 million 12 million respectively april 1 2011 march 31 2012 rate year utilizing 113 placeholder roe pending virginia commission’s roe determination 2011 biennial review order issued june 2011 virginia commission extended rates april 2012 september 2011 virginia power filed virginia commission application approval six new energy efficiency dsm programs along annual update riders c1 c2 virginia power’s proposed revenue requirement may 1 2012 april 30 2013 rate year approximately 72 million amended february 2012 reflect along adjustments determination 104 roe applicable riders c1 c2 biennial review order discussed previously implemented riders c1 c2 considered part virginia power’s base costs revenues investments purposes future biennial review proceedings virginia commission initiated proceeding address implementation directive transmission rider may 2011 virginia power filed annual update rider virginia commission proposed 481 million annual revenue requirement effective september 1 2011 represented increase approximately 144 million revenue requirement associated rider customer rates previously effect july 2011 virginia commission issued order approving revenue requirement 466 million september 1 2011 august 31 2012 rate year discussed previously implemented rider considered part virginia power’s base costs revenues investments purposes future biennial review proceedings virginia commission initiated proceeding address implementation directive generation rider w may 2011 virginia power requested approval virginia commission construct operate warren county well approval rider w february 2012 virginia commission approved certificates public convenience necessity warren county related transmission facilities virginia commission also approved virginia power’s proposed revised revenue requirement 35 million april 1 2012 march 31 2013 rate year reflecting roe 114 inclusive statutory enhancement 100 basis points rider w consistent biennial review order addition virginia commission approved roe enhancement 100 basis points rider w period 10 years following commercial operations facility expected start commercial operations late 2014 generation rider b june 2011 virginia power filed applications virginia commission seeking regulatory approval convert three coalfired power stations biomass applications included request approval rider b virginia power’s proposed revenue requirement rider b approximately 6 million april 1 2012 march 31 2013 rate year adjusted reflect base roe authorized biennial review order inclusive renewable generating unit statutory enhancement 200 basis points qualify federal production tax credits associated renewable energy generation power stations must commence operation biomass generation facilities december 31 2013 virginia power requested virginia commission approval biomass conversions schedule enable qualification tax credits solar distributed generation demonstration program october 2011 virginia power filed virginia commission application conduct solar distributed generation demonstration program consisting combined 30 mw companyowned solar distributed generation facilities located selected commercial industrial community locations throughout virginia service territory well combined 3 mw customerowned solar distributed generation facilities subject tariff filed virginia commission 2012 virginia power proposed construct operate companyowned facilities two phases phase 10 mw date approval end 2013 phase ii 20 mw beginning 2014 end 2015 virginia power seek rate adjustment clause phase facilities filing phase costs recovered part base rates future biennial review virginia power indicated may seek rate adjustment clause future time phase ii costs combined notes consolidated financial statements continued electric transmission projects portions mt stormtodoubs line certain associated facilities approaching end expected service lives require replacement new facilities maintain reliable service virginia power owns designated pjm rebuild 96 miles line west virginia potomac edison company owns designated pjm rebuild remaining three miles line maryland september 2011 virginia commission approved virginia power’s application rebuild portion mt stormtodoubs line approval west virginia commission required subject applicable state federal regulatory approvals virginia power’s portion rebuild project expected completed june 2015 october 2008 virginia commission authorized construction meadow brooktoloudoun line carsontosuffolk line meadow brooktoloudoun line placed service april 2011 carsontosuffolk line placed service may 2011 june 2010 virginia commission authorized construction hayestoyorktown line along proposed eightmile route utilizing existing easements property previously acquired transmission line rightofway accordance virginia commission’s approval approximately 42 miles hayestoyorktown line constructed overhead approximately 38 miles installed underground order cross york river hayestoyorktown line expected completed june 2012 january 2012 virginia commission authorized replacement higher voltage approximately 43 miles existing transmission lines dooms bremo substations subject receipt applicable state federal regulatory approvals doomstobremo expected completed may 2014 december 2011 viginia power submitted application virginia commission approval waxpoolbrambletonbeco line project required provide requested service new datacenter campus loudoun county virginia power expects pjm authorize waxpoolbrambletonbeco part 2012 rtep within first half 2012 subject receipt applicable state federal regulatory approvals waxpoolbrambletonbeco expected completed november 2013 north anna power station virginia power considering construction third nuclear unit site located north anna virginia power owns along odec may 2010 virginia power announced decision replace reactor design previously selected potential third nuclear unit usapwr technology june 2010 virginia power odec amended col application reflect selection usapwr technology january 2011 virginia power doe terminated cooperative agreement share equally cost developing col agreement references technology previously selected virginia power doe funding related col development activities available agreement activities related usapwr technology february 2011 odec informed virginia power intent longer partic ipate development potential new unit north anna december 2011 virginia power acquired odec’s interest project thereby terminating odec’s involvement development potential third unit north anna virginia power yet committed building new nuclear unit north anna virginia power decides build new unit must first receive col nrc approval virginia commission certain environmental permits approvals virginia power continues pursue col nrc based current nrc schedule col could issued early late 2014 nrc required conduct hearing col proceedings august 2008 aslb nrc permitted bredl intervene proceeding bredl’s previous contentions proceeding dismissed september 2011 bredl submitted new proposed contention seeking litigate issues related august 2011 mineral virginia earthquake october 2011 aslb granted motion filed virginia power consent bredl nrc staff hold ruling proposed contention abeyance virginia power completes assessment earthquake persons sought intervene proceeding new contention admitted mandatory nrc hearing uncontested respect issues april 14 2011 twentyone organizations individuals previously intervened opposing various reactor licensing proceedings filed petition requesting nrc suspend decisions regarding reactor licensing design certification pending completion nrc task force review events fukushima japan among requested relief north anna 3 col proceeding one pending proceedings identified petition bredl served petition north anna 3 col proceeding april 18 2011 september 2011 nrc denied petitioners’ requests suspend licensing design certification proceedings relief granted petitioners’ request nrc perform safety analysis regulatory implications fukushima event extent virginia power continues pursue various environmental permits would needed support future construction operation third nuclear unit north anna north carolina regulation february 2010 preparation end fiveyear moratorium virginia power’s north carolina base rates virginia power filed application north carolina commission increase base rates adjust fuel rates december 2010 north carolina commission issued north carolina settlement approval order approving settlement agreement among parties base rate fuel case except one oppose settlement north carolina settlement approval order authorized increase base revenues approximately 8 million addition north carolina settlement approval order allowed recovery fuel rates 85 net energy costs power purchases pjm wholesale suppliers nonutility generators subject economic dispatch provide actual cost data north carolina settlement approval order authorized roe 107 capital structure composed 49 longterm debt 51 common equity new base fuel rates became effective january 1 2011 december 2011 north carolina commission issued order approving settlement agreement among virginia power public staff north carolina commission interested parties virginia power’s fuel case north carolina service territory settlement agreement provides 36 million increase virginia power’s fuel revenues one year effective january 1 2012 including approximately 13 million recovery fuel expenses previous fuel period virginia power intends file application north carolina commission march 30 2012 increase base rates ohio regulation pir program march 2011 east ohio filed request ohio commission accelerate pir program nearly doubling pir spending 200 million annually east ohio identified 1450 miles pipeline need replaced addition pipeline originally identified pir project scope east ohio plans accelerate pace program investing resources infrastructure near term effort promote ongoing public safety reduce operating costs longer term august 2011 ohio commission approved stipulation east ohio staff ohio commission interested parties east ohio’s accelerated pir proceeding stipulation provides increase annual pir capital investment current level approximately 120 million stepping approximately 160 million 2013 addition stipulation provides cost recovery fiveyear period commencing upon approval ohio commission accordance stipulation east ohio requested dismissal appeal ohio supreme court regarding opposition ohio commission’s order concerning east ohio’s first year pir cost recovery charge august 2011 east ohio submitted annual application adjust cost recovery charge previously approved pir program supplement application filed september 2011 proposed recovery charge includes actual costs return related investments made june 30 2011 settlement agreement approved ohio commission october 2011 supports revenue requirement 37 million reflected application pipp plus program ohio pipp plus program eligible customers receive energy assistance based ability pay bill difference customer’s total bill pipp plan payment amount deferred collected pipp rider accordance rules ohio commission pipp plus program sets customer’s monthly payments 6 household income provides forgiveness credits customer’s balance required payments received full due date credits may result elimination customer’s arrearage balance 24 months march 2011 ohio commission approved east ohio’s annual update pipp rider reflected elimination accumulated arrearages projected deferred program costs approximately 112 million 12month period april 2011 march 2012 uex rider east ohio files annual uex rider ohio commission pursuant seeks recovery bad debt expense customers participating pipp plus program uex rider adjusted annually achieve dollarfordollar recovery east ohio’s actual writeoffs uncollectable amounts 2011 east ohio deferred approximately 62 million bad debt expense recovery uex rider house bill 95 ohio enacted utility reform legislation house bill 95 became effective september 2011 law updates natural gas legislation enabling gas companies include uptodate cost levels filing rate cases also allows gas companies seek approval capital expenditure plans gas companies recognize carrying costs associated capital investments placed service defer carrying costs plus depreciation property tax expenses recovery ratepayers future december 2011 east ohio filed application requesting authority implement capital expenditure program new law application approved east ohio would able defer regulatory asset carrying costs depreciation property tax associated approximately 95 million capital expenditures assets placed service yet reflected rates federal regulation fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities virginia power purchases sells electricity pjm wholesale market dominion’s merchant generators sell electricity pjm miso isone wholesale markets dominion’s marketbased sales tariffs authorized ferc addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure july 2008 virginia power filed application ferc requesting revision revenue requirement reflect additional roe incentive adder eleven electric transmission enhancement projects proposal cost transmission service would increase include roe incentive adder eleven projects beginning date project enters commercial operation january 1 2009 virginia power proposed incentive 15 four combined notes consolidated financial statements continued projects including meadow brooktoloudoun carsontosuffolk lines completed 2011 incentive 125 seven projects august 2008 ferc approved proposal effective september 1 2008 total cost eleven projects estimated 877 million projects currently expected completed 2012 numerous parties sought rehearing ferc order august 2008 rehearing pending although virginia power cannot predict outcome rehearing expected material effect results operations march 2010 odec ncemc filed complaint ferc virginia power claiming approximately 223 million transmission costs related specific projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate odec ncemc requested ferc establish procedures determine amount costs applicable project excluded virginia power’s rates october 2010 ferc issued order dismissing complaint part established hearings settlement procedures remaining part complaint february 2012 virginia power submitted ferc settlement agreement resolve issues set hearing transmission customer parties proceeding joined settlement virginia commission north carolina commission public staff north carolina commission parties settlement agreed oppose settlement accepted ferc settlement provides payment virginia power transmission customer parties 250000 per year ten years resolves matters incremental cost certain underground transmission facilities set briefing virginia power cannot predict outcome briefing expected material effect results operations pjm recovery costs investments new pjmplanned transmission facilities operate 500 kv ferc established regional rate design customers pay uniform rate based costs investment recovery costs investment new pjmplanned transmission facilities operate 500 kv ferc affirmed earlier decision allocate costs beneficiary pays approach notice appeal decision filed february 2008 us court appeals seventh circuit august 2009 court denied petition review concerning rate design existing facilities granted petition concerning rate design new facilities operate 500 kv remanded issue existing facilities back ferc proceedings although dominion virginia power cannot predict outcome ferc proceedings remand impact pjm rate design changes companies’ results operations expected material may 2008 rpm buyers filed complaint ferc claiming pjm’s reliability pricing model’s transitional auctions produced unjust unreasonable capacity prices rpm buyers requested refund effective date june 1 2008 established ferc provide appropriate relief unjust unreasonable capacity charges within 15 months september 2008 ferc dismissed complaint rpm buyers requested rehearing ferc order october 2008 rehearing denied june 2009 notice appeal filed august 2009 maryland public service commission new jersey board public utilities us court appeals fourth circuit november 2009 court transferred appeal court appeals district columbia circuit february 2011 court appeals denied petition review concluding ferc adequately explained rates reasonable november 2011 pjm issued formal notification would recalculate certain ancillary service revenues previously paid 2009 2010 2011 also november 2011 pjm requested ferc permission suspend rebilling repayment obligations associated recalculation revenues petitioned ferc establish proceeding determine appropriate recalculations revenues period december 2011 ferc permitted suspension rebilling repayment pjm subject outcome ferc’s proceedings determine appropriate revenue recalculation virginia power accrued liability 36 million december 31 2011 estimated future billing adjustments pjm related ancillary service revenues fercgas ferc regulates transportation sale resale natural gas interstate commerce natural gas act 1938 natural gas policy act 1978 amended natural gas act ferc authority rates terms conditions services performed dominion’s interstate natural gas company subsidiaries including dti cove point dominion south pipeline company lp ferc also jurisdiction siting construction operation natural gas import facilities interstate natural gas pipeline facilities december 2007 dti ioga entered settlement agreement dti’s gathering processing rates dti ioga agreed may 2010 extend december 31 2014 dti option may elect extend agreement additional year december 31 2015 settlement extension maintains gas retainage fee structure dti since 2001 rates 105 gathering 05 processing settlement dti continues retain revenues liquids sales thus maintaining cash flow liquids business october 2011 dti requested received ferc approval negotiated rates associated agreement extension may 2011 cove point filed general rate case fercjurisdictional services proposed rates effective july 1 2011 cove point proposed annual cost service approximately 150 million june 2011 ferc accepted july 1 2011 effective date proposed rates two suspended effective december 1 2011 december 2011 cove point ferc trial staff active parties rate case reached settlement principle issues set hearing ferc well outstanding proposed tariff changes filed may 2011 parties expect file stipulation agreement resolving outstanding issues rate case march 2012 note 15 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain dominion’s virginia power’s longlived assets dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities addition dominion’s aros include plugging abandonment gas oil wells interim retirements natural gas gathering transmission distribution storage pipeline components future abatement asbestos expected disturbed companies’ generation facilities companies also identified recognized aros related retirement dominion’s lng facility dominion’s gas storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed companies’ generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2010 2011 follows 1 includes 9 million 14 million 15 million reported current liabilities december 31 2009 2010 2011 respectively 2 primarily reflects effect lower anticipated costs due expected future recovery doe certain spent fuel storage costs 3 includes 1 million 3 million 1 million reported current liabilities december 31 2009 2010 2011 respectively dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2011 2010 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 30 billion 29 billion respectively december 31 2011 2010 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 14 billion 13 billion respectively note 16 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie virginia power longterm power capacity contracts four nonutility generators aggregate summer generation capacity approximately 870 mw contracts contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance entities remaining terms virginia power’s contracts years entities expected operate contractual relationships expire contracts expire various dates ranging 2015 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 13 billion december 31 2011 virginia power paid 211 million 213 million 210 million electric capacity 125 million 164 million 117 million electric energy entities years ended december 31 2011 2010 2009 respectively virginia power purchased shared services drs affiliated vie approximately 389 million 465 million 416 million years ended december 31 2011 2010 2009 respectively virginia power determined closely associated entity drs therefore primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power virginia power obligation absorb allocated share drs costs dominion leases fairless generating facility pennsylvania juniper lessor began commercial operations june 2004 dominion makes annual lease payments approximately 53 million lease expires 2013 time dominion may renew lease terms mutually agreeable dominion juniper based original project costs current combined notes consolidated financial statements continued market conditions purchase fairless approximately 923 million sell fairless behalf juniper independent third party fairless sold proceeds sale less original construction cost dominion would required make payment lessor amount 7075 original project costs adjusted certain costs specified lease agreement contain provisions involve credit rating stock price trigger events dominion expects purchase fairless lease expires 2013 juniper formed 2003 limited partnership organized purpose acquiring constructing number assets lease assets financed proceeds issuance bank debt privately placed longterm debt partnership capital received juniper’s general limited partners dominion voting equity interest juniper subject business scope exception dominion required evaluate whether juniper vie prior october 2011 september 30 2011 juniper held various power plant leases including fairless october 2011 last lease fairless expired related asset sold juniper fairless sole remaining asset juniper longer qualified business october 2011 required dominion determine whether juniper vie dominion concluded juniper vie entity’s capitalization insufficient support operations power direct significant activities entity performed equity holders dominion residual value guarantee discussed guarantees portion residual value fairless activities significantly impact juniper’s economic performance relate operation fairless decisions related operations fairless made dominion considered primary beneficiary accordingly dominion consolidated juniper october 2011 recorded fair value approximately 957 million property plant equipment 896 million debt 61 million noncontrolling interests debt nonrecourse dominion secured juniper’s assets annual lease payments made dominion juniper fairless eliminated consolidated statements income excluded lease commitments table note 23 dominion provided financial support juniper current period previously contractually required provide note 17 shortterm debt credit agreements dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 047 041 december 31 2011 2010 respectively virginia power virginia power’s shortterm financing supported two joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion follows 1 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year 2 credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rates outstanding commercial paper supported credit facilities 046 041 december 31 2011 2010 respectively addition credit facility commitments mentioned virginia power also 120 million credit facility entered september 2010 original maturity date september 2013 effective october 1 2011 pricing amended maturity date extended september 2016 facility supports certain taxexempt financings virginia power combined notes consolidated financial statements continued note 18 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2011 2 financings relate certain pollution control equipment virginia power’s generating facilities certain variable rate taxexempt financings supported 120 million credit facility terminates september 2016 3 160 million taxexempt bonds due 2040 issued industrial development authority wise county behalf virginia power remarketed third party included consolidated balance sheets march 2011 bonds originally issued december 2010 september 2009 included 2010 consolidated balance sheet bonds temporarily purchased held virginia power 4 option holders 510 million dominion’s 525 senior notes due 2033 600 million dominion’s 8875 senior notes due 2019 subject redemption 100 principal amount plus accrued interest august 2015 january 2014 respectively 5 convertible combination cash shares dominion’s common stock time closing price common stock equals 120 applicable conversion price higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter option holders december 15 2013 2018 securities subject redemption 100 principal amount plus accrued interest senior notes callable dominion since december 15 2011 6 september 2011 500 million 63 2006 series b enhanced junior subordinated notes due 2066 began bearing interest threemonth libor plus 23 reset quarterly 7 represents debt assumed dominion merger former cng subsidiary 8 juniper notes issued 2004 consolidated october 2011 due dominion becoming primary beneficiary vie amount excludes 48 million net unamortized premium 2011 debt nonrecourse dominion secured juniper’s assets 9 represents debt associated kincaid debt nonrecourse dominion secured facility’s assets 530 million december 31 2011 revenue 10 235 million taxexempt bonds due 2041 issued massachusetts development finance agency behalf brayton point remarketed third parties july august 2011 included consolidated balance sheet bonds originally issued december 2010 included 2010 consolidated balance sheet bonds temporarily purchased held dominion 11 represents valuation certain fair value hedges associated dominion’s fixedrate debt 12 includes 4 million net unamortized discount 2011 based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2011 follows dominion’s virginia power’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2011 events default covenants january 2012 virginia power issued 450 million 295 senior notes mature 2022 proceeds used general corporate purposes including repayment shortterm debt convertible securities december 31 2011 dominion 143 million outstanding contingent convertible senior notes convertible holders combination cash shares dominion’s common stock certain circumstances conversion feature requires principal amount note repaid cash amounts payable excess principal amount paid common stock issuance notes valued conversion rate 27173 shares common stock per 1000 principal amount senior notes represented conversion price 3680 conversion rate subject adjustment upon certain events subdivisions splits combinations common stock issuance common stock holders certain common stock rights warrants options certain dividend increases december 31 2011 conversion rate adjusted 289178 shares primarily due individual dividend payments level paid issuance number shares included denominator diluted eps calculation calculated net shares issuable reporting period based upon average market price period results increase average shares outstanding used calculation dominion’s diluted eps conversion price lower average market price dominion’s common stock period results adjustment conversion price exceeds average market price senior notes convertible holders combination cash shares dominion’s common stock following circumstances 1 closing price dominion’s common stock equals 120 applicable conversion price higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter 2 senior notes called redemption dominion 3 occurrence specified corporate transactions 4 credit rating assigned senior notes moody’s baa3 standard poor’s bbb ratings discontinued reason senior notes eligible conversion first quarter 2011 however since closing price dominion’s common stock equal 120 applicable conversion price higher least 20 last 30 consecutive trading days quarter senior notes eligible conversion last three quarters 2011 approximately 59 million contingent convertible senior notes converted holders december 31 2011 closing price dominion’s common stock equal 4150 per share higher least 20 last 30 consecutive trading days therefore senior notes eligible conversion first quarter 2012 beginning 2007 notes eligible contingent interest average trading price defined indenture equals exceeds 120 principal amount senior notes holders right require dominion purchase senior notes cash 100 principal amount plus accrued interest december 2013 2018 dominion undergoes certain fundamental changes senior notes callable dominion since december 15 2011 junior subordinated notes payable affiliated trusts previous years dominion established several subsidiary capital trusts finance subsidiary respective parent company hold 100 voting interests trusts sold trust preferred securities representing preferred beneficial interests 97 beneficial ownership assets held trusts exchange funds realized sale trust preferred securities common securities represent remaining 3 beneficial ownership interest assets held capital trusts dominion issued various junior subordinated notes junior subordinated notes constitute 100 capital trust’s combined notes consolidated financial statements continued assets trust must redeem trust preferred securities respective junior subordinated notes repaid maturity redeemed prior maturity following table provides summary information trust preferred securities junior subordinated notes outstanding december 31 2011 junior subordinated notesdebentures held assets capital trust follows 1 258 milliondominion resources inc 783 debentures due 1212027 2 10 milliondominion resources inc 84 debentures due 1152031 interest charges related dominion’s junior subordinated notes payable affiliated trusts 21 million years ended december 31 2011 2010 2009 distribution payments trust preferred securities considered fully unconditionally guaranteed respective parent company issued debt instruments held trust related agreements taken consideration guarantee agreement provides guarantee distribution payments relevant trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon payment amounts dominion due junior subordinated notes dominion may defer interest payments junior subordinated notes one occasions five consecutive years related trusts must also defer distributions payment junior subordinated notes deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids bear interest 75 per year june 30 2016 thereafter bear interest threemonth libor plus 2825 reset quarterly beginning september 30 2011 september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly previously interest fixed 63 per year june 2009 dominion issued 685 million including 60 million related underwriter’s option purchase additional notes cover overallotments 8375 june 2009 hybrids june 2009 hybrids listed new york stock exchange symbol dru dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion executed rccs connection issuance hybrids described terms rccs dominion covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days proceeds dominion receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price december 2011 april 2010 dominion purchased cancelled 16 million september 2006 hybrids purchases conducted compliance rcc late february 2012 dominion launched tender offer purchase 150 million additional september 2006 hybrids amount may increased decreased dominion’s sole discretion purchases conducted compliance rcc note 19 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2011 2010 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares issued outstanding december 31 2011 2010 upon involuntary liquidation dissolution windingup virginia power share would entitled receive 100 plus accrued cumulative dividends holders virginia power’s outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series virginia power preferred stock outstanding december 31 2011 1 7312012 10036 commencing 812012 10000 commencing 812013 2 8312012 10035 commencing 912012 10000 commencing 912013 3 dividend rate 625 3202011 effective 32011 rate reset 612 3202014 rate determined according periodic auctions periods established virginia power time auction process note 20 shareholders’ equity issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested company’s common stock shares may either newly issued purchased open market proceeds contributed plans 2011 dominion direct® dominion employee savings plans purchased dominion common stock open market proceeds received programs rather additional new common shares issued january 2012 dominion began issuing new common shares direct stock purchase plans 2011 dominion issued approximately 12 million shares common stock received cash proceeds 38 million exercise employee stock options january 2012 dominion filed new sec shelf registration sale debt equity securities including ability sell common stock market program company entered four separate sales agency agreements bny mellon capital markets llc merrill lynch pierce fenner smith incorporated morgan stanley co llc goldman sachs co effect sales program however exception issuing approximately 320 million equity employee savings plans direct stock purchase dividend reinvestment plans employee director benefit plans dominion anticipate issuing common stock 2012 virginia power 2011 virginia power issue shares common stock dominion 2010 2009 virginia power issued 33013 31877 shares common stock dominion approximately 1 billion year purpose retiring shortterm demand note borrowings dominion shares reserved issuance december 31 2011 dominion approximately 54 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans contingent convertible senior notes repurchase common stock march 2010 dominion began repurchasing common shares anticipation proceeds sale appalachian ep operations 2010 dominion repurchased 214 million shares common stock approximately 900 million 2011 dominion announced intended repurchase 600 million 700 million common stock cash tax savings resulting extension bonus depreciation allowance 2011 dominion repurchased approximately 13 million shares common stock approximately 601 million open market program average price 4637 per share dominion plan repurchase additional shares program 2012 accumulated comprehensive income loss presented table summary aoci component stockbased awards 2005 incentive compensation plan permits stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2011 approximately 33 million shares available future grants plans dominion measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion’s results years ended december 31 2011 2010 2009 include 39 million 40 million 44 million respectively compensation costs 13 million 15 million 17 million respectively income tax benefits related dominion’s stockbased compensation combined notes consolidated financial statements continued arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income excess tax benefits classified financing cash flow years ended december 31 2011 2010 2009 dominion realized 2 million 10 million 5 million respectively excess tax benefits vesting restricted stock awards exercise stock options stock options following table provides summary changes amounts stock options outstanding years ended december 31 2011 2010 2009 options granted plan 2011 2010 2009 1 intrinsic value represents difference exercise price option market value dominion’s stock dominion issues new shares satisfy stock option exercises dominion received cash proceeds exercise stock options approximately 38 million 63 million 49 million years ended december 31 2011 2010 2009 respectively restricted stock restricted stock grants made officers dominion’s ltip may also granted certain key contributors time fair value dominion’s restricted stock awards equal market price dominion’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2011 2010 2009 december 31 2011 unrecognized compensation cost related nonvested restricted stock awards totaled 18 million expected recognized weightedaverage period 21 years fair value restricted stock awards vested 28 million 26 million 29 million 2011 2010 2009 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates shares tendered taxes added shares remaining issued become available reissuance incentive awards goalbased stock goalbased stock awards granted officers achieved certain targeted level share ownership lieu cashbased performance grants 2008 2009 goalbased stock awards also made certain key nonofficer employees current outstanding goalbased shares include awards granted officers february 2010 february 2011 issuance awards based achievement multiple performance metrics twoyear period including roic bvp tsr relative peer group companies 2009 2010 2011 two metrics roic tsr relative peer group companies actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock equal market price dominion’s stock date grant goalbased stock awards granted key nonofficer employees convert restricted stock end twoyear performance period generally vest three years original grant date awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares performance period april 2008 grants ended december 31 2009 cgn committee determined actual performance metrics established awards key nonofficer employees 147 thousand shares outstanding goalbased stock awards granted april 2008 converted 186 thousand shares restricted stock remaining term vesting period ending april 2011 awards officers 12 thousand shares outstanding goalbased stock awards converted 15 thousand nonrestricted shares issued officers performance period april 2009 grants ended december 31 2010 cgn committee determined actual performance metrics established awards key nonofficer employees 132 thousand shares outstanding goalbased stock awards granted april 2009 converted 168 thousand shares restricted stock remaining term vesting period ending april 2012 awards officers 20 thousand shares outstanding goalbased stock awards converted 25 thousand nonrestricted shares issued officers following table provides summary goalbased stock activity years ended december 31 2011 2010 2009 december 31 2011 targeted number shares expected issued february 2010 february 2011 awards approximately 12 thousand january 2012 cgn committee determined actual performance metrics established february 2010 awards performance period ended december 31 2011 based determination total number shares issued february 2010 goalbased stock awards approximately 15 thousand december 31 2011 unrecognized compensation cost related nonvested goalbased stock awards material cashbased performance grants cashbased performance grants made dominion’s officers dominion’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved targeted amount cashbased performance grant made officers april 2008 12 million actual payout award february 2010 determined cgn committee 15 million based level performance metrics achieved february 2009 cashbased performance grant made officers portion grant representing 11 million targeted amount december 31 2010 paid december 2010 based achievement three performance metrics 2009 2010 roic bvp tsr relative peer group companies total amount award grant 14 million remaining 3 million grant paid february 2011 december 31 2010 liability 3 million accrued remaining portion award february 2010 cashbased performance grant made officers portion grant representing initial payout 14 million included 12 million targeted amount paid december 2011 based achievement two performance metrics 2010 2011 roic tsr relative peer group companies total expected award grant 20 million remaining portion grant paid march 15 2012 december 31 2011 liability 5 million accrued remaining portion award february 2011 cashbased performance grant made officers payout performance grant occur march 15 2013 based achievement two performance metrics 2011 2012 roic tsr relative peer group companies december 31 2011 targeted amount grant 12 million liability 6 million accrued award note 21 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2011 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s virginia power’s ability pay dividends receive dividends subsidiaries december 31 2011 see note 18 description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes note 22 employee benefit plans dominion provides certain benefits eligible active employees retirees qualifying dependents terms benefit combined notes consolidated financial statements continued plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension program also provides benefits certain retired executives companysponsored nonqualified employee benefit plan nonqualified plan funded contributions grantor trust dominion provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service january 2011 dominion amended retiree healthcare life benefits change eligibility age effective january 1 2012 majority nonunion employees 55 10 years service 58 10 years service resulting approximately 71 million reduction postretirement benefit plan obligation eligibility requirements nonunion employees hired january 1 2008 benefit retiree medical account design well union employees affected plan design change pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates rate compensation increases dominion uses december 31 measurement date employee benefit plans dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments aggregate actual returns dominion’s pension postretirement plan assets 273 million 2011 624 million 2010 versus expected returns 519 million 479 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans medicare act introduced federal subsidy sponsors retiree healthcare benefit plans provide prescription drug benefit least actuarially equivalent medicare part dominion determined prescription drug benefit offered postretirement benefit plans least actuarially equivalent medicare part dominion received federal subsidy 5 million 2011 2010 december 2011 dominion elected change method receiving subsidy medicare part retiree prescription drug coverage retiree drug subsidy egwp change expected effective january 1 2013 result change dominion recognized decrease postretirement benefit obligations approximately 170 million december 31 2011 change also expected reduce postretirement benefit costs approximately 20 million annually beginning 2012 funded status following table summarizes changes dominion’s pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status 1 represents transfer pension plan assets obligation active peoples employees february 1 2010 see note 4 information sale peoples completed february 2010 2 2010 amounts relate sales peoples dominion’s appalachian ep operations workforce reduction program 3 represents onetime special termination benefit certain employees connection workforce reduction program abo dominion’s defined benefit pension plans 45 billion 41 billion december 31 2011 2010 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time 2011 dominion made contributions qualified defined benefit pension plans contributions currently expected 2012 certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion expects contribute approximately 16 million dominion vebas 2012 dominion expect pension postretirement plan assets returned company 2012 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets 1 increase primarily reflects decrease discount rate december 31 2011 following table provides information abo fair value plan assets pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid benefit payments postretirement benefit plans 2012 expected offset medicare part subsidy approximately 5 million result adoption egwp discussed beginning 2013 dominion receive increased level medicare part subsidies form reduced costs rather direct reimbursement plan assets dominion’s overall objective investing pension postretirement plan assets achieve best possible longterm rates return commensurate prudent levels risk minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments us equity includes investments largecap midcap smallcap companies located united states nonus equity includes investments largecap companies located outside united states including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity reits investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities combined notes consolidated financial statements continued fair value measurement policies procedures related pension postretirement benefit plan assets see note 7 fair values dominion’s pension plan assets asset category follows 1 includes net assets related pending sales securities 26 million december 31 2010 fair values dominion’s postretirement plan assets asset category follows 1 includes net assets related pending sales securities 1 million december 31 2010 following table presents changes dominion’s pension postretirement plan assets measured fair value included level 3 fair value category net periodic benefit cost components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities follows 1 2010 amounts relate sales peoples dominion’s appalachian ep operations workforce reduction program 2 represents onetime special termination benefit certain employees connection workforce reduction program combined notes consolidated financial statements continued components aoci regulatory assets liabilities recognized components periodic benefit credit cost follows 1 december 31 2011 22 billion related pension benefits 14 billion included aoci remainder included regulatory assets liabilities 14 million related postretirement benefits consists 16 million included regulatory assets liabilities 2 million included aoci december 31 2010 18 billion 240 million related pension benefits postretirement benefits 978 million 75 million respectively included aoci remainder included regulatory assets liabilities following table provides components aoci regulatory assets liabilities december 31 2011 expected amortized components periodic benefit cost 2012 dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forwardlooking return expectations derived yield longterm bonds price earnings ratios major stock market indices • investment allocation plan assets dominion develops assumptions compared forecasts independent investment advisors ensure reasonableness internal committee selects final assumptions dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans one percentage point change assumed healthcare cost trend rates would following effects defined contribution plans addition dominion sponsors defined contribution employee savings plans 2011 2010 2009 dominion recognized 38 million 39 million 42 million respectively contributions plans virginia power virginia power participates dominion pension plan defined benefit pension plan sponsored dominion provides benefits multiple dominion subsidiaries retirement benefits payable plan based primarily years service age employee’s compensation participating employer virginia power subject dominion’s funding policy contribute annually amount accordance provisions erisa 2011 virginia power made contributions plan contributions currently expected 2012 virginia power’s net periodic pension cost related pension plan 50 million 84 million 48 million 2011 2010 2009 respectively 2010 net periodic pension cost includes impact settlement curtailment well onetime special termination benefit certain employees connection workforce reduction program employee compensation basis determining virginia power’s share total pension costs virginia power also participates dominion retiree health welfare plan sponsored dominion provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service virginia power’s net periodic benefit cost related plan 23 million 59 million 55 million 2011 2010 2009 respectively employee headcount basis determining virginia power’s share total postretirement benefit costs certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power funds postretirement benefit costs veba virginia power’s contributions veba 35 million 34 million 2010 2009 respectively virginia power made contributions veba 2011 expect contribute veba 2012 dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power’s employees participate investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash virginia power provide dominion share employee benefit plan contributions virginia power also participates dominionsponsored defined contribution employee savings plans cover substantially employees employer matching contributions 14 million incurred 2011 2010 2009 note 23 commitments contingencies result issues generated ordinary course business dominion virginia power involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect dominion’s virginia power’s financial position liquidity results operations environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air december 21 2011 epa issued mats coal oilfired electric utility steam generating units rule establishes strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases rule includes limited use provision oilfired units annual capacity factors 8 provides exemption emission limits allows compliance operational work practice standards compliance required spring 2015 certain limited exceptions december 2011 virginia power recorded 228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain regulated coal units primarily result issuance final mats dominion continues governed individual state mercury emission reduction regulations massachusetts illinois largely unaffected rule july 2011 epa issued final replacement rule cair called csapr requires 28 states reduce power plant emissions cross state lines csapr establishes new so2 nox emissions cap trade programs completely independent current arp specifically csapr requires reductions so2 nox emissions fossil fuelfired electric generating units 25 mw annual nox emissions caps nox emissions caps ozone season may 1 september 30 annual so2 emission caps differing requirements two groups affected states prior issuance csapr dominion virginia power held 57 million 43 million respectively so2 emissions allowances obtained arp cair compliance due csapr’s establishment new allowance program elimination cair dominion virginia power so2 emissions allowances needed arp compliance resulted impairment allowances third quarter 2011 see note 7 details impairments respect dominion’s generation fleet cost comply rule expected material however following numerous petitions review motions stay december 2011 us court appeals dc circuit issued ruling stay csapr pending judicial review also fourth quarter 2011 epa proposed technical revisions csapr accordingly future outcomes litigation andor final action modify rule could affect assessment stay csapr effect epa continue administer cair caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements february 2008 dominion received request information pursuant section 114 caa epa request concerns historical operating changes capital improvements undertaken state line kincaid april 2009 dominion received second request information dominion provided information response requests also april 2009 dominion received notice finding violations epa claiming violations caa new source review requirements new source performance standards title v permit program stations’ respective state implementation plans notice states epa may issue order requiring compliance relevant caa provisions may seek injunctive relief andor civil penalties pursuant epa’s enforcement authority caa dominion believes complied applicable laws epa regulations interpretations effect time work question took place caa authorizes maximum civil penalties 25000 37500 per day per violation generating unit depending date alleged violation addition penalties may awarded adverse outcome could require substantial capital expenditures affect timing currently budgeted capital expenditures cannot determined time expenditures could affect future combined notes consolidated financial statements continued results operations cash flows financial condition dominion currently unable make estimate potential financial statement impacts related matters june 2010 conservation law foundation healthlink inc filed complaint district court massachusetts dominion energy new england inc alleging salem harbor units 1 2 3 4 violation visible emissions standards monitoring requirements massachusetts state implementation plan station’s state federal operating permits february 2012 court entered consent decree among parties pursuant dominion retire salem harbor consent decree expected material effect dominion’s operations financial statements cash flows water cwa comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply aspects cwa programs operating facilities october 2003 epa massachusetts department environmental protection issued new npdes permits brayton point new permits contained identical conditions effect require installation cooling towers address concerns withdrawal discharge cooling water currently dominion constructing cooling towers estimates total cost install cooling towers approximately 570 million remaining expenditures approximately 65 million included planned capital expenditures 2012 october 2007 vswcb issued renewed vpdes permit north anna bredl persons appealed vswcb’s decision richmond circuit court challenging several permit provisions related north anna’s discharge cooling water february 2009 court ruled vswcb required regulate thermal discharge north anna waste heat treatment facility virginia power filed motion reconsideration court february 2009 denied final order issued court september 2009 court’s order allowed north anna continue operate pursuant currently issued vpdes permit october 2009 virginia power filed notice appeal court’s order richmond circuit court initiating appeals process virginia court appeals june 2010 virginia court appeals reversed richmond circuit court’s september 2009 order virginia court appeals held lower court applied wrong standard review vswcb’s determination regulate station’s thermal discharge waste heat treatment facility lawful july 2010 bredl original appellants filed petition appeal supreme court virginia requesting review court appeals’ decision december 2010 supreme court virginia granted bredl’s petition january 2012 supreme court virginia upheld virginia court appeals’ june 2010 ruling dominion vswcb september 2010 millstone’s npdes permit reissued cwa conditions permit require evalua tion control technologies could result additional expenditures future however dominion cannot currently predict outcome evaluation october 2010 permit issuance appealed state court private plaintiff permit expected remain effect appeal dominion currently unable make estimate potential financial statement impacts related matter solid hazardous waste cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites strictly jointly severally liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion virginia power may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste except noted companies believe material effect results operations financial condition andor cash flows september 2011 epa issued uao virginia power 22 parties ordering specific remedial action certain areas ward transformer superfund site located raleigh north carolina virginia power believe liable party cercla based alleged connection site november 2011 virginia power number parties notified epa declining undertake work set forth uao epa may seek enforce uao court pursuant enforcement authority cercla may seek recovery costs undertaking removal remedial action court determines respondent failed comply uao without sufficient cause epa may also seek civil penalties 37500 per day violation punitive damages three times costs incurred epa result party’s failure comply uao virginia power currently unable make estimate potential financial statement impacts related ward transformer matter dominion determined associated 17 former manufactured gas plant sites studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none 17 former sites dominion associated investigation state federal environmental agency one former sites dominion conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program dominion yet estimated future remediation costs due uncertainty surrounding sites dominion unable make estimate potential financial statement impacts related sites climate change legislation regulation massachusetts rhode island connecticut among states joined rggi multistate effort reduce co2 emissions northeast implemented state specific regulations initiative aggregate co2 emissions power plants participating states required stabilized current levels 2009 2015 reductions current levels would required phased starting 2016 2019 would 10 reduction participating state power plant co2 emissions 2012 rggi undergo program review could impact regulations implementation rggi impact program review dominion’s fossil fired generation operations rggi states unknown time dominion currently unable make estimate potential financial statement impacts related matters three dominion’s facilities brayton point salem harbor manchester street subject rggi beginning calendar year 2009 rggi requires dominion cover ton co2 direct stack emissions facilities either allowance offset allowances purchased auction secondary market dominion participated rggi allowance auctions date procured allowances meet estimated compliance requirements rggi 2009 2013 partially 2014 therefore dominion expect compliance rggi material impact results operations financial condition however june 2011 lawsuit filed new york seeking retroactively rescind rggi participation state currently percentage dominion’s rggi allowances acquired new york allocated value allowances totaled approximately 38 million majority expensed consumed dominion anticipates surrender new york rggi allowances purposes compliance prior issuance court decision lawsuit dominion continue hold new york allowances time court issues decision adverse new york rggi exchange allowances state allowances replacement allowances would purchased dominion cannot predict outcome case currently unable make estimate potential financial statement impacts related matters longterm purchase agreements december 31 2011 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2011 present value virginia power’s total commitment capacity payments 17 billion capacity payments totaled 338 million 344 million 356 million energy payments totaled 275 million 303 million 254 million 2011 2010 2009 respectively lease commitments dominion virginia power lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2011 follows rental expense dominion totaled 155 million 171 million 172 million 2011 2010 2009 respectively rental expense virginia power totaled 50 million 50 million 49 million 2011 2010 2009 respectively majority rental expense reflected operations maintenance expense nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2011 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units 32 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2011 nrc minimum financial assurance amounts shown calculated using preliminary december 31 2011 us bureau labor statistics indices dominion believes combined notes consolidated financial statements continued amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns units decommissioned decades dominion virginia power continue monitor trusts ensure meet minimum financial assurance requirement may include use parent company guarantees surety bonding financial guarantees recognized nrc nuclear insurance priceanderson amendments act 1988 provides public 126 billion liability protection per nuclear incident via obligations required owners nuclear power plants allows inflationary provision adjustment every five years dominion virginia power purchased 375 million coverage commercial insurance pools reactor site remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor us companies could assessed 118 million licensed reactors exceed 18 million per year per reactor limit number incidents retrospective premium assessed current level property insurance coverage dominion’s virginia power’s nuclear units follows 1 surry north anna share blanket property limit 1 billion companies’ coverage exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum retrospective premium assessment current policy period 78 million 40 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance pro ceeds available must first used stabilization decontamination dominion virginia power also purchase insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program companies subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum retrospective premium assessment current policy period 31 million 19 million respectively odec part owner north anna massachusetts municipal wholesale electric company central vermont public service corporation part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 dominion virginia power entered contracts doe disposal spent nuclear fuel doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act companies’ contracts doe january 2004 dominion virginia power filed lawsuits us court federal claims doe requesting damages connection failure commence accepting spent nuclear fuel october 2008 court issued opinion order dominion amount approximately 155 million includes approximately 112 million damages incurred virginia power spent fuelrelated costs surry north anna approximately 43 million damages incurred spent nuclear fuelrelated costs millstone june 30 2006 december 2008 government appealed judgment us court appeals federal circuit government’s initial brief appeal filed june 2010 issues raised government appeal pertained damages awarded dominion millstone government take issue damages awarded virginia power surry north anna result virginia power recognized receivable amount 174 million largely offset property plant equipment regulatory assets liabilities representing certain spent nuclear fuelrelated costs incurred june 30 2010 second quarter 2011 federal appeals court issued decision affirming trial court’s damages award government seek rehearing federal appeals court decision seek review us supreme court result dominion recognized receivable amount 64 million certain millstone spent nuclear fuelrelated costs incurred june 30 2011 considered probable recovery dominion recognized pretax benefit 24 million 17 million recorded operations maintenance expense 7 million recorded depreciation depletion amortization expense 2011 remainder largely offset property plant equipment dominion received payment 155 million damages award including 112 million damages incurred virginia power third quarter 2011 lawsuit also filed kewaunee august 2010 dominion federal government reached settlement resolving dominion’s claims damages incurred kewaunee december 31 2008 approximately 21 million settlement payment received september 2010 companies continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe december 31 2011 dominion’s virginia power’s receivables spent nuclear fuelrelated costs totaled 102 million 76 million respectively companies continue manage spent fuel accepted doe guarantees surety bonds letters credit dominion december 31 2011 dominion issued 82 million guarantees primarily support equity method investees significant amounts related guarantees recorded december 31 2011 dominion’s exposure guarantees 49 million primarily related certain reserve requirements associated nonrecourse financing addition guarantees dominion partners shell bp may required make additional periodic equity contributions nedpower fowler ridge connection certain funding requirements associated respective nonrecourse financings december 31 2011 dominion’s maximum remaining cumulative exposure equity funding agreements 123 million 2019 maximum annual future contributions could range approximately 4 million 19 million dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2011 dominion issued following subsidiary guarantees 1 represents estimated portion guarantee’s stated limit utilized december 31 2011 based upon prevailing economic conditions fact patterns specific guarantee arrangement guarantees related obligations recorded liabilities dominion’s subsidiaries value includes recorded amount 2 guarantees debt certain dei subsidiaries event default subsidiaries dominion would obligated repay amounts 3 guarantees related energy trading marketing activities commodity commitments certain subsidiaries including subsidiaries virginia power dei guarantees provided counterparties order facilitate physical financial transactions gas oil electricity pipeline capacity transportation related commodities services subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation dominion subsidiaries receive similar guarantees collateral credit extended others value provided includes certain guarantees stated limits 4 guarantees related certain dei subsidiaries’ potential retrospective premiums could assessed nuclear incident dominion’s nuclear insurance programs guarantees dei subsidiary’s virginia power’s commitment buy nuclear fuel excludes dominion’s agreement provide 150 million 60 million two dei subsidiaries pay operating expenses millstone kewaunee respectively event prolonged outage part satisfying certain nrc requirements concerned ensuring adequate funding operations nuclear power stations 5 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects also includes guarantees related certain dei subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower additionally december 31 2011 dominion purchased 151 million surety bonds authorized issuance letters credit financial institutions 36 million facilitate commercial transactions subsidiaries third parties terms surety bonds dominion obligated indemnify respective surety bond company amounts paid virginia power december 31 2011 virginia power issued 14 million guarantees primarily support taxexempt debt issued conduits virginia power also purchased 62 million surety bonds various purposes including providing workers’ compensation coverage authorized issuance letters credit financial institutions 15 million facilitate commercial transactions subsidiaries third parties terms surety bonds virginia power obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business dominion virginia power may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law dominion virginia power unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2011 dominion virginia power believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position combined notes consolidated financial statements continued workforce reduction program first quarter 2010 dominion virginia power announced workforce reduction program reduced total workforces approximately 9 11 respectively 2010 goal workforce reduction program reduce operations maintenance expense growth improve efficiency companies first quarter 2010 dominion recorded 338 million 206 million aftertax charge including 202 million 123 million aftertax virginia power primarily reflected operations maintenance expense consolidated statements income due severance pay benefits related workforce reduction program 2010 dominion virginia power paid 109 million 104 million respectively costs related program terms workforce reduction program consistent companies’ existing severance plan merchant generation operations dominion continually reviews portfolio assets determine assets fit strategically support objectives improve return invested capital shareholder value dominion identifies assets support objectives believes may greater value another owner dominion may consider assets divestiture connection effort first quarter 2011 dominion decided pursue sale kewaunee efforts successful dominion may required present kewaunee’s assets liabilities subject sale held sale consolidated balance sheet kewaunee’s results operations discontinued operations consolidated statements income held sale classification would require amounts recorded lower book value sale price less costs sell could result recording impairment charge sale kewaunee would subject approval dominion’s board directors well applicable state federal approvals second quarter 2011 dominion announced state line would retired mid2014 would retire two four units salem harbor end 2011 plans retire remaining units june 1 2014 second quarter 2011 dominion recorded 17 million 11 million aftertax charge operations maintenance expense severance costs related expected closings merchant generation facilities august 2011 dominion announced state line would retired first quarter 2012 given continued decline power prices expected cost comply csapr third quarter 2011 dominion recorded 15 million 10 million aftertax charge operations maintenance expense related accelerated closure state line mf global prior october 31 2011 certain dominion’s subsidiaries executed certain commodity transactions exchanges using mf global fcm registered cftc order secure potential exposure commodity transactions dominion posted certain required margin collateral mf global parent company mf global mf global holdings ltd filed bankruptcy relief chapter 11 us bankruptcy code october 31 2011 date us district court southern district new york appointed trustee oversee liquidation mf global pursuant securities investor protection act accordance courtapproved procedures dominion transferred fcms open positions executed using mf global initial margin posted open positions october 31 2011 approximately 73 million dominion received approximately 8 million amount liquidation process date time mf global trustee determining final amounts recoverable ultimately distributed mf global’s customers part process trustee filed claims insolvency proceeding mf global affiliates various foreign jurisdictions including united kingdom claims still pending due uncertainty surrounding ultimate recovery claims filed mf global trustee united kingdom elsewhere potential dilution recovered funds liquidation process dominion unable estimate loss associated remaining margin claims note 24 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction dominion virginia power maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2011 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest regions us dominion believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include trading energyrelated commodities marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2011 dominion’s gross credit exposure totaled 534 million application collateral credit exposure reduced 504 million amount investment grade counterparties including internally rated represented 80 one counterparty exposure represents 10 dominion’s total exposure large financial institution rated investment grade virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2011 virginia power’s exposure potential concentrations credit risk considered material creditrelated contingent provisions majority dominion’s derivative instruments contain creditrelated contingent provisions require dominion provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2011 2010 dominion would required post additional 88 million collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion posted 110 million collateral including 4 million letters credit december 31 2011 54 million collateral including 19 million letters credit december 31 2010 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2011 2010 259 million 210 million respectively include impact offsetting asset positions creditrelated contingent provisions virginia power material december 31 2011 2010 see note 8 information derivative instruments note 25 relatedparty transactions virginia power engages relatedparty transactions primarily dominion subsidiaries affiliates virginia power’s receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power included dominion’s consolidated federal income tax return participates certain dominion benefit plans discussion significant relatedparty transactions follows transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps options manage commodity price risks associated purchases natural gas december 31 2011 2010 virginia power’s derivative liabilities affiliates material drs affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage presented significant transactions drs affiliates fourth quarter 2011 subsidiary virginia power purchased nuclear fuelrelated inventory affiliate 39 million future use nuclear generation stations following table presents virginia power’s borrowings dominion shortterm arrangements virginia power’s interest charges related borrowings dominion immaterial years ended december 31 2011 2010 2009 2010 2009 virginia power issued 33013 31877 shares common stock dominion approximately 1 billion year purpose retiring shortterm demand note borrowings dominion issuances common stock 2011 combined notes consolidated financial statements continued note 26 operating segments dominion virginia power organized primarily basis products services sold us description operations included companies’ primary operating segments follows addition operating segments companies also report corporate segment corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments corporate segment dominion includes corporate service company functions including unallocated debt net impact operations sale peoples discussed note 4 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments dominion 2011 dominion reported aftertax net expense 346 million specific items corporate segment 375 million net expenses attributable operating segments net expenses specific items 2011 primarily related impact following items  228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain utility coalfired generating units attributable dominion generation  96 million 59 million aftertax charge reflecting restoration costs associated damage caused hurricane irene primarily attributable dvp  66 million 39 million aftertax loss operations kewaunee attributable dominion generation kewaunee’s results operations reflected corporate segment due dominion’s decision first quarter 2011 pursue sale kewaunee  55 million 39 million aftertax impairment charge related state line attributable dominion generation  57 million 34 million aftertax charge related impairment so2 emissions allowances expected consumed due csapr attributable dominion generation 2010 dominion reported aftertax net benefits 837 million specific items corporate segment 1 billion net benefits attributable operating segments net benefits specific items 2010 primarily related impact following items  25 billion 14 billion aftertax benefit resulting gain sale substantially dominion’s appalachian ep operations net charges related divestiture attributable dominion energy partially offset  338 million 206 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program attributable  dvp 67 million aftertax  dominion energy 24 million aftertax  dominion generation 115 million aftertax  134 million 155 million aftertax loss discontinued operations peoples primarily reflecting net loss sale attributable corporate segment  194 million 127 million aftertax impairment charge certain merchant generation power stations attributable dominion generation 2009 dominion reported aftertax net expenses 655 million specific items corporate segment 688 million net expenses attributable operating segments net expenses specific items 2009 primarily related impact following items  455 million 281 million aftertax ceiling test impairment charge related carrying value dominion’s ep properties attributable dominion energy  712 million 435 million aftertax charge connection settlement virginia power’s 2009 base rate case proceedings attributable  dominion generation 257 million aftertax  dvp 178 million aftertax following table presents segment information pertaining dominion’s operations december 31 2011 2010 2009 none dominion’s longlived assets significant percentage operating revenues associated international operations combined notes consolidated financial statements continued virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments 2011 virginia power reported aftertax net expenses 268 million specific items attributable operating segments corporate segment net expenses specific items 2011 primarily related impact following  228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain coalfired generating units attributable dominion generation  96 million 59 million aftertax charge reflecting restoration costs associated damage caused hurricane irene primarily attributable dvp  43 million 26 million aftertax charge related impairment so2 emissions allowances expected consumed due csapr attributable dominion generation 2010 virginia power reported aftertax net expenses 153 million specific items attributable operating segments corporate segment net expenses specific items 2010 primarily related impact following  202 million 123 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program attributable  dvp 63 million aftertax  dominion generation 60 million aftertax 2009 virginia power reported aftertax net expenses 430 million specific items attributable operating segments corporate segment net expenses primarily related 700 million 427 million aftertax charge connection settlement 2009 base rate case proceedings attributable dominion generation 257 million aftertax dvp 170 million aftertax following table presents segment information pertaining virginia power’s operations note 27 quarterly financial common stock data unaudited summary dominion’s virginia power’s quarterly results operations years ended december 31 2011 2010 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion 1 amounts attributable dominion’s common shareholders dominion’s 2011 results include impact following significant item  fourth quarter results include 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain utility coalfired generating units dominion’s 2010 results include impact following significant items  first quarter results include 206 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program 149 million aftertax loss discontinued operations peoples primarily reflecting net loss sale  second quarter results include 14 billion aftertax benefit resulting gain sale substantially dominion’s appalachian ep operations net charges related divestiture 95 million aftertax impairment charge state line reflect estimated fair value power station combined notes consolidated financial statements continued virginia power virginia power’s quarterly results operations follows virginia power’s 2011 results include impact following significant item  fourth quarter results include 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain coalfired power stations virginia power’s 2010 results include impact following significant item  first quarter results include 123 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2012 2011 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2012 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2012 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 27 2013 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 27 2013 dominion resources inc consolidated statements income 1 recast reflect salem harbor state line discontinued operations described note 3 consolidated financial statements eps amounts reflect per share impact recast 2 2012 includes impairment charges 21 billion related brayton point kincaid kewaunee see note 6 additional information 3 includes income tax benefit 27 million 9 million 34 million 2012 2011 2010 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 billion shares authorized 576 million shares 570 million shares outstanding december 31 2012 2011 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements equity 1 includes subsidiary preferred dividends related noncontrolling interests 16 million 2012 17 million 2011 2010 2 see note 15 consolidation vie october 2011 3 contains shares issued excess principal amounts related converted securities see note 17 information convertible securities accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows accompanying notes integral part dominion’s consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2012 2011 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2012 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2012 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 27 2013 virginia electric power company consolidated statements income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 500000 shares authorized december 31 2012 2011 274723 shares outstanding december 31 2012 2011 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power regulated public utility generates transmits distributes electricity sale virginia north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s common stock owned dominion’s operations also include regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states lng import storage facility maryland regulated gas transportation distribution operations ohio west virginia dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations dominion manages daily operations three primary operating segments dvp dominion generation dominion energy dominion also reports corporate segment includes corporate service company functions including unallocated debt net impact operations expected currently discontinued discussed note 3 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 25 discussion dominion’s virginia power’s operating segments note 2 significant accounting policies general dominion virginia power make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates dominion’s virginia power’s consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries vies dominion determined primary beneficiary dominion virginia power report certain contracts instruments investments fair value see note 6 information fair value measurements dominion maintains pension postretirement benefit plans virginia power participates certain plans see note 21 information plans certain amounts 2011 2010 consolidated financial statements footnotes reclassified conform 2012 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion inclusive virginia power applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers companies collect sales consumption consumer utility taxes however amounts excluded revenue dominion’s customer receivables december 31 2012 2011 included 411 million 423 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2012 2011 included 348 million 360 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers primary types sales service activities reported operating revenue dominion follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity  regulated gas sales consist primarily stateregulated retail natural gas sales related distribution services  nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties  gas transportation storage consists primarily regulated sales gathering transmission distribution storage services associated derivative activity also included regulated gas distribution charges retail distribution service customers opting alternate suppliers  revenue consists primarily sales ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities combined notes consolidated financial statements continued electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences virginia power’s actual electric fuel purchased energy expenses dominion’s purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 83 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed virginia power participates intercompany tax sharing agreement dominion subsidiaries current income taxes based taxable income loss determined separate company basis accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities dominion virginia power recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets except amounts presented net amounts receivable amounts prepaid tax authorities dominion virginia power recognize changes estimated interest payable net underpayments income taxes interest expense changes interest receivable related net overpay ments income taxes estimated penalties may result settlement uncertain tax positions recognized income consolidated statements income 2012 dominion recognized interest income 8 million interest expense 3 million reduction penalties less 1 million 2011 dominion recognized interest income 12 million interest expense 7 million reduction penalties less 1 million 2010 dominion recognized reduction interest expense 18 million reduction penalties less 1 million dominion accrued interest receivable 5 million interest payable 10 million penalties payable less 1 million december 31 2012 interest receivable 48 million interest payable 10 million penalties payable less 1 million december 31 2011 virginia power’s interest penalties immaterial 2012 2010 2011 virginia power recognized interest income 12 million penalties immaterial virginia power accrued interest receivable 17 million december 31 2011 december 31 2012 virginia power’s consolidated balance sheet included 10 million federal income taxes payable 36 million noncurrent federal state income taxes payable december 31 2011 virginia power’s consolidated balance sheet included 18 million current federal income taxes receivable 34 million current state income taxes payable 110 million noncurrent federal state income taxes payable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment december 31 2012 2011 dominion’s accounts payable included 53 million 75 million respectively checks outstanding yet presented payment december 31 2012 2011 virginia power’s accounts payable included 30 million 40 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion virginia power use derivative instruments futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations derivatives exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance dominion virginia power offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 212 million 319 million associated cash collateral december 31 2012 2011 respectively dominion margin liabilities 4 million 66 million associated cash collateral december 31 2012 2011 respectively virginia power margin assets 18 million 41 million associated cash collateral december 31 2012 2011 respectively virginia power’s margin liabilities associated cash collateral material december 31 2012 2011 manage price risk dominion virginia power hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates part dominion’s strategy market energy manage related risks also manages portfolio commoditybased financial derivative instruments held trading purposes dominion uses established policies procedures manage risks associated price fluctuations energy commodities uses various derivative instruments reduce risk creating offsetting market positions statement income presentation  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges based nature underlying risk virginia power’s generation operations changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments dominion virginia power designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges dominion virginia power formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedg ing relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges derivative instruments accounted fair value hedges cash flow hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority dominion’s virginia power’s hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas energyrelated products companies also use foreign currency contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions dominion virginia power hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable fair value hedgesdominion also uses fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition dominion virginia power designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value derivative gains losses hedged item reclassified earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment including additions replacements recorded original cost consisting labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements charged expense incurred 2012 2011 2010 dominion capitalized interest costs afudc property plant equipment 91 million 85 million 102 million respectively 2012 2011 combined notes consolidated financial statements continued 2010 virginia power capitalized afudc property plant equipment 31 million 31 million 61 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2012 2011 2010 virginia power recorded 37 million 20 million 13 million afudc related projects respectively virginia power property subject costofservice rate regulation including electric distribution electric transmission generation property certain dominion natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation retired abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable retired abandoned dominion virginia power property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives dominion’s virginia power’s depreciation rates utility property plant equipment follows dominion’s nonutility property plant equipment depreciated using straightline method following estimated useful lives nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows dominion follows full cost method accounting gas oil ep activities subjects capitalized costs quarterly ceiling test using hedgeadjusted prices due april 2010 sale substantially appalachian ep operations dominion longer significant gas oil properties subject ceiling test calculation 2010 dominion recorded ceiling test impairment charge 21 million 13 million aftertax operations maintenance expense consolidated statement income primarily due decline hedgeadjusted prices reflecting discontinuance hedge accounting certain cash flow hedges recognized gain sale substantially appalachian ep operations discussed note 3 emissions allowances emissions allowances permit holder allowance emit certain gaseous byproducts fossil fuel combustion including so2 nox co2 so2 nox emissions allowances issued dominion virginia power epa may also purchased sold via third party contracts co2 emissions allowances available purchase dominion quarterly auctions held participating rggi states compliance rggi requirements applies certain dominion’s merchant power stations located northeast allowances held may transacted third parties consumed emissions generated allowances allocated acquired companies’ generation operations held primarily consumption allowances held consumption classified intangible assets consolidated balance sheets carrying amounts based cost acquire allowances case business combination fair values assigned allocation purchase price acquired business portion dominion’s virginia power’s so2 nox allowances issued epa zero cost allowances amortized periods emissions generated amortization reflected depreciation depletion amortization consolidated statements income purchases sales allowances reported investing activities consolidated statements cash flows gains losses resulting sales reported operations maintenance expense consolidated statements income see note 6 discussion impairments related emissions allowances longlived intangible assets dominion virginia power perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairments related certain longlived assets intangible assets finite lives regulatory assets liabilities accounting dominion’s regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions historical experience well discussions applicable regulatory authorities recovery regulatory asset determined less probable written period assessment made asset retirement obligations dominion virginia power recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses dominion reports accretion aros associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros virginia power reports accretion aros associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions accretion aros reported operations maintenance expense consolidated statements income amortization debt issuance costs dominion virginia power defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities  trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income  availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments dominion virginia power account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include  equity method investments dominion virginia power ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets dominion virginia power record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method  cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds combined notes consolidated financial statements continued otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investmentsspecial considerations  recognition provisions fasb’s otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities  debt securitiesusing information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss companies record credit loss earnings remaining portion unrealized loss comprehensive income credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors  equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since companies limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory used east ohio gas distribution operations valued using lifo method lifo method stored gas inventory valued 24 million 48 million december 31 2012 december 31 2011 respectively based average price gas purchased 2012 2011 cost replacing current portion stored gas inventory exceeded amount stated lifo basis approximately 69 million 86 million respectively stored gas inventory held hope certain nonregulated gas operations valued using weightedaverage cost method gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion values imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion parties reported current assets imbalances dominion owes parties reported current liabilities consolidated balance sheets goodwill dominion evaluates goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount note 3 dispositions sale salem harbor state line august 2012 dominion completed sale salem harbor second quarter 2012 assets liabilities disposed classified held sale adjusted estimated fair value less cost sell second quarter 2012 dominion completed sale state line ceased operations march 2012 see note 6 impairments related power stations following table presents selected information regarding results operations salem harbor state line classified discontinued operations dominion’s consolidated statements income 1 includes longlived asset impairment charges 55 million 194 million 2011 2010 respectively sale appalachian ep operations april 2010 dominion completed sale substantially appalachian ep operations subsidiary consol approximately 35 billion transaction included mineral rights approximately 491000 acres marcellus shale formation dominion retained certain oil natural gas wells located near natural gas storage fields transaction generated aftertax proceeds approximately 22 billion resulted aftertax gain approximately 14 billion includes 134 million writeoff goodwill recorded second quarter 2010 results operations dominion’s appalachian ep business reported discontinued operations consolidated statements income since dominion sell entire us cost pool due sale hedge accounting discontinued certain cash flow hedges since became probable forecasted sales gas would occur connection discontinuance hedge accounting contracts dominion recognized 42 million 25 million aftertax benefit recorded operating revenue consolidated statement income reflecting reclassification gains aoci earnings contracts march 2010 sale peoples february 2010 dominion completed sale peoples png companies llc netted aftertax proceeds approximately 542 million sale resulted aftertax loss approximately 140 million including postclosing adjustments 79 million writeoff goodwill sale also resulted aftertax expenses approximately 27 million including transaction benefitrelated costs prior sale peoples income operations 12 million aftertax 2010 following table presents selected information regarding results operations peoples reported discontinued operations dominion’s consolidated statements income 1 includes loss charges related sale peoples note 4 operating revenue dominion’s virginia power’s operating revenue consists following note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently dominion virginia power routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material january 2 2013 us federal legislation enacted provides extension 50 percent bonus depreciation allowance qualifying capital expenditures incurred 2013 december 2011 irs issued temporary regulations provide guidance taxpayers treatment amounts paid acquire produce improve tangible property dispositions property including whether expenditures deducted repairs capitalized depreciated tax returns upon issuance temporary regulations generally effective expenditures made january 1 2012 however december 2012 response public comments received irs amended temporary regulations postpone effective date january 1 2014 changes tax treatment elected dominion required regulations impact income taxes payable cash flows operations deferred taxes except extent implementation impacts deferred taxes therefore rate base used establish customer rates regulated utilities results operations expected materially affected continuing operations details income tax expense continuing operations including noncontrolling interests follows 1 2012 dominion’s current federal income tax benefit includes benefit related carryback current year operating loss deferred state income tax benefit reflects impact brayton point kincaid kewaunee impairment charges 2011 dominion’s federal income tax expense includes benefit related current year operating loss expected used future years state income tax expense reflects changes amount income apportioned among states higher tax credits claims refunds previously unrecognized tax benefits due expiration statutes limitations 2 2011 virginia power’s federal income tax expense includes benefit related portion current year operating loss expected used future years also 2011 2010 virginia power’s federal income tax expense reflects amounts current year operating losses realized participation tax sharing agreement dominion subsidiaries combined notes consolidated financial statements continued continuing operations including noncontrolling interests statutory us federal income tax rate reconciles dominion’s virginia power’s effective income tax rate follows dominion’s effective tax rate 2012 reflects amplified effect permanent differences due lower pretax income well state tax impact brayton point kincaid kewaunee impairment charges rate also reflects 20 million reduction valuation allowance related state operating loss carryforwards attributable fairless 14 million increase valuation allowance related brayton point state credit carryforwards considering results fairless’ operations recent years forecast future operating results reflecting dominion’s planned purchase facility dominion concluded likely tax benefit operating losses realized significant assumptions include future commodity prices particular electric energy produced fairless natural gas compared fuels used generation electricity significantly influence extent fairless dispatched pjm also connection intention sell brayton point dominion evaluated state tax credits previously recognized power station recorded 14 million increase valuation allowance related credit carryforwards 14 million deferred tax liability representing recapture credits claimed prior years would result upon completion sale dominion continue evaluate likelihood realizing tax benefits quarterly basis dominion’s virginia power’s effective tax rates 2010 reflect reductions deferred tax assets 57 million 17 million respectively resulting enactment patient protection affordable care act health care education affordability reconciliation act 2010 eliminated employer’s deduction beginning 2013 portion retiree prescription drug coverage cost reimbursed medicare part subsidy addition dominion’s effective tax rate 2010 includes higher state income taxes impact goodwill written deductible tax purposes associated sale appalachian ep operations deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes companies’ deferred income taxes consist following december 31 2012 dominion following deductible loss credit carryforwards  federal loss carryforwards 11 billion expire unutilized period 2021 2031  federal production tax credits 26 million expire unutilized 2032  state loss carryforwards 14 billion expire unutilized period 2014 2032 valuation allowance 857 million carryforwards established  state minimum tax credits 96 million expire  state investment tax credits 28 million expire unutilized 2016 valuation allowance 21 million credits established credits expected utilized december 31 2012 virginia power federal loss carryforwards 220 million expire unutilized 2031 positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information amount tax return positions recognized financial statements disclosed unrecognized tax benefits unrecognized tax benefits may impact financial statements increasing income taxes payable reducing tax refunds receivable changing deferred taxes also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result claims tax benefits portions thereof may realized remeasurement amounts expected realized settlements tax authorities expiration statutes limitation dominion subsidiaries unrecognized tax benefits 167 million 184 million 133 million december 31 2012 2011 2010 respectively dominion change unrecognized tax benefits increased income tax expense 1 million 51 million 38 million 2012 2011 2010 respectively virginia power unrecognized tax benefits 13 million 20 million 14 million december 31 2012 2011 2010 respectively virginia power change unrecognized tax benefits increased income tax expense 1 million 6 million less 1 million 2012 2011 2010 respectively dominion subsidiaries us federal statute limitations expired years prior 2008 prior years dominion reserved right pursue refunds related calculation interest capitalized connection improvements inservice plant equipment years 1995 2007 irs position provided capitalized interest must also computed adjusted tax basis inservice assets idled making improvements response litigation initiated dominion march 2008 us court federal claims ruled february 2011 sustaining irs position july 2011 dominion filed appeal united states court appeals federal circuit may 2012 us court appeals federal circuit ruled favor dominion resolution matter material impact companies’ cash flows results operations financial condition january 2012 appellate division irs informed dominion joint committee completed review settlement tax years 2004 2005 dominion consolidated subsidiaries since measurement unrecognized tax benefits 2011 considered results completed settlement negotiations dominion’s results operations 2012 affected april 2012 irs issued revenue agent report dominion’s consolidated tax returns tax years 2006 2007 reflecting resolution issues except capitalized interest idle property issue litigation time later resolved discussed irs examination tax years 2008 2009 2010 began first quarter 2012 later expanded include examination 2011 tax year audit expected concluded late 2013 reasonably possible settlements payments tax authorities 2013 expiration statutes limitations could reduce unrecognized tax benefits dominion virginia power 65 million 35 million respectively changes occur revisions accrual interest tax underpayments overpayments dominion’s earnings could increase 10 million virginia power’s earnings would affected otherwise regard 2012 prior years dominion virginia power cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2013 major states dominion operates earliest tax year remaining open examination follows 1 virginia state considered major virginia power’s operations dominion virginia power also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes operating losses tax credits generated years statute limitations expired amounts subject examination discontinued operations dominion’s effective tax rate 2012 reflects dispositions state line salem harbor dominion’s effective tax rate 2011 reflects expectation state line’s deferred tax assets including 2011 operating losses realized state line’s separately filed state tax returns dominion’s effective tax rate 2010 reflects impact goodwill written sale peoples deductible tax purposes reversal deferred taxes benefit offset reversal income taxrelated regulatory assets combined notes consolidated financial statements continued note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact dominion’s virginia power’s nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion virginia power apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments including held dominion’s rabbi pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values inputs assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions dominion’s virginia power’s commodity derivative valuations prepared erm department erm department reports directly companies’ cfo erm department creates daily file containing market valuations companies’ derivative transactions inputs go market valuations transactional information stored systems record market pricing information resides data warehouses majority forward prices automatically uploaded data warehouses various thirdparty sources inputs obtained thirdparty sources evaluated reliability considering reputation independence market presence methodology used thirdparty forward prices available thirdparty sources erm department models forward prices based available market data team consisting risk management risk quantitative analysts meets business day assess validity market prices valuations meeting changes market valuations period examined qualified historical expectations discrepancies identified process marktomarket valuations market pricing information evaluated adjusted necessary options contracts optionlike characteristics observable pricing information available external sources companies generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value companies use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity foreign currency derivative contracts  forward commodity prices  forward foreign currency prices  transaction prices  price volatility  volumes  commodity location  interest rates  credit quality counterparties dominion virginia power  credit enhancements  time value interest rate derivative contracts  interest rate curves  credit quality counterparties dominion virginia power  volumes  credit enhancements  time value investments  quoted securities prices indices  securities trading information including volume restrictions  maturity  interest rates  credit quality  nav alternative investments dominion virginia power regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels  level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments majority exchangetraded derivatives exchangelisted equities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include nonexchange traded derivatives overthecounter commodity forwards swaps interest rate swaps foreign currency forwards options restricted cash equivalents certain treasury securities money market funds corporate state municipal debt securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 dominion virginia power consist longdated commodity derivatives ftrs modeled commodity derivatives additional instruments categorized level 3 dominion include ngls natural gas peaking options alternative investments consisting investments partnerships joint ventures alternative investments held benefit plan trust funds fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability derivative contracts dominion virginia power recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ngl derivatives market illiquidity requires valuation based proxy markets always correlate actual instrument therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions generally considered liquid markets modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets alternative investments categorized level 3 due absence quoted market prices illiquidity longterm nature assets investments generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date dominion virginia power enter certain physical financial forwards futures options full requirements contracts considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures full requirements contracts discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads full requirements contracts add load shaping usage factors addition discounted cash flow model inputs option model used value level 3 physical financial options option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices price correlations original sales prices volumes level 3 fair value measurements forward market prices implied price volatilities price correlations load shaping usage factors considered unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty pricing sources combined notes consolidated financial statements continued following table presents dominion’s quantitative information level 3 fair value measurements range weighted average presented dollars market price inputs percentages price volatility price correlations load shaping usage factors 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets 5 represents intraprice correlations markets exist 6 converts block monthly loads 24hour load shapes 7 represents expected increase decrease sales volumes compared historical usage 8 includes ngls 9 range market prices result large variability hourly power prices peak offpeak hours sensitivity fair value measurements changes significant unobservable inputs follows significant unobservable inputs position change input impact fair value measurement market price buy increase decrease gain loss market price sell increase decrease loss gain price volatility buy increase decrease gain loss price volatility sell increase decrease loss gain price correlation buy increase decrease loss gain price correlation sell increase decrease gain loss load factor sell1 increase decrease loss gain usage factor sell2 increase decrease gain loss 1 assumes contract gain position load increases peak hours 2 assumes contract gain position nonrecurring fair value measurements merchant power stations third quarter 2012 dominion decided pursue sale brayton point kincaid well 50 interest elwood equity method investment since dominion unlikely operate brayton point kincaid facilities estimated useful lives dominion evaluated power stations recoverability probability weighted approach concluded carrying values facilities impaired september 30 2012 december 31 2012 dominion updated recoverability analysis brayton point kincaid reflect bids received updated probability weighting result updated evaluation dominion recorded impairment charge approximately 16 billion 10 billion aftertax included operations maintenance expense consolidated statement income write brayton point’s kincaid’s longlived assets estimated fair value approximately 216 million dominion used market approach estimate fair value brayton point’s kincaid’s longlived assets considered level 2 fair value measurement given based bids received sale brayton point kincaid dominion’s 50 interest elwood would subject approval dominion’s board directors well applicable regulatory approvals april 2011 dominion announced would pursue sale kewaunee since able move forward original plan grow nuclear fleet midwest take advantage economies scale dominion unable find buyer facility addition power purchase agreements two utilities contract buy kewaunee’s generation expire december 2013 time projected low wholesale electricity prices region september 30 2012 dominion expected would permanently cease generation operations kewaunee 2013 commence decommissioning facility result dominion evaluated kewaunee impairment since likely kewaunee would retired end previously estimated useful life management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion used income approach discounted cash flows estimate fair value kewaunee’s longlived assets considered level 3 fair value measurement due use significant unobservable inputs including estimates future power commodity prices result evaluation september 2012 dominion recorded impairment charges 435 million 281 million aftertax largely reflected operations maintenance expense consolidated statement income primarily reflects 378 million 244 million aftertax charge full impairment kewaunee’s longlived assets write materials supplies inventories 33 million 21 million aftertax 24 million 16 million aftertax charge related severance costs decision decommission kewaunee approved dominion’s board directors october 2012 consideration factors discussed made uneconomic kewaunee continue operations station expected cease power production second quarter 2013 commence decommissioning activities following station shutdown dominion plans meet obligations two utilities purchase kewaunee’s generation market purchases power purchase agreements expire december 2013 june 2010 dominion evaluated state line impairment due station’s relatively low level profitability combined epa’s issuance new stringent 1hour primary naaqs so2 would likely require significant environmental capital expenditures future result evaluation dominion recorded impairment charge 163 million 107 million aftertax reflected loss discontinued operations consolidated statement income write state line’s longlived assets estimated fair value 59 million march 2011 dominion determined unlikely state line would participate may 2011 pjm capacity base residual auction would commit state line’s capacity june 2014 may 2015 determination reflected expectation margins coalfired generation remain compressed 2014 2015 period combination expectation state line may impacted time period environmental regulations would likely require significant capital expenditures result dominion evaluated state line impairment since likely state line would retired end previously estimated useful life result evaluation dominion recorded impairment charge 55 million 39 million aftertax reflected loss discontinued operations consolidated statement income write state line’s longlived assets estimated fair value less 1 million state line retired march 2012 sold second quarter 2012 december 2010 dominion recorded impairment charge 31 million 20 million aftertax reflected loss discontinued operations consolidated statement income write longlived assets salem harbor estimated fair value less 1 million result profitability issues management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion used income approach discounted cash flows estimate fair value state line’s salem harbor’s longlived assets impairment tests considered level 3 fair value measurements due use significant unobservable inputs including estimates future power commodity prices second quarter 2012 agreement reached sell salem harbor assets liabilities disposed classified held sale adjusted estimated fair value less cost sell resulted pretax charge 27 million 16 million aftertax included loss discontinued operations dominion’s consolidated statements income considered level 2 fair value measurement based negotiated sales price salem harbor sold third quarter 2012 emissions allowances september 2010 virginia power evaluated so2 emissions allowances expected consumed generating units potential impairment due significant decline market prices since july 2010 release epa’s proposed replacement rule cair ultimately known csapr result evaluation virginia power recorded impairment charge 13 million 8 million aftertax operations maintenance expense consolidated statement income write so2 emissions allowances expected consumed estimated fair value less 1 million third quarter 2011 dominion virginia power evaluated so2 emissions allowances expected consumed generating units potential impairment due epa’s issuance csapr discussed note 22 prior issuance csapr dominion virginia power held 57 million 43 million respectively so2 emissions allowances obtained arp cair compliance due csapr’s establishment new allowance program elimination cair dominion virginia power so2 emissions allowances needed arp compliance result evaluation dominion virginia power recorded impairment charge 57 million 34 million aftertax 43 million 26 million aftertax respectively operations maintenance expense consolidated statements combined notes consolidated financial statements continued income write emissions allowances estimated fair value less 1 million estimate value emissions allowances impairment tests dominion utilized market approach obtaining broker quotes validate csapr’s impact emissions allowance prices however due limited market activity future so2 vintage year allowances considered level 3 fair value measurement recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s pension postretirement benefit plans presented note 21 dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category following table presents dominion’s gains losses included earnings level 3 fair value category virginia power following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category including attributable change unrealized gains losses relating assets still held reporting date classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2012 2011 2010 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2012 2011 2010 fair value financial instruments substantially dominion’s virginia power’s financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents customer receivables shortterm debt accounts payable representative fair value shortterm nature instruments dominion’s vir combined notes consolidated financial statements continued ginia power’s financial instruments recorded fair value carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 includes amounts represent unamortized discount premium december 31 2012 2011 includes valuation certain fair value hedges associated dominion’s fixed rate debt approximately 93 million 105 million respectively 3 includes amounts represent unamortized premium 4 includes deferred issuance expenses 2 million december 31 2012 2011 note 7 derivatives hedge accounting activities dominion virginia power exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well currency exchange interest rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 6 information fair value measurements associated valuation methods derivatives dominion following table presents volume dominion’s derivative activity december 31 2012 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil years ended december 31 2012 2011 2010 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2012 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates sale majority dominion’s remaining ep operations resulted discontinuance hedge accounting certain cash flow hedges 2010 discussed note 3 addition changes dominion’s financing needs first second quarters 2010 resulted discontinuance hedge accounting certain cash flow hedges since determined forecasted interest payments would occur connection discontinuance hedge accounting contracts dominion recognized benefit recorded interest related charges reflecting reclassification gains aoci earnings 110 million 67 million aftertax 2010 reclassification gains aoci earnings partially offset subsequent changes fair value contracts 37 million 23 million aftertax 2010 fair value gains losses derivative instruments following tables present fair values dominion’s derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheets following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 4 amounts recorded dominion’s consolidated statements income classified electric fuel energyrelated purchases combined notes consolidated financial statements continued 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 2 amounts recorded dominion’s consolidated statements income classified interest related charges virginia power following table presents volume virginia power’s derivative activity december 31 2012 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions years ended december 31 2012 2011 2010 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable time value options changes differences spot prices forward prices fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 4 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases 3 amounts recorded virginia power’s consolidated statements income classified interest related charges note 8 earnings per share following table presents calculation dominion’s basic diluted eps 1 potentially dilutive securities consist options goalbased stock contingently convertible senior notes combined notes consolidated financial statements continued potentially dilutive securities excluded calculation diluted eps years ended december 31 2012 2011 2010 note 9 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 95 million 90 million december 31 2012 2011 respectively costmethod investments held dominion’s rabbi trusts totaled 14 million 17 million december 31 2012 2011 respectively decommissioning trust securities dominion holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes pending purchases securities 6 million 11 million december 31 2012 2011 respectively 3 fair value securities unrealized loss position 195 million 164 million december 31 2012 2011 respectively fair value dominion’s marketable debt securities held nuclear decommissioning trust funds december 31 2012 contractual maturity follows presented selected information regarding dominion’s marketable equity debt securities held nuclear decommissioning trust funds 1 include 1 billion proceeds reflected dominion’s consolidated statement cash flows sale temporary investments consisting time deposits treasury bills purchased following sale substantially dominion’s appalachian ep operations 2 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 dominion recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 4 million 6 million 10 million december 31 2012 2011 2010 respectively equity method investments dominion accounts equity method accounting follows 1 dominion 50 million commitment invest clean power technology businesses 2018 dominion’s equity earnings investments totaled 25 million 35 million 42 million 2012 2011 2010 respectively dominion received distributions investments 58 million 55 million 60 million 2012 2011 2010 respectively december 31 2012 2011 carrying amount dominion’s investments exceeded dominion’s share underlying equity net assets approximately 30 million 32 million respectively differences relate dominion’s investments wind projects primarily reflect capitalized interest construction excess cash contributions book value development assets contributed dominion’s partners projects differences generally amortized useful lives underlying assets blue racer december 2012 dominion formed joint venture caiman provide midstream services natural gas producers operating utica shale region ohio portions pennsylvania joint venture blue racer equal partner ship dominion caiman dominion contributing midstream assets caiman contributing private equity capital return december 2012 contribution assets joint venture dominion received 50 interest blue racer received 115 million cash proceeds resulting gain 72 million 43 million aftertax net transaction fees 9 million recorded operations maintenance expense dominion’s consolidated statement income joint venture leverage dominion’s existing presence utica region significant additional new capacity designed meet producer needs utica shale acreage developed midstream services offered include gathering processing fractionation ngl transportation marketing addition assets already contributed dominion expects contribute additional gathering assets natrium extraction plant related ngl pipeline dti pipeline connecting east ohio’s gathering system natrium virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 combined notes consolidated financial statements continued 2 includes pending sales securities 6 million pending purchases securities 13 million december 31 2012 2011 respectively 3 fair value securities unrealized loss position 104 million 99 million december 31 2012 2011 respectively fair value virginia power’s debt securities december 31 2012 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities 1 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments follows 1 amounts include otherthantemporary impairment losses debt securities 2 million 4 million 6 million december 31 2012 2011 2010 respectively investments dominion virginia power hold restricted cash equivalent balances primarily consist money market fund investments held trust purpose funding certain qual ifying construction projects december 31 2012 2011 dominion 37 million 147 million respectively virginia power 10 million 32 million respectively restricted cash equivalents balances presented current assets investments consolidated balance sheets note 10 property plant equipment major classes property plant equipment respective balances companies follows 1 amount includes 957 million due consolidation vie jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2012 follows 1 units jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income note 11 goodwill intangible assets goodwill changes dominion’s carrying amount segment allocation goodwill presented 1 goodwill amounts contain accumulated impairment losses intangible assets dominion’s virginia power’s intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 82 million 78 million 107 million 2012 2011 2010 respectively 2012 dominion acquired 102 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 19 years amortization expense virginia power’s intangible assets 22 million 22 million 26 million 2012 2011 2010 respectively 2012 virginia power acquired 53 million intangible assets primarily representing software esti mated weightedaverage amortization period 31 years components intangible assets follows annual amortization expense intangible assets estimated follows combined notes consolidated financial statements continued note 12 regulatory assets liabilities regulatory assets liabilities include following 1 reflects unrecovered gas costs dominion’s regulated gas operations recovered quarterly annual filings applicable regulatory authority 2 reflects deferrals electric transmission ferc formula rate deferral costs associated certain current prospective rider projects see note 13 information 3 amounts recovered annual surcharge reimburse virginia power incremental sales taxes incurred due repeal public service company sales tax exemption virginia 4 reflects costs anticipated recovered base rates certain coal units expected retired 5 primarily reflects deferred fuel expenses virginia jurisdiction virginia power’s generation operations see note 13 information 6 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 7 represents unrecognized pension postretirement benefit costs expected recovered future rates generally expected remaining service period plan participants certain dominion’s rateregulated subsidiaries 8 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 9 primarily reflects costs recognized excess amounts included regulated rates charged dominion’s regulated gas operations rates updated reflect change accounting method postretirement benefit costs 10 pipp eligible customers receive energy assistance based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rider according east ohio tariff provisions see note 13 information regarding pipp 11 reflects reserve associated biennial review order see note 13 information 12 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 13 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aro december 31 2012 approximately 319 million dominion’s 240 million virginia power’s regulatory assets represented past expenditures currently earn return expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business dominion virginia power involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently regulatory process companies able esti mate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect dominion’s virginia power’s financial position liquidity results operations following discussion dominion’s virginia power’s material pending recent regulatory matters fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities virginia power purchases sells electricity pjm wholesale market dominion’s merchant generators sell electricity pjm miso isone wholesale markets dominion’s marketbased sales tariffs authorized ferc addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure july 2008 virginia power filed application ferc requesting revision revenue requirement reflect additional roe incentive adder eleven electric transmission enhancement projects proposal cost transmission service would increase include roe incentive adder eleven projects beginning date project enters commercial operation january 1 2009 virginia power proposed incentive 15 four projects including meadow brooktoloudoun carsontosuffolk lines completed 2011 incentive 125 seven projects august 2008 ferc approved proposal effective september 1 2008 incentives included pjm tariff billing incentives made accordingly 2012 pjm canceled one eleven projects estimated cost 7 million total cost ten projects included virginia power’s formula rate 2013 852 million remaining projects completed 2012 numerous parties sought rehearing ferc order august 2008 may 2012 ferc denied rehearing july 2012 north carolina commission filed appeal ferc orders granting incentives fourth circuit court appeals although virginia power cannot predict outcome appeal expected material effect results operations march 2010 odec ncemc filed complaint ferc virginia power claiming approximately 223 million transmission costs related specific projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate odec ncemc requested ferc establish procedures determine amount costs applicable project excluded virginia power’s rates october 2010 ferc issued order dismissing complaint part established hearings settlement procedures remaining part complaint february 2012 virginia power submitted ferc settlement agreement resolve issues set hearing transmission customer parties proceeding joined settlement virginia commission north carolina commission public staff north carolina commission parties settlement agreed oppose settlement accepted ferc may 2012 provides payment virginia power transmission customer parties collectively 250000 per year ten years resolves matters allocation incremental cost certain underground transmission facilities briefed pursuant ferc’s may 2012 order awaits ferc action virginia power cannot predict outcome briefing expected material effect results operations pjm november 2011 pjm issued formal notification would recalculate certain ancillary service revenues previously paid 2009 2010 2011 also november 2011 pjm requested ferc permission suspend rebilling repayment obligations associated recalculation revenues petitioned ferc establish proceeding determine appropriate recalculations revenues period december 2011 ferc permitted suspension rebilling repayment pjm subject outcome ferc’s proceedings determine appropriate revenue recalculation april 2012 ferc issued order establishing hearing settlement judge procedures address appropriate recalculation ancillary service credits pjm required collect virginia power august 2012 pjm filed settlement behalf virginia power pjm market monitor november 2012 ferc approved settlement resolving issues proceeding september 30 2012 virginia power accrued liability 33 million january 2013 virginia power paid pjm approximately 33 million resolving matter regulatory matters electric regulation virginia enactment regulation act 2007 significantly changed electric service regulation virginia instituting modified costofservice rate model respect classes customers regulation act ended virginia’s planned transition retail competition electric supply service combined notes consolidated financial statements continued regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs environmental compliance conservation energy efficiency programs renewable energy programs provides enhanced returns capital expenditures specific new generation projects including limited combined cycle gas generation nuclear generation clean coalcarbon capture compatible generation renewable generation projects regulation act also continues statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission legislation enacted february 2013 amends regulation act prospectively see future issues matters item 7 mda discussion legislation virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows 2011 biennial review pursuant regulation act virginia settlement approval order march 2011 virginia power submitted base rate filing accompanying schedules support first biennial review base rates terms conditions well earnings 2009 2010 test period biennial review included determination whether virginia power’s earnings 2009 2010 combined test years within 50 basis points authorized roe 119 established virginia settlement approval order well authorization roe applicable base rates rate adjustment clauses used measure base rate earnings 2013 biennial review proceeding result virginia settlement approval order regulation act virginia power’s base rates subject change based 2011 biennial review november 2011 virginia commission issued biennial review order biennial review order virginia commission declined award performance incentive generating plant performance customer service operating efficiency connection 20092010 biennial review instead march 2012 virginia commission issued order initiating rulemaking proceeding develop specific performance metrics nationally recognized standards determining positive negative performance incentives electric utilities incentive criteria would applied future biennial review proceedings september 2012 virginia commission issued order notice hearing separate rulemaking proceeding develop specific performance standards based nationally recognized standards virginia commission’s consideration determining positive negative performance incentives electric utilities virginia commission modified proposed rules regulations performance incentives filed staff virginia commission allowed comments november 2012 proposed rules regulations modified held public hearing november 2012 january 2013 virginia commission issued order adopting revised performance incentive rules regulations effective february 1 2013 base roe virginia commission determined virginia power’s new authorized roe 109 inclusive performance incentive 50 basis points meeting certain rps targets discussed roe serve roe virginia power’s earned return compared test periods 2013 biennial review proceeding virginia commission ordered 50 basis point rps performance incentive included roe applicable rate adjustment clauses december 2011 virginia power filed petition virginia commission seeking rehearing reconsideration biennial review order confirm effective date newly authorized 109 base roe virginia power’s petition requested virginia commission confirm 109 roe authorized biennial review order would apply prospectively effective following date biennial review order november 30 2011 virginia power’s previouslyapproved 119 base roe authorized virginia settlement approval order would used measure base rate earnings period january 1 2011 november 30 2011 march 2012 virginia commission issued order denying virginia power’s petition seeking rehearing reconsideration contrary virginia power’s position virginia commission ruled new 109 roe used measure earnings entire 20112012 test period next biennial review 2013 expected filed march 2013 also march 2012 virginia power filed petitions appeal supreme court virginia regarding biennial review order march 2012 order may 2012 supreme court virginia granted review virginia power’s appeals biennial review order march 2012 order denying virginia power’s petition seeking rehearing reconsideration heard oral argument appeals september 2012 november 2012 supreme court virginia affirmed biennial review order march 2012 order denying virginia power’s petition seeking rehearing reconsideration roe applicable riders c1 c2 r effective december 1 2011 roe applicable riders c1 c2 104 riders r effective december 1 2011 roe 114 inclusive statutory enhancement 100 basis points earned return 2009 2010 virginia commission determined virginia power earned roe approximately 133 2009 2010 combined test years exceeded authorized roe earnings band 114 124 established virginia settlement approval order based determination virginia power excess earnings virginia commission ordered virginia power refund 60 earnings upper end authorized roe earnings band approximately 78 million customers provided form credits customers’ bills amortized sixmonth period 2012 charge refund recognized operating revenues 2011 consolidated statement income actual aggregate refund amount totaled approximately 81 million taking account refunds paid certain nonjurisdictional customers pursuant customer contracts base rates existing riders c1 c2 result virginia commission’s determination credits applied customers’ bills virginia commission required regulation act directed virginia power combine existing riders c1 c2 virginia power’s base costs revenues investments file revised tariffs reflecting combination pursuant biennial review order riders thereafter considered part virginia power’s base costs revenues investments purposes future biennial review proceedings april 2012 virginia commission held riders c1 c2 combined virginia power’s base rates considered part future biennial reviews virginia commission rejected virginia power’s requests identify separately track revenues existing riders base rates preserve deferral accounting revenues base rates stating deferral accounting ceased december 1 2011 existing riders c1 c2 august 2012 virginia commission confirmed existing rider combined base rates ruled transmission costs would continue tracked separately permit deferral accounting dollarfordollar recovery costs rider t1 new incrementdecrement rate adjustment clause recover difference revenue requirement rate year costs revenues collected rider earnings test adjustments virginia commission ruled numerous contested proposals adjust virginia power’s earnings 2009 2010 combined test periods among adjustments virginia commission approved virginia power’s ratemaking treatment fuel inventories held whollyowned subsidiaries result finding virginia power included rate base approximately 188 million fuel inventory costs 2010 virginia commission also adopted virginia power’s treatment includes regulatory earnings purposes aip ltip expenses 100 payout ratio virginia commission excluded expense approximately 21 million incentive plan costs exceeded payout ratio 100 allowing net recovery approximately 95 million incentive compensation expense biennial review period virginia commission denied virginia power’s ratemaking treatment expensed entire cost 2010 voluntary separation plan 2010 ruling instead amortize cost end 2011 matched costs plan period realization savings reduced 2010 operating costs turn increased 2011 operating costs approximately 103 million purposes earnings test influencing amount earned authorized roe earnings band earnings test adjustments impact consolidated financial statements addition virginia commission required virginia power recognize gain purposes earnings test approximately 44 million settlement certain interest rate hedging contracts 2010 opposed amortizing gains forecasted term planned debt instruments issued virginia power determined longer probable derivative gains would included future base rates virginia commission would allow amortization amounts future periods result virginia power removed approximately 50 million december 2011 regulatory liabilities recognized deferred derivative settlement gains interest related charges consolidated statements income virginia fuel expenses may 2012 virginia power submitted annual fuel factor filing virginia commission proposing decrease approximately 389 million fuel revenue rate year beginning july 1 2012 september 2012 public hearing virginia commission issued order approving virginia power’s filing generation riders r connection bear garden virginia city hybrid energy center projects march 2011 virginia commission approved annual updates riders r revenue requirements 78 million 199 million respectively april 1 2011 march 31 2012 rate year utilizing 123 placeholder roe inclusive 100 basis point statutory enhancement pending virginia commission’s roe determination 2011 biennial review march 2012 virginia commission approved annual updates riders r april 1 2012 march 31 2013 rate year utilizing 114 roe inclusive 100 basis point statutory enhancement consistent base roe authorized biennial review order virginia commission’s approvals authorized approximately 74 million revenue requirement rider r approximately 226 million revenue requirement rider comprised approximately 52 million precommercial operation period approximately 174 million commercial operation period june 2012 virginia power requested virginia commission approval annual updates riders r next two consecutive rate years utilizing 114 roe inclusive 100 basis point statutory enhancement consistent base roe authorized biennial review order subject trueup based changes authorized roe future biennial review proceedings rider r virginia power proposed approximately 81 million revenue requirement rate year beginning april 1 2013 approximately 75 million revenue requirement rate year beginning april 1 2014 rider approximately 249 million revenue requirement proposed rate year beginning april 1 2013 approximately 229 million revenue requirement proposed rate year beginning april 1 2014 virginia power agreed certain adjustments supported virginia commission staff reducing rider r revenue requirements approximately 78 million rate year beginning april 1 2013 approximately 72 million rate year beginning april 1 2014 february 2013 virginia commission approved cost recovery periods amounts rider r well multiyear approach virginia power would file next combined notes consolidated financial statements continued update filing rider r 2014 january 2013 virginia power filed proposed stipulation agreement reached virginia commission staff supporting revised revenue requirement rider approximately 248 million rate year beginning april 1 2013 virginia power staff virginia commission also agreed virginia power would file rider case 2013 instead multiyear approach rider update proceeding pending construction virginia city hybrid energy center completed facility commenced commercial operations july 2012 dsm riders c1a c2a april 2012 virginia commission approved revenue requirement 5 million rider c1a 17 million rider c2a approval incorporated four new energy efficiency dsm programs bundle residential customers fiveyear period starting june 1 2012 subject total 90 million cost cap virginia commission also approved two new energy efficiency dsm programs bundle commercial customers fiveyear period subject total 45 million cost cap well new peakshaving dsm program commercial customers fiveyear period subject approximately 14 million cost cap august 2012 virginia power requested extension two dsm programs residential air conditioner cycling program residential low income program five years two years respectively beyond current april 30 2013 termination date well approval process whereby staff could administratively approve limited modifications designs previously approved dsm programs virginia power’s proposed revenue requirements riders c1a c2a may 1 2013 april 30 2014 rate year 4 million 23 million respectively case pending transmission riders t1 may 2011 virginia power filed annual update rider virginia commission proposed 481 million annual revenue requirement effective september 1 2011 represented increase approximately 144 million revenue requirement associated rider customer rates previously effect july 2011 virginia commission issued order approving revenue requirement 466 million september 1 2011 august 31 2012 rate year discussed previously implemented rider considered part virginia power’s base costs revenues investments purposes future biennial review proceedings virginia commission initiated proceeding address implementation directive may 2012 virginia power filed rider t1 virginia commission recover costs transmission service demand response programs september 1 2012 august 31 2013 rate year proposed rider t1 reduction approximately 100 million produces total annual revenue requirement approximately 373 million netted revenue requirement approximately 473 million associated rider customer rates currently effect combined virginia power’s base rates virginia power’s filing stated rider costs combined base rates identified separately tracked continuation deferral accounting dollarfordollar recovery costs virginia power’s proposed revenue requirement supported staff virginia commission although staff concurrently proposed alternative methodology rider t1 revenue requirement would represent increase approximately 18 million current rider customer rates staff’s alternative methodology would precluded deferral accounting dollarfordollar recovery rider future periods august 2012 virginia commission approved virginia power’s proposed rider t1 recover costs transmission service demand response programs september 1 2012 august 31 2013 rate year ordering rider t1 reduction approximately 100 million versus rider customer rates currently effect combined virginia power’s base rates virginia commission agreed approach recommended virginia power supported staff virginia commission case rider combined base rates along rider t1 tracked separately permit deferral accounting dollarfordollar recovery generation rider w may 2011 virginia power requested approval virginia commission construct operate warren county well approval rider w february 2012 virginia commission approved certificates public convenience necessity warren county related transmission facilities virginia commission also approved revenue requirement 34 million april 1 2012 march 31 2013 rate year reflecting roe 114 inclusive statutory enhancement 100 basis points rider w consistent biennial review order addition virginia commission approved roe enhancement 100 basis points rider w period 10 years following commercial operations facility expected start commercial operations late 2014 june 2012 virginia power requested virginia commission approval annual update rider w april 1 2013 march 31 2014 rate year virginia power proposed approximately 86 million revenue requirement utilizing 114 roe inclusive 100 basis point statutory enhancement also consistent base roe authorized biennial review order december 2012 virginia power filed proposed partial stipulation agreement reached virginia commission staff supporting revised revenue requirement rider w approximately 83 million rate year commencing april 1 2013 february 2013 virginia commission approved revised revenue requirement generation rider b june 2011 virginia power filed applications virginia commission seeking regulatory approval convert three coalfired power stations biomass applications included request approval rider b qualify federal production tax credits associated renewable energy generation power stations must commence operation biomass generation facilities december 31 2013 virginia power requested virginia commission approval biomass conversions schedule enable qualification tax credits march 2012 virginia commission approved conversion altavista hopewell southampton power stations biomass conversions increase dominion’s renewable generation 150 mw expected completed end 2013 part approval virginia commission also approved rider b approved revenue requirement rider b approximately 6 million april 1 2012 march 31 2013 rate year utilizing 124 roe inclusive 200 basis point statutory enhancement consistent base roe authorized biennial review order renewable generating unit statutory enhancement 200 basis points apply construction first five years service lives converted facilities june 2012 virginia power requested virginia commission approval annual update rider b april 1 2013 march 31 2014 rate year virginia power proposed approximately 12 million revenue requirement utilizing 124 roe inclusive 200 basis point statutory enhancement consistent base roe authorized biennial review order january 2013 virginia power filed proposed stipulation agreement reached virginia commission staff supporting approval revenue requirement precommercial operations date period postcommercial operations date period resulting average recovery amount approximately 12 million rate year commencing april 1 2013 case pending brunswick county power station generation rider bw november 2012 virginia power requested approval virginia commission construct operate brunswick county application included request approval associated transmission facilities rider bw virginia power’s proposed revenue requirement rider bw approximately 45 million september 1 2013 august 31 2014 rate year reflecting roe 114 inclusive statutory enhancement 100 basis points rider bw consistent biennial review order virginia power requested roe enhancement 100 basis points rider bw period 15 years following commercial operations facility expected begin commercial operations spring 2016 case pending bremo power station august 2012 virginia power requested approval virginia commission amended reissued certificate public convenience necessity would allow virginia power convert bremo units 3 4 coal natural gas fuel source proposed conversion would preserve 227 mw net existing capacity expected complete 2014 cost recovery would occur base rates rate adjustment clause case pending solar distributed generation demonstration program october 2011 virginia power filed virginia commission application conduct solar distributed generation demonstration program consisting combined 30 mw companyowned solar distributed generation facilities located selected commercial industrial community locations throughout virginia service territory virginia power proposed construct operate companyowned facilities two phases phase 10 mw date approval end 2013 phase ii 20 mw beginning 2014 end 2015 virginia power seek rate adjustment clause phase facilities filing phase costs recovered part base rates future biennial review virginia power indicated may seek rate adjustment clause future time phase ii costs november 2012 virginia commission approved voluntary solar distributed generation demonstration program companyowned solar distributed generation facilities subject total cost cap 80 million including capital financing operation maintenance costs increased subject future application based upon program experience results data may 2012 virginia power filed virginia commission petition implement special tariff combined 3 mw customerowned solar distributed generation facilities proposed tariff rate schedule sp virginia power would purchase 100 energy output facilities including environmental attributes associated renewable energy credits fixed price 015 per kwh five years proposed costs purchases rate schedule sp would recovered customers following comments virginia commission issued order november 2012 setting matter public hearing february 2013 case pending electric transmission projects portions mt stormtodoubs line certain associated facilities approaching end expected service lives require replacement new facilities maintain reliable service virginia power owns designated pjm rebuild 96 miles line west virginia potomac edison company owns designated pjm rebuild remaining three miles line maryland september 2011 virginia commission approved virginia power’s application rebuild portion mt stormtodoubs line approval west virginia commission required subject applicable state federal regulatory approvals virginia power’s portion rebuild project expected completed june 2015 june 2010 virginia commission authorized construction hayestoyorktown line along proposed eightmile route utilizing existing easements property previously acquired transmission line rightofway hayestoyorktown line placed service december 2012 july 2010 virginia commission authorized virginia power construct radnor heights project virginia commission stated lines substation must constructed service june 30 2012 virginia power could apply extend date good cause shown october 2012 virginia commission issued order extending construction inservice date july 31 2013 january 2012 virginia commission authorized replacement higher voltage approximately 43 miles existing transmission lines dooms bremo substations doomstobremo line expected completed may 2014 december 2011 virginia power submitted application virginia commission approval waxpoolbrambletonbeco line project required provide requested service combined notes consolidated financial statements continued new data center campus loudoun county virginia december 2012 pjm authorized waxpoolbrambletonbeco line part 2012 rtep virginia commission authorized construction line january 2013 notice appeal filed supreme court virginia private party regarding december 2012 order subject receipt applicable state federal regulatory approvals waxpoolbrambletonbeco line expected completed november 2013 june 2012 virginia power requested virginia commission approval surrytoskiffes creektowhealton lines subject receipt applicable state federal regulatory approvals surrytoskiffes creektowhealton lines expected completed may 2015 virginia power also presented virginia commission’s consideration approximately 37 mile alternate route 500 kv line virginia power’s existing chickahominy substation proposed skiffes creek switching station august 2012 virginia power requested virginia commission approval harrisonburgtoendless caverns line december 2012 virginia commission authorized construction new line subject receipt applicable state federal regulatory approvals harrisonburgtoendless caverns line expected completed may 2015 november 2012 virginia power submitted application virginia commission approval rebuild doomstolexington line virginia portions doomstolexington line certain associated facilities approaching end expected service lives require replacement new facilities maintain reliable service virginia power owns designated pjm part 2012 rtep rebuild 39 mile line rockbridge augusta counties virginia subject applicable state federal regulatory approvals rebuild project expected completed may 2016 north anna power station virginia power considering construction third nuclear unit site located north anna however virginia power yet committed building new nuclear unit north anna continues evaluate options regarding new nuclear unit virginia power decides build new unit must first receive col nrc approval virginia commission certain environmental permits approvals virginia power applied continues pursue col nrc based current nrc schedule col expected earlier late 2015 virginia power also continues pursue engineering preliminary site development work addition holding early site permit december 2011 virginia power acquired odec’s interest project thereby terminating odec’s involvement development potential third unit north anna january 2013 nrc approved transfer odec’s interest early site permit virginia power nrc required conduct hearing col proceedings august 2008 aslb nrc permitted bredl intervene proceeding april 2011 bredl’s last remaining contention dismissed aslb following decision nrc june 2012 subsequently resulted termination contested portion proceed ing september 2011 bredl submitted new proposed contention seeking litigate issues related august 2011 mineral virginia earthquake october 2011 aslb granted motion filed virginia power consent bredl nrc staff hold ruling proposed contention abeyance virginia power completes assessment earthquake nrc’s june 2012 decision referred new proposed contention aslb consider whether contested portion proceeding reopened july 2012 aslb granted bredl period 60 days submit motion reopen proceeding time virginia power informs nrc parties seismic assessment complete addition june 2012 bredl filed petition nrc seeking suspend col proceeding based june 2012 ruling us court appeals district columbia circuit reversing remanding 2010 nrc rulemaking generically assessed environmental impacts spent fuel storage virginia power opposed petition july 2012 bredl filed motion nrc reopen contested portion col proceeding admit contention pertaining subject substantially identical suspension petitions contentions filed various intervenor groups licensing proceedings pending nrc august 2012 nrc issued memorandum order applicable pending licensing proceedings including north anna col proceeding nrc indicated final licenses would issued issues raised court’s decision addressed nrc indicated determination extends final license issuance licensing reviews proceedings continue move forward nrc also directed pending contentions topic held abeyance pending nrc order nrc’s august 2012 decision expected affect schedule issuance col persons sought intervene proceeding new contention admitted mandatory nrc hearing uncontested respect issues virginia power continues pursue various environmental permits would needed support future construction operation third nuclear unit north anna north carolina regulation december 2011 north carolina commission issued order approving settlement agreement among virginia power public staff north carolina commission interested parties virginia power’s fuel case north carolina service territory settlement agreement provided 36 million increase virginia power’s fuel revenues one year effective january 1 2012 including approximately 13 million recovery fuel expenses previous fuel period march 2012 virginia power filed application north carolina commission increase base nonfuel revenues approximately 64 million january 1 2013 proposed effective date permanent rate revision august 2012 virginia power filed annual fuel expense recovery application testimony north carolina commission requesting total annual fuel revenue decrease approximately 27 million fuel fuelrelated costs currently effect virginia power’s filing also sought implement temporary voluntary rider a1 effective november 1 2012 december 31 2012 reduce projected overcollection fuel expense second half 2012 august 2012 october 2012 virginia power filed supplemental testimony base rate proceeding cumulative effect updating virginia power’s requested overall base nonfuel revenue increase 53 million september 2012 north carolina commission staff filed testimony recommending nonfuel revenue increase 24 million october 2012 north carolina commission issued public notice stating virginia power would begin billing proposed rates beginning november 1 2012 interim basis subject refund interest december 2012 north carolina commission approved 36 million increase virginia power’s annual nonfuel base revenues based authorized roe 102 14 million decrease annual base fuel revenues combined total base revenue increase 22 million rate changes became effective january 1 2013 appealed north carolina supreme court multiple parties december 2012 virginia power established net regulatory assets 17 million recovered five ten years connection new rates also december 2012 north carolina commission approved 17 million decrease virginia power’s annual nonbase fuel experience modification factor revenues rate decrease result commission’s approval fuelrelated stipulation settlement public staff virginia power rate change approved commission review virginia power’s fuel expenses 12month period ended june 30 2012 represents changes experienced virginia power respect reasonable costs fuel component purchased power ohio regulation pir program march 2011 east ohio filed request ohio commission accelerate pir program nearly doubling pir spending 200 million annually east ohio identified 1450 miles pipeline need replaced addition pipeline originally identified pir project scope east ohio plans accelerate pace program investing resources infrastructure near term effort promote ongoing public safety reduce operating costs longer term august 2011 ohio commission approved stipulation east ohio staff ohio commission interested parties east ohio’s accelerated pir proceeding stipulation provides increase annual pir capital investment current level approximately 120 million stepping approximately 160 million 2013 addition stipulation provides cost recovery fiveyear period commencing upon approval ohio commission february 2012 east ohio submitted application ohio commission adjust cost recovery charge costs associated pir investments six months ended december 31 2011 filing made accordance changes pir program approved ohio commission august 2011 effects transition fiscal year ending june 30 calendar year annual filings thereafter appli cation includes total gross plant investment sixmonth july 1december 31 2011 transition period 73 million cumulative gross plant investment 362 million revenue requirement 47 million stipulation submitted east ohio staff ohio commission ohio consumers’ counsel supports rates filed east ohio commission issued order approving stipulation april 2012 november 2012 east ohio filed notice adjust pir cost recovery charge 2012 costs east ohio expects file application adjust pir recovery charge first quarter 2013 pipp plus program ohio pipp plus program eligible customers receive energy assistance based ability pay bill difference customer’s total bill pipp plan payment amount deferred collected pipp rider accordance rules ohio commission pipp plus program sets customer’s monthly payments 6 household income provides forgiveness credits customer’s balance required payments received full due date credits may result elimination customer’s arrearage balance 24 months july 2012 ohio commission approved east ohio’s annual update pipp rider reflects refund overrecovery accumulated arrearages approximately 70 million next two years recovery projected deferred program costs approximately 104 million 12month period april 2012 march 2013 uex rider east ohio files annual uex rider ohio commission pursuant seeks recovery bad debt expense customers participating pipp plus program uex rider adjusted annually achieve dollarfordollar recovery east ohio’s actual writeoffs uncollectable amounts july 2012 ohio commission approved east ohio’s annual update uex rider reflects elimination accumulated unrecovered bad debt expense approximately 1 million march 31 2012 recovery prospective bad debt expense projected total approximately 23 million 12month period april 2012 march 2013 house bill 95 ohio enacted utility reform legislation house bill 95 became effective september 2011 law updates natural gas legislation enabling gas companies include uptodate cost levels filing rate cases also allows gas companies seek approval capital expenditure plans gas companies recognize carrying costs associated capital investments placed service defer carrying costs plus depreciation property tax expenses recovery ratepayers future december 2011 east ohio filed application requesting authority implement capital expenditure program new law approved would enable east ohio defer regulatory asset carrying costs depreciation property tax associated approximately 95 million capital expenditures incurred october combined notes consolidated financial statements continued 2011 december 2012 assets placed service yet reflected rates ohio commission approved east ohio’s application december 2012 december 2012 east ohio filed application requesting authority implement capital expenditure program 2013 capital expenditures totaling 93 million subject provisions approved initial application case pending federal regulation fercgas ferc regulates transportation sale resale natural gas interstate commerce natural gas act 1938 natural gas policy act 1978 amended natural gas act ferc authority rates terms conditions services performed dominion’s interstate natural gas company subsidiaries including dti cove point ferc also jurisdiction siting construction operation natural gas import facilities interstate natural gas pipeline facilities may 2011 cove point filed general rate case fercjurisdictional services proposed rates effective july 1 2011 june 2011 ferc accepted july 1 2011 effective date proposed rates two effective date suspended july 1 december 1 2011 april 2012 cove point filed stipulation agreement among cove point ferc trial staff active parties rate case resolving issues set hearing ferc establishing mechanism operational purchases lng july 2012 ferc issued order approving stipulation agreement including settlement rates effective april 1 2012 settlement considered final august 2012 pursuant terms settlement future operational purchases lng expected affect cove point’s net results operations cove point settling customers subject rate moratorium december 31 2016 cove point required file next rate case 2016 rates effective january 1 2017 note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain dominion’s virginia power’s longlived assets dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities addition dominion’s aros include plugging abandonment gas oil wells interim retirements natural gas gathering transmission distribution storage pipeline components future abatement asbestos expected disturbed companies’ generation facilities companies also identified recognized aros related retirement dominion’s lng facility dominion’s gas storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed companies’ generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2011 2012 follows 1 includes 14 million 15 million 64 million reported current liabilities december 31 2010 2011 2012 respectively 2 primarily reflects effect lower anticipated costs due expected future recovery doe certain spent fuel storage costs 3 primarily reflects accelerated timing decommissioning kewaunee begin 2013 4 includes 3 million 1 million reported current liabilities december 31 2010 2011 respectively 5 primarily reflects effect higher anticipated nuclear decommissioning costs dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2012 2011 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 33 billion 30 billion respectively december 31 2012 2011 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 15 billion 14 billion respectively note 15 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie virginia power longterm power capacity contracts four nonutility generators aggregate summer generation capacity approximately 870 mw contracts contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance entities remaining terms virginia power’s contracts years entities expected operate contractual relationships expire contracts expire various dates ranging 2015 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 11 billion december 31 2012 virginia power paid 214 million 211 million 213 million electric capacity 83 million 125 million 164 million electric energy entities years ended december 31 2012 2011 2010 respectively virginia power purchased shared services drs affiliated vie approximately 328 million 389 million 465 million years ended december 31 2012 2011 2010 respectively virginia power determined closely associated entity drs therefore primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power virginia power obligation absorb allocated share drs costs dominion leases fairless generating facility pennsylvania juniper lessor began commercial operations june 2004 dominion makes annual lease payments approximately 53 million lease expires 2013 time dominion may renew lease terms mutually agreeable dominion juniper based original project costs current market conditions purchase fairless approximately 923 million sell fairless behalf juniper independent third party fairless sold proceeds sale less original construction cost dominion would required make payment lessor amount 7075 original project costs adjusted certain costs specified lease agreement contain provisions involve credit rating stock price trigger events dominion expects purchase fairless lease expires third quarter 2013 juniper formed 2003 limited partnership organized purpose acquiring constructing number assets lease assets financed proceeds issuance bank debt privately placed longterm debt partnership capital received juniper’s general limited partners dominion voting equity interest juniper subject business scope exception dominion required evaluate whether juniper vie prior october 2011 september 30 2011 juniper held various power plant leases including fairless october 2011 last lease fairless expired related asset sold juniper fairless sole remaining asset juniper longer qualified business october 2011 required dominion determine whether juniper vie dominion concluded juniper vie entity’s capitalization insufficient support operations power direct significant activities entity held equity holders dominion residual value guarantee discussed guarantees portion residual value fairless activities significantly impact juniper’s economic performance relate operation fairless decisions related operations fairless made dominion considered primary beneficiary accordingly dominion consolidated juniper october 2011 recorded fair value approximately 957 million property plant equipment 896 million debt 61 million noncontrolling interests debt nonrecourse dominion secured juniper’s assets annual lease payments made dominion juniper fairless eliminated consolidated statements income excluded lease commitments table note 22 dominion provided financial support juniper current period previously contractually required provide note 16 shortterm debt credit agreements dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties combined notes consolidated financial statements continued dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 effective september 2012 maturity date extended september 2016 september 2017 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 effective september 2012 maturity date 400 million 500 million committed capacity credit facility extended september 2016 september 2017 remaining 100 million continues maturity date september 2016 credit facility used support bank borrowings commercial paper letter credit issuances 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 049 047 december 31 2012 2011 respectively virginia power virginia power’s shortterm financing supported two joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper letters credit outstanding well capacity available joint credit facilities dominion follows 1 effective september 2012 maturity date extended september 2016 september 2017 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year 2 effective september 2012 maturity date 400 million 500 million committed capacity credit facility extended september 2016 september 2017 remaining 100 million continues maturity date september 2016 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rates outstanding commercial paper supported credit facilities 047 046 december 31 2012 2011 respectively addition credit facility commitments mentioned virginia power also 120 million credit facility effective september 2012 maturity date extended september 2016 september 2017 facility supports certain taxexempt financings virginia power note 17 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2012 2 financings relate certain pollution control equipment virginia power’s generating facilities certain variable rate taxexempt financings supported 120 million credit facility terminates september 2017 3 option holders 510 million dominion’s 525 senior notes due 2033 600 million dominion’s 8875 senior notes due 2019 subject redemption 100 principal amount plus accrued interest august 2015 january 2014 respectively 4 convertible combination cash shares dominion’s common stock time closing price common stock equals 120 applicable conversion price higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter option holders december 15 2013 2018 securities subject redemption 100 principal amount plus accrued interest senior notes callable dominion since december 15 2011 5 september 2011 500 million 63 september 2006 hybrids began bearing interest threemonth libor plus 23 reset quarterly 6 represents debt assumed dominion merger former cng subsidiary 7 juniper notes issued 2004 consolidated october 2011 due dominion becoming primary beneficiary vie amount excludes 18 million 48 million unamortized premium 2012 2011 respectively debt nonrecourse dominion secured juniper’s assets 8 represents debt associated kincaid debt nonrecourse dominion secured facility’s assets 552 million december 31 2012 revenue dominion announced third quarter 2012 pursuing sale kincaid dominion anticipates redeeming notes condition sale kincaid 9 includes debt issued massachusetts development finance agency behalf brayton point dominion announced third quarter 2012 pursuing sale brayton point 10 represents valuation certain fair value hedges associated dominion’s fixed rate debt 11 includes 23 million net unamortized premium fair value hedge valuation 2012 4 million net unamortized discount 2011 combined notes consolidated financial statements continued based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2012 follows dominion’s virginia power’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2012 events default covenants january 2013 virginia power issued 250 million 12 500 million 40 senior notes mature 2018 2043 respectively convertible securities december 31 2012 dominion 82 million outstanding contingent convertible senior notes convertible holders combination cash shares dominion’s common stock certain circumstances conversion feature requires principal amount note repaid cash amounts payable excess principal amount paid common stock issuance notes valued conversion rate 27173 shares common stock per 1000 principal amount senior notes represented conversion price 3680 conversion rate subject adjustment without limitation upon certain events subdivisions splits combinations common stock issuance common stock holders certain common stock rights warrants options certain dividend increases december 31 2012 conversion rate adjusted 293863 shares primarily due individual dividend payments level paid issuance outstanding notes december 31 2012 converted would result issuance approximately 900 thousand additional shares december 2012 dominion’s board directors declared dividends payable march 20 2013 5625 cents per share common stock increase conversion rate 295147 effective february 26 2013 number shares included denominator diluted eps calculation calculated net shares issuable reporting period based upon average market price period results increase average shares outstanding used calculation dominion’s diluted eps conversion price lower average market price dominion’s common stock period results adjustment conversion price exceeds average market price senior notes convertible holders combination cash shares dominion’s common stock following circumstances 1 closing price dominion’s common stock equals 120 applicable conversion price 4066 february 26 2013 higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter 2 senior notes called redemption dominion 3 occurrence specified corporate transactions 4 credit rating assigned senior notes moody’s baa3 standard poor’s bbb ratings discontinued reason senior notes eligible conversion 2012 since closing price dominion’s common stock equal 120 applicable conversion price higher least 20 last 30 consecutive trading days quarter 2012 approximately 61 million contingent convertible senior notes converted holders december 31 2012 closing price dominion’s common stock equal 4084 per share higher least 20 last 30 consecutive trading days therefore senior notes eligible conversion first quarter 2013 beginning 2007 notes eligible contingent interest average trading price defined indenture equals exceeds 120 principal amount senior notes holders right require dominion purchase senior notes cash 100 principal amount plus accrued interest december 2013 2018 dominion undergoes certain fundamental changes senior notes callable dominion since december 15 2011 junior subordinated notes payable affiliated trusts previous years dominion established several subsidiary capital trusts finance subsidiary dominion holds 100 voting interests trusts sold capital securities representing preferred beneficial interests 97 beneficial ownership assets held trusts exchange funds realized sale capital securities common securities represent remaining 3 beneficial ownership interest assets held capital trusts dominion issued various junior subordinated notes junior subordinated notes constitute 100 capital trust’s assets trust must redeem capital securities respective junior subordinated notes repaid maturity redeemed prior maturity november 2012 dominion provided notice redemption 258 million 783 unsecured junior subordinated debentures 250 thousand units 250 million 783 dominion resources capital trust capital securities due december 1 2027 december 31 2012 debentures included securities due within one year consolidated balance sheets january 2013 dominion redeemed securities price 101958 per capital security plus accrued unpaid distributions following table provides summary information capital securities junior subordinated notes outstanding december 31 2012 junior subordinated notesdebentures held assets capital trust follows 1 258 milliondominion resources inc 783 debentures due 1212027 2 10 milliondominion resources inc 84 debentures due 1152031 interest charges related dominion’s junior subordinated notes payable affiliated trusts 21 million years ended december 31 2012 2011 2010 distribution payments capital securities considered fully unconditionally guaranteed dominion guarantee agreement provides guarantee distribution payments relevant capital securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due capital securities dependent solely upon payment amounts dominion due junior subordinated notes dominion may defer interest payments junior subordinated notes one occasions five consecutive years related trusts must also defer distributions payment junior subordinated notes deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids bear interest 75 per year june 30 2016 thereafter bear interest threemonth libor plus 2825 reset quarterly beginning september 30 2011 september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly previously interest fixed 63 per year june 2009 dominion issued 685 million including 60 million related underwriter’s option purchase additional notes cover overallotments 8375 june 2009 hybrids june 2009 hybrids listed nyse symbol dru dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion executed rccs connection issuance hybrids described terms rccs dominion covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days proceeds dominion receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price december 2011 april 2010 dominion purchased canceled approximately 16 million september 2006 hybrids february 2012 dominion launched tender offer purchase 150 million additional september 2006 hybrids first quarter 2012 dominion purchased canceled approximately 86 million september 2006 hybrids primarily result tender offer expired march 2012 second quarter 2012 dominion purchased canceled approximately 2 million september 2006 hybrids purchases conducted compliance rcc time dominion may reduce outstanding debt level interest expense redemption debt securities prior maturity repurchases open market privately negotiated transactions additional tender offers otherwise note 18 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2012 2011 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares issued outstanding december 31 2012 2011 upon involuntary liquidation combined notes consolidated financial statements continued dissolution windingup virginia power share would entitled receive 100 plus accrued cumulative dividends holders virginia power’s outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series virginia power preferred stock outstanding december 31 2012 1 7312013 10000 commencing 812013 2 8312013 10000 commencing 912013 3 dividend rate 625 3202011 effective 32011 rate reset 612 3202014 rate determined according periodic auctions periods established virginia power time auction process note 19 shareholders’ equity issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2012 dominion began issuing new common shares direct stock purchase plans 2012 dominion issued approximately 64 million shares common stock various programs dominion received cash proceeds 265 million issuance 53 million shares dominion direct employee savings plans exercise employee stock options january 2012 dominion filed new sec shelf registration sale debt equity securities including ability sell common stock market program dominion entered four separate sales agency agreements effect sales program however exception issuing approximately 318 million equity employee savings plans direct stock purchase dividend reinvestment plans converted securities employee director benefit plans dominion issue common stock 2012 virginia power 2012 2011 virginia power issue shares common stock dominion 2010 virginia power issued 33013 shares common stock dominion approximately 1 billion purpose retiring shortterm demand note borrowings dominion shares reserved issuance december 31 2012 dominion approximately 48 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans contingent convertible senior notes repurchase common stock 2011 dominion repurchased approximately 13 million shares common stock approximately 601 million open market average price 4637 per share dominion repurchase shares 2012 plan repurchase shares 2013 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization accumulated comprehensive income loss presented table summary aoci component stockbased awards 2005 incentive compensation plan permits stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2012 approximately 32 million shares available future grants plans dominion measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion’s results years ended december 31 2012 2011 2010 include 25 million 39 million 40 million respectively compensation costs 8 million 13 million 15 million respectively income tax benefits related dominion’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income excess tax benefits classified financing cash flow years ended december 31 2012 2011 2010 dominion realized 10 million 2 million 10 million respectively excess tax benefits vesting restricted stock awards exercise stock options stock options following table provides summary changes amounts stock options outstanding years ended december 31 2012 2011 2010 options granted plan 2012 2011 2010 1 intrinsic value represents difference exercise price option market value dominion’s stock dominion issues new shares satisfy stock option exercises dominion received cash proceeds exercise stock options approximately 19 million 38 million 63 million years ended december 31 2012 2011 2010 respectively restricted stock restricted stock grants made officers dominion’s ltip may also granted certain key contributors time fair value dominion’s restricted stock awards equal market price dominion’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2012 2011 2010 december 31 2012 unrecognized compensation cost related nonvested restricted stock awards totaled 23 million expected recognized weightedaverage period 21 years fair value restricted stock awards vested 30 million 28 million 26 million 2012 2011 2010 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates goalbased stock goalbased stock awards granted dominion’s ltip officers achieved certain targeted level share ownership lieu cashbased performance grants goalbased stock awards may also made certain key nonofficer employees time current outstanding goalbased shares include awards granted officers february 2011 february 2012 issuance awards based achievement two performance metrics twoyear period including tsr relative peer group companies roic 2011 2012 two metrics tsr relative companies listed members philadelphia stock exchange utility index end performance period roic actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock equal market price dominion’s stock date grant goalbased stock awards granted key nonofficer employees convert restricted stock end combined notes consolidated financial statements continued twoyear performance period generally vest three years original grant date awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares performance period april 2009 grants ended december 31 2010 cgn committee determined actual performance metrics established awards key nonofficer employees 132 thousand shares outstanding goalbased stock awards granted april 2009 converted 168 thousand shares restricted stock remaining term vesting period ending april 2012 awards officers 20 thousand shares outstanding goalbased stock awards converted 25 thousand nonrestricted shares issued officers performance period april 2010 grants ended december 31 2011 cgn committee determined actual performance metrics established awards officers 9 thousand shares outstanding goalbased stock awards converted 15 thousand nonrestricted shares issued officers following table provides summary goalbased stock activity years ended december 31 2012 2011 2010 december 31 2012 targeted number shares expected issued february 2011 february 2012 awards approximately 4 thousand january 2013 cgn committee determined actual performance metrics established february 2011 awards performance period ended december 31 2012 based determination total number shares issued february 2011 goalbased stock awards approximately 2 thousand december 31 2012 unrecognized compensation cost related nonvested goalbased stock awards material cashbased performance grants cashbased performance grants made dominion’s officers dominion’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved targeted amount cashbased performance grant made officers april 2009 11 million actual payout award february 2011 determined cgn committee 14 million 11 million paid december 2010 based level performance metrics achieved february 2010 cashbased performance grant made officers portion grant representing 14 million paid december 2011 based achievement two performance metrics 2010 2011 roic tsr relative peer group companies total amount award grant 20 million remaining 6 million grant paid february 2012 december 31 2011 liability 5 million accrued remaining portion award february 2011 cashbased performance grant made officers portion grant representing initial payout 6 million paid december 2012 based achievement two performance metrics 2011 2012 tsr relative peer group companies roic total expected award grant 8 million remaining portion grant expected paid march 15 2013 december 31 2012 liability 2 million accrued remaining portion award february 2012 cashbased performance grant made officers payout performance grant expected occur march 15 2014 based achievement two performance metrics 2012 2013 tsr relative companies listed members philadelphia stock exchange utility index end performance period roic december 31 2012 targeted amount grant 12 million liability 6 million accrued award note 20 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2012 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s virginia power’s ability pay dividends receive dividends subsidiaries december 31 2012 see note 17 description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes note 21 employee benefit plans dominion provides certain retirement benefits eligible active employees retirees qualifying dependents terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension program also provides benefits certain retired executives companysponsored nonqualified employee benefit plan nonqualified plan funded contributions grantor trust dominion also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates rate compensation increases dominion uses december 31 measurement date employee benefit plans dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments aggregate actual returns dominion’s pension postretirement plan assets 743 million 2012 273 million 2011 versus expected returns 509 million 519 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans january 2011 dominion amended retiree healthcare life benefits change eligibility age effective january 1 2012 majority nonunion employees 55 10 years service 58 10 years service resulting approximately 71 million reduction postretirement benefit plan obligation eligibility requirements nonunion employees hired january 1 2008 benefit retiree medical account design well union employees affected plan design change medicare act introduced federal subsidy sponsors retiree healthcare benefit plans provide prescription drug benefit least actuarially equivalent medicare part dominion determined prescription drug benefit offered postretirement benefit plans least actuarially equivalent medicare part dominion received federal subsidy 5 million 2012 2011 december 2011 dominion elected change method receiving subsidy medicare part retiree prescription drug coverage retiree drug subsidy egwp change became effective january 1 2013 result change dominion recognized decrease postretirement benefit obligations approximately 170 million december 31 2011 result adoption egwp beginning 2013 dominion receive increased level medicare part subsidies form reduced costs rather direct reimbursement funded status following table summarizes changes dominion’s pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status combined notes consolidated financial statements continued abo dominion’s defined benefit pension plans 55 billion 45 billion december 31 2012 2011 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time 2012 dominion made contributions qualified defined benefit pension plans contributions currently expected 2013 july 2012 moving ahead progress 21st century act signed law act includes increase interest rates used determine plan sponsors’ pension contributions required funding purposes new interest rates expected reduce required pension contributions 2013 2015 dominion believes required pension contributions rise subsequent 2015 resulting little net impact cumulative required contributions 10year period certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion expects contribute approximately 14 million dominion vebas 2013 dominion expect pension postretirement plan assets returned company 2013 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets following table provides information abo fair value plan assets pension plans abo excess plan assets 1 increase 2011 primarily due decrease discount rate following benefit payments reflect expected future service appropriate expected paid plan assets dominion’s overall objective investing pension postretirement plan assets achieve best possible longterm rates return commensurate prudent levels risk minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments us equity includes investments largecap midcap smallcap companies located united states nonus equity includes investments largecap smallcap companies located outside united states including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity reits investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 fair values dominion’s pension plan assets asset category follows fair values dominion’s postretirement plan assets asset category follows combined notes consolidated financial statements continued following table presents changes dominion’s pension postretirement plan assets measured fair value included level 3 fair value category net periodic benefit cost components provision net periodic benefit cost amounts recognized comprehensive income regulatory assets liabilities follows 1 2012 amounts relate sale salem harbor 2010 amounts relate sales peoples dominion’s appalachian ep operations workforce reduction program 2 represents onetime special termination benefit certain employees connection workforce reduction program 3 assumptions used determine periodic cost following year components aoci regulatory assets liabilities recognized components periodic benefit cost follows 1 december 31 2012 29 billion 158 million related pension benefits postretirement benefits 18 billion 69 million respectively included aoci remainder included regulatory assets liabilities december 31 2011 22 billion related pension benefits 14 billion included aoci remainder included regulatory assets liabilities 14 million related postretirement benefits consists 16 million included regulatory assets liabilities 2 million included aoci following table provides components aoci regulatory assets liabilities december 31 2012 expected amortized components periodic benefit cost 2013 dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forecasts independent investment advisor • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans one percentage point change assumed healthcare cost trend rates would following effects internal committee selects final assumptions used dominion’s pension postretirement plans including discount rates expected longterm rates return healthcare cost trend rates defined contribution plans addition dominion sponsors defined contribution employee savings plans 2012 2011 2010 dominion recognized 40 million 38 million 39 million respectively employer matching contributions plans virginia power virginia power participates dominion pension plan defined benefit pension plan sponsored dominion provides benefits multiple dominion subsidiaries retirement benefits payable plan based primarily years service age employee’s compensation participating employer virginia power subject dominion’s funding policy contribute annually amount accordance provisions erisa 2012 virginia power made contributions plan contributions currently expected 2013 virginia power’s net periodic pension cost related pension plan 72 million 50 million 84 million 2012 2011 2010 respectively employee compensation basis determining virginia power’s share total pension costs virginia power also participates dominion retiree health welfare plan sponsored dominion provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service virginia power’s net periodic benefit cost related plan 13 million 23 million 59 million 2012 2011 2010 respectively employee headcount basis determining virginia power’s share total postretirement benefit costs certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power funds postretirement benefit costs veba virginia power made contributions veba 2012 expect contribute veba 2013 combined notes consolidated financial statements continued dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power’s employees participate investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash virginia power provide dominion share employee benefit plan contributions virginia power also participates dominionsponsored defined contribution employee savings plans cover substantially employees employer matching contributions 15 million incurred 2012 14 million 2011 2010 note 22 commitments contingencies result issues generated ordinary course business dominion virginia power involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect dominion’s virginia power’s financial position liquidity results operations environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements december 2011 epa issued mats coal oilfired electric utility steam generating units rule establishes strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases rule includes limited use provision oilfired units annual capacity factors 8 provides exemption emission limits allows compliance operational work practice standards compliance required april 16 2015 certain limited exceptions december 2011 virginia power recorded 228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain regulated coal units primarily result issuance final mats dominion continues governed individual state mercury emission reduction regulations massachusetts illinois largely unaffected rule epa established cair intent require significant reductions so2 nox emissions electric generating facilities july 2008 us court appeals dc circuit issued ruling vacating cair december 2008 court denied rehearing also issued decision remand cair epa july 2011 epa issued replacement rule cair called csapr required 28 states reduce power plant emissions cross state lines csapr established new so2 nox emissions cap trade programs completely independent current arp specifically csapr required reductions so2 nox emissions fossil fuelfired electric generating units 25 mw annual nox emissions caps nox emissions caps ozone season may 1 september 30 annual so2 emission caps differing requirements two groups affected states following numerous petitions industry participants review motions stay us court appeals dc circuit issued ruling december 2011 stay csapr pending judicial review february june 2012 epa issued technical revisions csapr material dominion august 2012 court vacated csapr entirety ordered epa implement cair valid replacement rule issued october 2012 epa filed petition requesting rehearing court’s decision denied january 2013 mandate vacating csapr issued february 4 2013 stay csapr remains effect epa continue administer cair time epa develops implements new rulemaking addressing issues identified court respect dominion’s generation fleet cost comply cair expected material future outcomes litigation andor additional action issue revised rule could affect assessment regarding cost compliance may 2012 epa issued final designations 75ppb ozone air quality standard several dominion electric generating facilities located areas impacted standard part standard states required develop implement plans address sources emitting pollutants contribute formation ozone states developed implementation plans dominion unable predict whether extent new rules ultimately require additional controls february 2008 dominion received request information pursuant section 114 caa epa request concerns historical operating changes capital improvements undertaken state line kincaid april 2009 dominion received second request information dominion provided information response requests also april 2009 dominion received notice finding violations epa claiming violations caa new source review requirements nsps title v permit program stations’ respective state implementation plans notice states epa may issue order requiring compliance relevant caa provisions may seek injunctive relief andor civil penalties pursuant epa’s enforcement authority caa may 2010 dominion received request information pursuant section 114 caa epa request concerns historical operating changes capital improvements undertaken brayton point dominion submitted response request november 2010 dominion believes complied applicable laws epa regulations interpretations effect time work question took place caa authorizes maximum civil penalties 25000 37500 per day per violation generating unit depending date alleged violation addition penalties may awarded adverse outcome could require substantial capital expenditures affect timing currently budgeted capital expenditures dominion currently settlement discussions resolve matters assurance dominion reach settlement epa however past epa settled similar claims energy companies requiring pay civil penalties andor undertake mitigation projects dominion accrued liability 13 million represents best estimate probable loss related civil penalties mitigation projects matter assuming dominion able reach settlement epa based epa’s settlement similar claims energy companies dominion believe final resolution matter material adverse effect results operations financial condition cash flows water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply aspects cwa programs operating facilities october 2003 epa massachusetts department environmental protection issued new npdes permits brayton point new permits contained identical conditions effect require installation cooling towers address concerns withdrawal discharge cooling water end third quarter 2012 station fully converted closed cycle cooling total cost install cooling towers approximately 550 million see note 6 discussion impairments related brayton point september 2010 millstone’s npdes permit reissued cwa conditions permit require evaluation control technologies could result additional expenditures future report summarizing results evaluation submitted august 2012 review connecticut department energy environmental protection dominion cannot currently predict outcome review october 2010 permit issuance appealed state court private plaintiff permit expected remain effect appeal dominion currently unable make estimate potential financial statement impacts related matter solid hazardous waste cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites jointly severally strictly liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion virginia power may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste except noted companies believe material effect results operations financial condition andor cash flows september 2011 epa issued uao virginia power 22 parties ordering specific remedial action certain areas ward transformer superfund site located raleigh north carolina virginia power believe liable party cercla based alleged connection site november 2011 virginia power number parties notified epa declining undertake work set forth uao epa may seek enforce uao court pursuant enforcement authority cercla may seek recovery costs undertaking removal remedial action court determines respondent failed comply uao combined notes consolidated financial statements continued without sufficient cause epa may also seek civil penalties 37500 per day violation punitive damages three times costs incurred epa result party’s failure comply uao virginia power currently unable make estimate potential financial statement impacts related ward transformer matter dominion determined associated 17 former manufactured gas plant sites three pertain virginia power studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none former sites dominion virginia power associated investigation state federal environmental agency one former sites dominion conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program dominion currently evaluating nature extent contamination site well potential remedial options yet able estimate future remediation costs due uncertainty surrounding sites dominion unable make estimate potential financial statement impacts related sites climate change legislation regulation massachusetts rhode island connecticut among states joined rggi multistate effort reduce co2 emissions northeast implemented state specific regulations initiative aggregate co2 emissions power plants participating states required stabilized current levels 2009 2015 reductions current levels would required phased starting 2016 2019 would 10 reduction participating state power plant co2 emissions 2012 rggi underwent program review february 2013 revisions rggi model rule issued dominion process evaluating revisions potential impacts dominion’s fossil fired generation operations rggi states evaluation completed dominion unable estimate potential financial statement impacts related program review two dominion’s facilities brayton point manchester street subject rggi beginning calendar year 2009 rggi requires dominion cover ton co2 direct stack emissions facilities either allowance offset allowances purchased auction secondary market dominion periodically participated rggi allowance auctions date procured allowances meet estimated compliance requirements rggi’s current requirement 2013 2014 therefore dominion expect compliance rggi material impact results operations financial condition june 2011 lawsuit filed new york seeking retroactively rescind rggi participation state percentage dominion’s rggi allowances acquired new york allocated value allowances totaled approximately 38 million expensed consumed rggi phase compliance february 2012 dominion surrendered new york rggi allowances rggi phase compliance period therefore expect significant financial statement impacts lawsuit longer holds allowances issued state new york june 2012 new york state court dismissed lawsuit notice appeal filed july 2012 however appeal filed mf global prior october 31 2011 certain dominion’s subsidiaries executed certain commodity transactions exchanges using mf global fcm registered cftc order secure potential exposure commodity transactions dominion posted certain required margin collateral mf global parent company mf global mf global holdings ltd filed bankruptcy relief chapter 11 us bankruptcy code october 31 2011 date us district court southern district new york appointed trustee oversee liquidation mf global pursuant securities investor protection act accordance courtapproved procedures dominion transferred fcms open positions executed using mf global initial margin posted open positions october 31 2011 approximately 73 million dominion received approximately 17 million amount liquidation process december 31 2012 january 2013 dominion sold remaining claims approximately 56 million third party small discount nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups inpo like us nuclear operators dominion gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisting actions staff determined started without unnecessary delay december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactors construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion require implementation safety enhancements related mitigation strategies respond extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation orders require prompt implementation safety enhancements completion implementation within two refueling outages december 31 2016 whichever comes first information requests issued nrc request reactor reevaluate seismic flooding hazards site using presentday methods information conduct walkdowns facilities ensure protection hazards current design basis reevaluate emergency communications systems staffing levels dominion virginia power currently expect compliance nrc’s march 2012 orders information requests materially impact financial position results operations cash flows approximately fouryear implementation period nrc staff evaluating implementation longer term tier 2 tier 3 recommendations dominion virginia power currently unable estimate potential financial impacts related compliance tier 2 tier 3 recommendations longterm purchase agreements december 31 2012 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2012 present value virginia power’s total commitment capacity payments 14 billion capacity payments totaled 337 million 338 million 344 million energy payments totaled 214 million 275 million 303 million 2012 2011 2010 respectively lease commitments dominion virginia power lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2012 follows rental expense dominion totaled 112 million 155 million 171 million 2012 2011 2010 respectively rental expense virginia power totaled 48 million 50 million 50 million 2012 2011 2010 respectively majority rental expense reflected operations maintenance expense consolidated statements income nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2012 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units excluding joint owners’ assurance amounts 33 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2012 nrc minimum financial assurance amounts shown calculated using preliminary december 31 2012 us bureau labor statistics indices dominion believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover expected decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion virginia power continue monitor trusts ensure meet minimum financial assurance requirement may include use parent company guarantees surety bonding financial guarantees recognized nrc see note 6 consolidated financial statements additional information kewaunee nuclear insurance priceanderson amendments act 1988 provides public 126 billion liability protection per nuclear incident via obligations required owners nuclear power plants allows inflationary provision adjustment every five years dominion virginia power purchased 375 million coverage commercial insurance pools reactor site remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor us companies could assessed 118 million licensed reactors exceed 18 million per year per reactor limit number incidents retrospective premium assessed current level property insurance coverage dominion’s virginia power’s nuclear units follows 1 surry north anna share blanket property limit 1 billion combined notes consolidated financial statements continued companies’ coverage exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum retrospective premium assessment current policy period 89 million 48 million respectively based severity incident board directors neil discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination dominion virginia power also purchase insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program companies subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum retrospective premium assessment current policy period 33 million 20 million respectively fourth quarter 2012 dominion announced plans close decommission kewaunee expected cease power production second quarter 2013 commence decommissioning activities effective february 1 2013 kewaunee’s accidental outage policy replacement power costs cancelled kewaunee’s property coverage 18 billion change cancellation kewaunee’s accidental outage policy replacement power costs lowered dominion’s retrospective premium assessment 33 million 30 million odec part owner north anna massachusetts municipal wholesale electric company green mountain power corporation part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel dominion virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act companies’ contracts doe companies previously received damages award payments settlement payments related contracts dominion virginia power resolved additional claims damages incurred millstone kewaunee surry north anna may 2012 dominion made formal offers settlement authorized representative attorney general resolution claims incurred millstone period july 1 2006 december 31 2010 periodic payments date 2013 resolution claims incurred kewaunee period january 1 2009 december 31 2010 periodic payments date 2013 september 2012 dominion government entered settlement agreements initial settlement payments amounts 20 million millstone 6 million kewaunee received fourth quarter 2012 september 2012 virginia power made formal offer settlement resolution claims incurred surry north anna period july 1 2006 december 31 2010 periodic payments date 2013 november 2012 virginia power government entered settlement agreement initial settlement payment amount 75 million surry north anna received fourth quarter 2012 settlement agreements extendable 2013 mutual agreement parties june 2012 dominion virginia power filed lawsuits us court federal claims millstone surry north anna doe requesting additional damages period july 1 2006 december 31 2010 lawsuits dismissed result settlement agreements companies continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion’s receivables spent nuclear fuelrelated costs totaled 36 million 102 million december 31 2012 2011 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 26 million 76 million december 31 2012 2011 respectively companies continue manage spent fuel accepted doe guarantees surety bonds letters credit dominion december 31 2012 dominion issued 92 million guarantees primarily support equity method investees significant amounts related guarantees recorded december 31 2012 dominion’s exposure guarantees 62 million primarily related certain reserve requirements associated nonrecourse financing addition guarantees dominion partners shell bp may required make additional periodic equity contributions nedpower fowler ridge connection certain funding requirements associated respective nonrecourse financings december 31 2012 dominion’s maximum remaining cumulative exposure equity funding agreements 107 million 2019 maximum annual future contributions could range approximately 4 million 19 million dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2012 dominion issued following subsidiary guarantees 1 represents estimated portion guarantee’s stated limit utilized december 31 2012 based upon prevailing economic conditions fact patterns specific guarantee arrangement guarantees related obligations recorded liabilities dominion’s subsidiaries value includes recorded amount 2 guarantees debt certain dei subsidiaries event default subsidiaries dominion would obligated repay amounts 3 guarantees related energy trading marketing activities commodity commitments certain subsidiaries including subsidiaries virginia power dei guarantees provided counterparties order facilitate physical financial transactions gas oil electricity pipeline capacity transportation related commodities services subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation dominion subsidiaries receive similar guarantees collateral credit extended others value provided includes certain guarantees stated limits 4 guarantees related certain dei subsidiaries’ potential retrospective premiums could assessed nuclear incident dominion’s nuclear insurance programs guarantees dei subsidiary’s virginia power’s commitment buy nuclear fuel excludes dominion’s agreement provide 150 million 60 million two dei subsidiaries pay operating expenses millstone kewaunee respectively event prolonged outage part satisfying certain nrc requirements concerned ensuring adequate funding operations nuclear power stations agreement kewaunee also provides funds completion decommissioning 5 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects also includes guarantees related certain dei subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower additionally december 31 2012 dominion purchased 163 million surety bonds authorized issuance letters credit financial institutions 26 million facilitate commercial transactions subsidiaries third parties terms surety bonds dominion obligated indemnify respective surety bond company amounts paid virginia power december 31 2012 virginia power issued 14 million guarantees primarily support taxexempt debt issued conduits virginia power also purchased 67 million surety bonds various purposes including providing workers’ compensation coverage authorized issuance letters credit financial institutions 2 million facilitate commercial transactions subsidiaries third parties terms surety bonds virginia power obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business dominion virginia power may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law dominion virginia power unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2012 dominion virginia power believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position workforce reduction program first quarter 2010 dominion virginia power announced workforce reduction program reduced total workforces approximately 9 11 respectively 2010 goal workforce reduction program reduce operations maintenance expense growth improve efficiency companies first quarter 2010 dominion recorded 338 million 206 million aftertax charge including 202 million 123 million aftertax virginia power primarily reflected operations maintenance expense consolidated statements income due severance pay benefits related workforce reduction program 2010 dominion virginia power paid 109 million 104 million respectively costs related program terms workforce reduction program consistent companies’ existing severance plan note 23 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction dominion virginia power maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2012 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commer combined notes consolidated financial statements continued cial residential energy consumers transactions principally occur northeast midatlantic midwest regions us dominion believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include trading energyrelated commodities marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2012 dominion’s credit exposure totaled 512 million amount investment grade counterparties including internally rated represented 77 one counterparty exposure represents 11 dominion’s total exposure large financial institution rated investment grade virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2012 virginia power’s exposure potential concentrations credit risk considered material creditrelated contingent provisions majority dominion’s derivative instruments contain creditrelated contingent provisions require dominion provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2012 2011 dominion would required post additional 110 million 88 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion posted 4 million collateral december 31 2012 110 million collateral including 4 million letters credit december 31 2011 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2012 2011 163 million 259 million respectively include impact offsetting asset positions creditrelated contingent provisions virginia power material december 31 2012 2011 see note 7 information derivative instruments note 24 relatedparty transactions virginia power engages relatedparty transactions primarily dominion subsidiaries affiliates virginia power’s receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power included dominion’s consolidated federal income tax return participates certain dominion benefit plans discussion significant relatedparty transactions follows transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps manage commodity price risks associated purchases natural gas december 31 2012 2011 virginia power’s derivative liabilities affiliates material drs affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage presented significant transactions drs affiliates fourth quarter 2011 subsidiary virginia power purchased nuclear fuelrelated inventory affiliate 39 million future use nuclear generation stations virginia power borrowed funds dominion shortterm borrowing arrangements 243 million shortterm demand note borrowings dominion december 31 2012 shortterm demand note borrowings dominion december 31 2011 virginia power’s outstanding borrowings net repayments dominion money pool nonregulated subsidiaries totaled 192 million 187 million december 31 2012 2011 respectively interest charges related virginia power’s borrowings dominion immaterial years ended december 31 2012 2011 2010 virginia power issued 33013 shares common stock dominion approximately 1 billion purpose retiring shortterm demand note borrowings dominion issuances common stock 2011 2012 note 25 operating segments dominion virginia power organized primarily basis products services sold us description operations included companies’ primary operating segments follows primary operating segment description operations dominion virginia power dvp regulated electric distribution x regulated electric transmission x nonregulated retail energy marketing electric gas x dominion generation regulated electric fleet x merchant electric fleet x dominion energy gas transmission storage x gas distribution storage x lng import storage x producer services x addition operating segments companies also report corporate segment corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments corporate segment dominion includes corporate service company functions including unallocated debt net impact operations expected currently discontinued discussed note 3 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments dominion 2012 dominion reported aftertax net expense 14 billion specific items corporate segment 14 billion net expenses attributable operating segments net expenses specific items 2012 primarily related impact following items  17 billion 11 billion aftertax net loss operations including impairment charge brayton point kincaid elwood attributable dominion generation dominion announced intention pursue sale two merchant power stations equity method investment third quarter 2012  467 million 303 million aftertax net loss including impairment charges primarily resulting management’s decision cease operations begin decommissioning kewaunee 2013 attributable dominion generation  87 million 53 million aftertax charge reflecting restoration costs associated damage caused severe storms attributable dvp  49 million 22 million aftertax loss discontinued operations state line salem harbor sold 2012 attributable dominion generation 2011 dominion reported aftertax net expense 311 million specific items corporate segment 340 million net expenses attributable operating segments net expenses specific items 2011 primarily related impact following items  228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain utility coalfired generating units attributable dominion generation  96 million 59 million aftertax charge reflecting restoration costs associated damage caused hurricane irene primarily attributable dvp  66 million 39 million aftertax loss operations kewaunee attributable dominion generation  57 million 34 million aftertax charge related impairment so2 emissions allowances expected consumed due csapr attributable dominion generation  34 million 25 million aftertax loss discontinued operations state line salem harbor sold 2012 attributable dominion generation 2010 dominion reported aftertax net benefits 865 million specific items corporate segment 10 billion net benefits attributable operating segments net benefits specific items 2010 primarily related impact following items  25 billion 14 billion aftertax benefit resulting gain sale substantially dominion’s appalachian ep operations net charges related divestiture attributable dominion energy partially offset  331 million 202 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program attributable  dvp 67 million aftertax  dominion energy 24 million aftertax  dominion generation 111 million aftertax  158 million 103 million aftertax loss discontinued operations state line salem harbor  134 million 155 million aftertax loss discontinued operations peoples primarily reflecting net loss sale attributable corporate segment combined notes consolidated financial statements continued following table presents segment information pertaining dominion’s operations 1 segment information recast reflect salem harbor state line discontinued operations discussed note 3 december 31 2012 2011 2010 none dominion’s longlived assets significant percentage operating revenues associated international operations virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments 2012 virginia power reported aftertax net expenses 51 million specific items attributable operating segments corporate segment net expenses specific items 2012 primarily related impact following  87 million 53 million aftertax charge reflecting restoration costs associated damage caused severe storms attributable dvp 2011 virginia power reported aftertax net expenses 268 million specific items attributable operating segments corporate segment net expenses specific items 2011 primarily related impact following  228 million 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain coalfired generating units attributable dominion generation  96 million 59 million aftertax charge reflecting restoration costs associated damage caused hurricane irene primarily attributable dvp  43 million 26 million aftertax charge related impairment so2 emissions allowances expected consumed due csapr attributable dominion generation 2010 virginia power reported aftertax net expenses 153 million specific items attributable operating segments corporate segment net expenses specific items 2010 primarily related impact following  202 million 123 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program attributable  dvp 63 million aftertax  dominion generation 60 million aftertax following table presents segment information pertaining virginia power’s operations combined notes consolidated financial statements continued note 26 quarterly financial common stock data unaudited summary dominion’s virginia power’s quarterly results operations years ended december 31 2012 2011 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion 1 amounts attributable dominion’s common shareholders 2 revenue income amounts recast reflect salem harbor state line discontinued operations discussed note 3 dominion’s 2012 results include impact following significant items  fourth quarter results include 10 billion aftertax impairment charge write brayton point’s kincaid’s longlived assets estimated fair value  third quarter results include 281 million aftertax net loss including impairment charges primarily resulting management’s decision cease operations begin decommissioning kewaunee 2013 dominion’s 2011 results include impact following significant item  fourth quarter results include 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain utility coalfired generating units virginia power virginia power’s quarterly results operations follows virginia power’s 2012 results include impact following significant item  second quarter results include 42 million aftertax charge reflecting restoration costs associated damage caused late june summer storms virginia power’s 2011 results include impact following significant item  fourth quarter results include 139 million aftertax charge reflecting plant balances expected recovered future periods due anticipated retirement certain coalfired power stations item 9 item 8 financial statements supplementary data index page report management’s responsibilities report independent registered public accounting firm consolidated statements income years ended december 31 2006 2005 2004 consolidated balance sheets december 31 2006 2005 consolidated statements common shareholder’s equity comprehensive income december 31 2006 2005 2004 years ended consolidated statements cash flows years ended december 31 2006 2005 2004 notes consolidated financial statements report management’s responsibilities accelerated filer defined exchange act rule 12b2 required comply securities exchange commission rules implementing section 404 sarbanesoxley act 2002 december 31 2007 management responsible information representations contained consolidated financial statements sections annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity accounting principles generally accepted united states america financial information form 10k consistent consolidated financial statements management maintains system internal control designed provide reasonable assurance reasonable cost assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal control therefore cannot provide absolute assurance objectives established internal controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 2006 system internal control adequate accomplish intended objectives consolidated financial statements audited deloitte touche llp independent registered public accounting firm engaged dominion’s audit committee comprised entirely independent directors deloitte touche llp’s audit conducted accordance standards public company accounting oversight board united states board directors also serves audit committee meets periodically independent registered public accounting firm internal auditors management discuss auditing internal accounting control financial reporting matters ensure properly discharging responsibilities management recognizes responsibility fostering strong ethical climate affairs conducted according highest standards personal corporate conduct responsibility characterized reflected code ethics addresses potential conflicts interest compliance domestic foreign laws confidentiality proprietary information full disclosure public information february 28 2007 report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “company” december 31 2006 2005 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2006 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2006 2005 results operations cash flows three years period ended december 31 2006 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements company changed method accounting adopt new accounting standard conditional asset retirement obligations 2005 deloitte touche llp richmond virginia february 28 2007 consolidated statements income accompanying notes integral part consolidated financial statements consolidated balance sheets accompanying notes integral part consolidated financial statements consolidated statements common shareholder’s equity comprehensive income accompanying notes integral part consolidated financial statements consolidated statements cash flows accompanying notes integral part consolidated financial statements notes consolidated financial statements note 1 nature operations virginia electric power company virginia public service company whollyowned subsidiary dominion resources inc dominion regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina serve approximately 23 million retail customer accounts including governmental agencies wholesale customers rural electric cooperatives municipalities 2005 became member pjm interconnection llc pjm regional transmission organization rto integrated electric transmission facilities pjm wholesale electricity markets discussed note 8 december 31 2005 completed transfer indirect whollyowned subsidiary virginia power energy marketing inc vpem dominion series dividend distributions exchange capital contribution vpem provides fuel risk management services us dominion affiliates engages energy trading activities vpem trading relationships beyond geographic limits retail service territory bought sold natural gas electricity energyrelated commodities result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation addition discontinued operations vpem included corporate segment results manage daily operations three primary operating segments delivery energy generation addition report corporate functions segment corporate also includes specific items attributable operating segments excluded profit measures evaluated management assessing segment performance allocating resources among segments assets remain wholly owned us legal subsidiaries terms “company” “we” “our” “us” used throughout report depending context use may represent following legal entity virginia electric power company one virginia electric power company’s consolidated subsidiaries operating segments entirety virginia electric power company including virginia north carolina operations consolidated subsidiaries note 2 significant accounting policies general make certain estimates assumptions preparing consolidated financial statements accordance accounting principles generally accepted united states america gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates consolidated financial statements include eliminating intercompany transactions balances accounts company majorityowned subsidiaries variable interest entities vies determined primary beneficiary certain amounts 2005 2004 consolidated financial statements footnotes reclassified conform 2006 presentation operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers customer receivables december 31 2006 2005 included 233 million 263 million respectively accrued unbilled revenue based estimated amounts electric energy delivered yet billed utility customers estimate unbilled utility revenue based historical usage applicable customer rates weather factors total daily electric generation supplied adjusting estimated losses energy transmission primary types sales service activities reported operating revenue include n regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services subject costofservice rate regulation n revenue consists primarily excess generation sold marketbased rates miscellaneous service revenue electric distribution operations miscellaneous revenue electric fuel purchased energydeferred costs permitted regulatory authorities differences actual electric fuel purchased energy expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability effective january 1 2004 fuel factor provisions virginia retail customers locked july 1 2007 effective july 1 2007 fuel factor adjusted discussed virginia fuel expenses note 21 approximately 75 cost fuel used electric generation energy purchases used serve utility customers subject deferral accounting deferred costs associated virginia jurisdictional portion expenditures incurred 2003 continue reported regulatory asset expected recovered july 1 2007 income taxes file consolidated federal income tax return participate intercompany tax allocation agreement dominion subsidiaries current income taxes based taxable income loss determined separate company basis however prior repeal effective 2006 public utility holding company act 1935 act cash payments dominion limited statement financial accounting standards sfas 109 accounting income taxes requires asset liability approach accounting income taxes deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes permitted regulatory authorities treatment temporary differences may differ requirements sfas 109 accordingly regulatory asset recognized probable future revenues provided payment deferred tax liabilities establish valuation allowance likely portion deferred tax asset realized deferred investment tax credits amortized service lives properties giving rise credits december 31 2006 consolidated balance sheet included 105 million prepaid federal income taxes recorded prepayments 10 million federal income taxes receivable dominion recorded deferred charges assets 26 million state income taxes payable dominion recorded accrued interest payroll taxes december 31 2005 consolidated balance sheet included 10 million prepaid state income taxes recorded prepayments 55 million prepaid federal income taxes recorded deferred charges assets 113 million federal income taxes payable dominion recorded accrued interest payroll taxes 11 million federal income taxes payable dominion recorded deferred credits liabilities cash equivalents current banking arrangements generally require checks funded presented payment december 31 2006 2005 accounts payable included 33 million 39 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows consider cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments use derivative instruments futures swaps forwards options financial transmission rights ftrs manage commodity financial market risks business operations sfas 133 accounting derivative instruments hedging activities requires derivatives except exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accountingnormal purchases normal salesmay elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates statement income presentation n financiallysettled derivativesnot held trading purposes designated hedging instruments unrealized changes fair value settlements presented operations maintenance expense net basis n physicallysettled derivativesnot held trading purposes designated hedging instruments unrealized changes fair value settlements physical derivative sales contracts presented revenues unrealized changes fair value settlements physical derivative purchase contracts presented expenses recognize revenue expense nonderivative energyrelated contracts gross basis time contract performance settlement termination derivative instruments designated hedging instruments designate certain derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also may elect exclude certain gains losses hedging instruments measurement hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings discontinue hedge accounting prospectively derivatives cease highly effective hedges cash flow hedgesa portion hedge strategies represent cash flow hedges variable price risk associated purchase natural gas electricity also use foreign currency forward contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions hedging variability cash flows changes fair value derivative reported accumulated comprehensive income loss aoci extent effective offsetting changes hedged item earnings affected hedged item cash flow hedge transactions discontinue hedge accounting occurrence forecasted transaction determined longer probable reclassify derivative gains losses reported aoci earnings forecasted item included earnings occur earlier becomes probable forecasted transaction occur fair value hedgesprior transfer vpem also used fair value hedges mitigate fixed price exposure inherent certain natural gas inventory continue use designated interest rate swaps fair value hedges manage interest rate exposure certain fixedrate longterm debt fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value statement income presentationgains losses derivatives designated hedges recognized included notes consolidated financial statements continued operating revenue operating expenses interest related charges consolidated statements income specific line item classification determined based nature risk underlying individual hedge strategies portion gains losses hedging instruments determined ineffective portion gains losses hedging instruments excluded measurement hedging relationship’s effectiveness gains losses attributable changes time value options changes difference spot prices forward prices included operations maintenance expense discussed note 8 december 31 2005 completed transfer vpem dominion vpem manages portfolio commodity contracts held trading nontrading purposes result transfer vpem dominion derivatives longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation valuation methods fair value based activelyquoted market prices available absence activelyquoted market prices seek indicative price information external sources including broker quotes industry publications pricing information external sources available must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis options contracts optionlike characteristics pricing information available external sources generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different valuation models assumptions could material effect contract’s estimated fair value nuclear decommissioning trust funds account classify investments marketable debt equity securities held nuclear decommissioning trusts availableforsale securities availableforsale securities reported fair value realized gains losses thantemporary declines fair value included income unrealized gains losses reported component aoci net tax analyze securities classified availableforsale determine whether decline fair value considered temporary prior 2006 used several criteria evaluate otherthantemporary declines including length time market value lower cost percentage decline compared cost expected fair value security decline fair value determined temporary security written fair value end reporting period 2006 changed method assessing otherthantemporary declines intent ability hold individual securities period time sufficient allow anticipated recovery market value must demonstrated prior consideration criteria mentioned since regulatory authorities limit ability oversee daytoday management nuclear decommissioning trust fund investments ability hold individual securities trusts accordingly consider securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired property plant equipment property plant equipment including additions replacements recorded original cost including labor materials asset retirement costs direct indirect costs including capitalized interest cost repairs maintenance including minor additions replacements charged expense incurred 2006 2005 2004 capitalized interest costs 10 million 6 million 7 million respectively 2006 2005 2004 electric distribution electric transmission property subject costofservice utility rate regulation capitalized allowance funds used construction 11 million 2 million 2 million respectively electric distribution electric transmission property subject costofservice rate regulation depreciable cost property less salvage value charged accumulated depreciation retirement cost removal collections utility customers expenditures representing asset retirement obligations aros recorded regulatory liabilities regulatory assets generationrelated nonutility property cost removal associated aros charged expense incurred record gains losses upon retirement generationrelated nonutility property based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives depreciation rates utility property plant equipment follows nonutility property plant equipment depreciated using straightline method 25 years nuclear fuel used electric generation amortized estimated service life unitsofproduction basis report amortization nuclear fuel electric fuel energy purchases expense consolidated statements income depreciation amortization consolidated statements cash flows emissions allowances emissions allowances issued environmental protection agency epa permit holder allowance emit certain gaseous byproducts fossil fuel combustion including sulfur dioxide so2 nitrogen oxide nox allowances may transacted third parties consumed emissions generated allowances allocated acquired generation operations held primarily consumption classified intangible assets consolidated balance sheets carrying amounts based cost acquire allowances issued directly us epa carried zero cost emissions allowances amortized periods consumed amortization reflected depreciation amortization expense consolidated statements income report purchases sales allowances investing activities consolidated statements cash flows gains losses resulting sales operations maintenance expense consolidated statements income impairment longlived intangible assets perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount regulatory assets liabilities utility operations subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers defer costs regulatory assets otherwise would expensed nonregulated companies likewise recognize regulatory liabilities probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred regulatory assets amortized expense regulatory liabilities amortized income recovery period authorized regulator asset retirement obligations recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities amounts capitalized costs related tangible longlived assets since relevant market information available estimate fair value using discounted cash flow analyses report accretion aros due passage time operations maintenance expense consolidated statements income amortization debt issuance costs defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issues note 3 newly adopted accounting standards sab 108 september 2006 securities exchange commission issued staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 provides guidance prior year misstatements taken consideration quantifying misstatements current year financial statements purposes determining whether current year’s financial statements materially misstated adoption sab 108 december 31 2006 impact consolidated financial statements fin 47 adopted financial accounting standards board fasb interpretation 47 accounting conditional asset retirement obligations fin 47 december 31 2005 fin 47 clarifies entity required recognize liability fair value conditional asset retirement obligation incurredgenerally upon acquisition construction development andor normal operation asset fair value liability reasonably estimated conditional asset retirement obligation legal obligation perform asset retirement activity timing andor method settlement conditional future event may within control entity uncertainty timing andor method settlement required factored measurement liability sufficient information exists adoption fin 47 resulted recognition aftertax charge 4 million representing cumulative effect change accounting principle presented pro forma net income 2005 2004 applied provisions fin 47 january 1 2004 applied provisions fin 47 january 1 2004 asset retirement obligations would increased 8 million january 1 2004 december 31 2004 note 4 recently issued accounting standards fin 48 july 2006 fasb issued interpretation 48 accounting uncertainty income taxes fin 48 taking consideration uncertainty judgement involved determination filing income taxes fin 48 establishes standards recognition measurement financial statements positions taken expected taken entity income tax returns positions taken entity income tax returns recognized financial statements must satisfy notes consolidated financial statements continued morelikelythannot recognition threshold assuming position examined taxing authorities full knowledge relevant information beginning 2007 fin 48 requires disclosures positions taken entity tax returns recognized financial statements descriptions open tax years major jurisdiction reasonably possible significant changes amount unrecognized tax benefits could occur next twelve months adoption fin 48 estimate cumulative effect change accounting principle material impact beginning balance retained earnings january 1 2007 sfas 157 september 2006 fasb issued sfas 157 fair value measurements defines fair value establishes framework measuring fair value expands disclosures fair value measurements sfas 157 clarifies fair value based assumptions market participants would use pricing asset liability establishes fair value hierarchy three levels prioritizes information used develop assumptions fair value hierarchy gives highest priority quoted prices active markets lowest priority unobservable data sfas 157 requires fair value measurements separately disclosed level within fair value hierarchy provisions sfas 157 become effective us beginning january 1 2008 generally provisions statement applied prospectively certain situations however require retrospective application beginning year adoption recognition cumulative effect accounting change retrospective application required financial instruments including derivatives certain hybrid instruments limitations initial gains losses emerging issues task force eitf issue 023 issues involved accounting derivative contracts held trading purposes contracts involved energy trading risk management activities sfas 155 accounting certain hybrid financial instruments currently evaluating impact sfas 157 results operations financial condition sfas 159 february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities sfas 159 provides entity option specified election dates measure certain financial assets liabilities items fair value changes fair value recognized earnings changes occur sfas 159 also establishes presentation disclosure requirements include displaying fair value assets liabilities entity elected fair value option face balance sheet providing management’s reasons electing fair value option eligible item provisions sfas 159 become effective us beginning january 1 2008 early adoption permitted provided election also made apply provisions sfas 157 currently evaluating impact sfas 159 may results operations financial condition note 5 operating revenue operating revenue consists following note 6 income taxes details income tax expense continuing operations follows statutory united states us federal income tax rate reconciles effective income tax rates follows deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes net deferred income taxes consist following december 31 2006 federal state minimum tax credits 58 million expire federal state income tax credits 2 million expire unutilized 2025 routinely audited federal state tax authorities establish liabilities taxrelated contingencies review light changing facts circumstances although results audits uncertain believe ultimate outcome material adverse effect financial position december 31 2006 2005 consolidated balance sheets included material income taxrelated contingent liabilities american jobs creation act 2004 act several provisions energy companies including deduction related taxable income derived qualified production activities electric generation activities qualify production activities act limits deduction lesser taxable income derived qualified production activities consolidated federal taxable income dominion subsidiaries qualified production activities deduction 2006 minimal note 7 hedge accounting activities exposed impact market fluctuations price natural gas electricity energyrelated products purchased well currency exchange interest rate risks business operations use derivative instruments manage exposure risks designate derivative instruments fair value cash flow hedges accounting purposes allowed sfas 133 year ended december 31 2006 gains losses hedging instruments determined ineffective year ended december 31 2005 recognized net income 11 million gains hedge ineffectiveness 4 million gains attributable differences spot prices forward prices excluded measurement effectiveness connection fair value hedges natural gas inventory 2005 activity related discontinued operations vpem following table presents selected information related cash flow hedges included aoci consolidated balance sheet december 31 2006 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated purchases earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign exchange rates note 8 discontinued operationsvpem transfer december 31 2005 completed transfer vpem dominion series dividend distributions resulted transfer negative investment vpem dominion exchange capital contribution 633 million gain loss recognized transfer vpem provides fuel risk management services us acting agent one indirect whollyowned subsidiaries vpem also engages energy trading activities provides price risk management services dominion affiliates use derivative contracts owned vpem certain derivative contracts reported fair value consolidated balance sheets changes fair value reflected earnings price risk management activities performed behalf dominion affiliates generated derivative gains losses affected consolidated financial statements result transfer vpem’s results operations longer included consolidated financial statements consolidated statements income periods prior transfer adjusted reflect vpem discontinued operation net basis 2005 2004 discontinued operations included operating revenue 807 million 373 million respectively loss income taxes 746 million 259 million respectively vpem’s 2005 2004 results included following affiliated transactions note 9 nuclear decommissioning trust funds hold marketable debt equity securities nuclear decommissioning trust funds fund future decommissioning costs nuclear plants decommissioning trust funds december 31 2006 2005 summarized 1 2005 approximately 2 million unrealized losses relate primarily equity securities loss position greater one year notes consolidated financial statements continued fair values debt securities within nuclear decommissioning trust funds december 31 2006 contractual maturity follows gross realized gains sale availableforsale securities totaled 49 million 19 million 27 million 2006 2005 2004 respectively gross realized losses totaled 33 million 8 million 24 million 2006 2005 2004 respectively determining realized gains losses cost securities determined specific identification basis note 10 property plant equipment major classes property plant equipment respective balances jointlyowned utility plants proportionate share jointlyowned utility plants december 31 2006 follows coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest report share operating costs appropriate operating expense electric fuel energy purchases operations maintenance depreciation amortization taxes etc consolidated statements income note 11 intangible assets intangible assets subject amortization estimated useful lives amortization expense intangible assets 37 million 38 million 27 million 2006 2005 2004 respectively 2006 acquired 58 million emissions allowances estimated weightedaverage amortization period 38 years components intangible assets follows annual amortization expense intangible assets estimated 48 million 2007 30 million 2008 23 million 2009 28 million 2010 12 million 2011 note 12 regulatory assets liabilities regulatory assets liabilities include following 1 connection settlement 2003 virginia fuel rate proceeding agreed recover previously incurred costs june 30 2007 without return portion unrecovered balance remaining costs recovered totaled 56 million december 31 2006 2 federal energy regulatory commission ferc conditionally authorized deferral startup costs incurred connection joining rto ongoing administration fees paid pjm deferred 58 million startup costs administration fees 8 million associated carrying costs expect recovery virginia jurisdictional retail customers commence end virginia retail rate cap period subject regulatory approval 3 income taxes recoverable future rates resulting recognition additional deferred income taxes recognized ratemaking practices 4 north carolina utilities commission north carolina commission authorized deferral previously incurred costs associated termination certain longterm power purchase agreements nonutility generators related costs amortized original term agreement 5 cost decommissioning department energy’s doe uranium enrichment facilities represents unamortized portion required contributions fund decommissioning decontaminating doe’s uranium enrichment facilities contributions began june 1992 continue 15year period escalation inflation costs currently recovered fuel rates june 30 2007 6 rates charged customers regulated business include provision cost future activities remove assets expected incurred time retirement december 31 2006 approximately 143 million regulatory assets represented past expenditures earn return expenditures consist primarily rto startup costs administration fees cost terminating certain power purchase agreements portion deferred fuel costs note 13 asset retirement obligations aros primarily associated decommissioning nuclear generation facilities also aros related certain electric transmission distribution assets located property hydroelectric generation facilities currently sufficient information estimate reasonable range expected retirement dates assets thus aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed generally occur expected retirement abandonment dates determined operational planning changes aros 2006 follows 1 primarily reflects reduction cost escalation rate assumptions applied updated decommissioning cost studies reflected increases base year costs received nuclear facilities third quarter 2006 established trusts dedicated funding future decommissioning nuclear plants december 31 2006 2005 aggregate fair value trusts consisting primarily debt equity securities totaled 13 billion 12 billion respectively note 14 variable interest entities fasb interpretation 46 revised december 2003 consolidation variable interest entities fin 46r addresses consolidation vies entity considered vie fin 46r sufficient equity finance activities without assistance variable interest holders equity investors lack following characteristics controlling financial interest n control voting rights n obligation absorb expected losses n right receive expected residual returns fin 46r requires primary beneficiary vie consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity receives majority vie’s expected losses expected residual returns certain variable pricing terms longterm power capacity contracts cause considered potential variable interests counterparties two potential vies existing power purchase agreements signed prior december 31 2003 provided sufficient information us perform fin 46r evaluation december 31 2006 information received two remaining potential vies continue efforts obtain information complete evaluation relationship potential vies sufficient information ultimately obtained remaining purchase commitments two potential vie supplier entities 13 billion december 31 2006 subject risk loss vies remaining purchase commitments paid 98 million 106 million 111 million electric generation capacity 75 million 102 million 59 million electric energy entities years ended december 31 2006 2005 2004 respectively february 2006 restructured three longterm power purchase contracts two vies primary beneficiary restructured contracts expire 2015 notes consolidated financial statements continued 2017 total debt held entities approximately 299 million remaining purchase commitments two vie supplier entities 1 billion december 31 2006 subject risk loss vies remaining purchase commitments paid 116 million 116 million 114 million electric generation capacity 55 million 57 million 47 million electric energy entities years ended december 31 2006 2005 2004 respectively 2005 entered four longterm contracts unrelated limited liability companies llcs purchase synthetic fuel produced coal certain variable pricing terms contracts protect equity holders variability cost coal purchases therefore llcs determined vies completing fin 46r analysis concluded although interests contracts result pricing terms represent variable interests llcs primary beneficiary paid 341 million 205 million llcs coal synthetic fuel produced coal years ended december 31 2006 2005 respectively subject risk loss contractual arrangements obligation vies purchase synthetic fuel vies produce according terms applicable purchase contracts consolidated balance sheets december 31 2006 2005 reflect net property plant equipment 337 million 348 million respectively 370 million debt related consolidation accordance fin 46r variable interest lessor entity financed leased power generation project debt nonrecourse us secured entity’s property plant equipment lease operate power generation facility terminates august 2007 intend take legal title facility repayment lessor’s related debt end lease term note 15 shortterm debt credit agreements use shortterm debt primarily commercial paper fund working capital requirements bridge longterm debt financing level borrowings may vary significantly course year depending upon timing amount cash requirements satisfied cash operations shortterm financing supported 30 billion fiveyear joint revolving credit facility dated february 2006 dominion consolidated natural gas company cng whollyowned subsidiary dominion scheduled terminate february 2011 credit facility used working capital support combined commercial paper programs dominion cng us general corporate purposes credit facility also used support 15 billion letters credit december 31 2006 total outstanding commercial paper supported joint credit facility 176 billion borrowings 618 million weighted average interest rate 541 december 31 2005 total outstanding commercial paper supported previous joint credit facility 14 billion borrowings 905 million weighted average interest rate 446 december 31 2006 total outstanding letters credit supported joint credit facility 236 million less 1 million issued behalf december 31 2005 total outstanding letters credit supported previous joint credit facility 892 million less 1 million issued behalf december 31 2006 capacity available joint credit facility 10 billion note 16 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2006 2 substantially property subject lien mortgage securing mortgage bonds 3 represents debt associated special purpose lessor entity consolidated accordance fin 46r debt nonrecourse us secured entity’s property plant equipment totaled 337 million 348 million december 31 2006 2005 respectively 4 december 15 2008 securities subject redemption par plus accrued interest unless holders related options exercise rights purchase remarket notes 5 financings relate certain pollution control equipment generating facilities variable rate taxexempt financings supported standalone 3 billion fiveyear credit facility terminates february 2011 february 2007 exercised call option redeemed 62 million taxexempt financings weighted average rate 752 proceeds raised issuance commercial paper 6 represents valuation certain fair value hedges associated fixed rate debt based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2006 follows shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2006 events default covenants junior subordinated notes payable affiliated trust 2002 established subsidiary capital trust virginia power capital trust ii trust finance subsidiary hold 100 voting interests trust sold 16 million 7375 trust preferred securities 400 million representing preferred beneficial interests 97 beneficial ownership assets held trust exchange 400 million realized sale trust preferred securities 12 million common securities represent remaining 3 beneficial ownership interest assets held capital trust issued 412 million 2002 7375 junior subordinated notes junior subordinated notes due july 30 2042 junior subordinated notes constitute 100 trust’s assets trust must redeem trust preferred securities junior subordinated notes repaid redeemed prior maturity distribution payments trust preferred securities considered fully unconditionally guaranteed company related agreements taken consideration guarantee agreement provides guarantee distribution payments trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon payment amounts due junior subordinated notes payment junior subordinated notes deferred may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes note 17 preferred stock authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares outstanding december 31 2006 2005 upon involuntary liquidation dissolution windingup company share would entitled receive 100 plus accrued dividends cumulative holders outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required vir ginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series preferred stock subject mandatory redemption outstanding december 31 2006 1 7312007 10212 commencing 812007 amounts decline steps thereafter 10000 812013 2 8312007 10210 commencing 912007 amounts decline steps thereafter 10000 912013 3 dividend rate 550 12202007 rate determined according periodic auctions periods established us time auction process series callable prior 12202007 note 18 shareholder’s equity common stock 2004 approved virginia state corporation commission virginia commission dominion made equity investment company purchase common stock issued 20115 shares common stock dominion cash consideration 500 million paidin capital 2005 recorded contributed capital 633 million related transfer investment vpem dominion 200 million connection conversion shortterm borrowings 2004 recorded 11 million paidin capital connection reduction amounts payable dominion accumulated comprehensive income presented table summary aoci component note 19 dividend restrictions virginia commission may prohibit public service company declaring paying dividend affiliate found detrimental public interest december 31 2006 virginia commission restricted payment dividends notes consolidated financial statements continued certain agreements associated joint credit facility dominion cng contain restrictions ratio debt total capitalization limitations restrict ability pay dividends dominion december 31 2006 see note 16 description potential restrictions dividend payments connection deferral distribution payments trust preferred securities note 20 employee benefit plans participate defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer subject dominion’s funding policy generally contribute annually amount accordance provisions employment retirement income security act 1974 net periodic pension cost 63 million 56 million 40 million 2006 2005 2004 respectively contribute pension plan 2006 2005 2004 participate plans provide certain retiree health care life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service net periodic benefit cost related plans 37 million 42 million 44 million 2006 2005 2004 respectively certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly fund postretirement benefit costs voluntary employees’ beneficiary associations contributions retiree health care life insurance plans 24 million 32 million 34 million 2006 2005 2004 respectively expect contribute 13 million retiree health care life insurance plans 2007 also participate dominionsponsored employee savings plans cover substantially employees employer matching contributions 11 million incurred 2006 2005 2004 note 21 commitments contingencies result issues generated ordinary course business involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money believe final disposition proceedings material effect financial position liquidity results operations longterm purchase agreements december 31 2006 following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2006 present value total commitment capacity payments 26 billion capacity payments totaled 437 million 472 million 570 million energy payments totaled 291 million 378 million 293 million 2006 2005 2004 respectively lease commitments lease various facilities vehicles equipment primarily operating leases lease agreements expire various dates certain leases renewable contain options purchase leased property payments certain leases escalated based index consumer price index cpi future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2006 follows thereafter total millions 28 25 19 16 13 27 128 rental expense totaled 34 million 32 million 40 million 2006 2005 2004 respectively majority reflected operations maintenance expense environmental matters subject costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations extent environmental costs incurred connection operations regulated virginia commission period ending december 31 2010 excess level currently included virginia jurisdictional rates results operations decrease date may seek recovery rates environmental costs related transmission distribution operations however foregoing risks subject change upon adoption proposed 2007 virginia restructuring act amendments discussed later 2007 virginia restructuring act amendments superfund sites time may identified potentially responsible party prp superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action b conduct remedial investigation action seek reimbursement parties party held jointly severally strictly liable costs parties also bring contribution actions seek reimbursement insurance companies result may responsible costs remedial investigation actions superfund act laws regulations regarding remediation waste believe currently identified sites result significant liabilities 1987 number entities identified epa prps two superfund sites located kentucky pennsylvania 2003 epa issued certificate completion remediation kentucky site future costs kentucky site limited minor operations maintenance expenditures regarding pennsylvania site march 2006 federal district court approved three consent decrees us prps certain prps utilities perform site remediation costs expected range 11 million 18 million majority paid nonutility site owners evaluating impact actions reduced current reserve 2 million less 1 million meet potential obligations two sites generally seek recover costs associated environmental remediation thirdparty insurers december 31 2006 pending possible insurance claims recognized asset offset obligations nuclear operations nuclear decommissioningminimum financial assurance nuclear regulatory commission nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities 2006 nrc minimum financial assurance amount aggregated nuclear units 13 billion satisfied combination funds collected deposited trusts real annual rate return growth funds allowed nrc nuclear insurance priceanderson act provides public 108 billion protection per nuclear incident via obligations required owners nuclear power plants priceanderson act amendment 1988 allows inflationary provision adjustment every five years purchased 300 million coverage commercial insurance pools remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor us could assessed 1006 million four licensed reactors exceed 15 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed 2005 current level property insurance coverage 255 billion north anna surry individually exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 50 million based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination purchase insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 19 million old dominion electric cooperative odec part owner north anna power station responsible us share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 entered contract doe disposal spent nuclear fuel doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act contract doe january 2004 dominion filed lawsuit us court federal claims doe connection failure commence accepting spent nuclear fuel trial scheduled march 2008 continue manage spent fuel accepted doe litigation coowners odec clover electric generating facility 1989 entered coal transportation agreement norfolk southern railway company norfolk southern delivery coal facility agreement provided base rate price adjustment based upon published index norfolk southern claimed october 2003 incorrect reference index used adjust base transportation rate november 2003 odec filed suit norfolk southern seeking clarify price escalation provisions transportation agreement trial court ruled norfolk southern’s favor concluding agreement specifies higher rate adjustment factor norfolk southern claims applied past adjust base rate applied future september 1 2006 court entered order directing us odec correct invoices notes consolidated financial statements continued december 1 2003 present calculating rates higher rate adjustment factor applied inception agreement tender difference norfolk southern interest rate provided agreement calculate future invoices using higher rate adjustment factor applied inception agreement cumulative amount adjustment time court entered order approximately 50 million plus interest share would one half odec filed notice appeal virginia supreme court posted security suspend execution judgment appeal believe court’s interpretation transportation agreement ruling issues case legally incorrect liability recorded consolidated financial statements related matter guarantees surety bonds december 31 2006 issued 6 million guarantees primarily support commodity transactions subsidiaries also purchased 68 million surety bonds various purposes including posting security suspend execution judgment appeal norfolk southern matter discussed litigation providing workers’ compensation coverage terms surety bonds obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law unable develop estimate maximum potential amount future payments contracts events would obligate us yet occurred event occurred notified occurrence however december 31 2006 believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position stranded costs stranded costs generationrelated costs incurred commitments made utilities costbased regulation may reasonably expected recovered competitive market december 31 2006 exposure potential stranded costs included longterm power purchase contracts could ultimately determined market prices generating plants could possibly become uneconomical deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits believe capped electric retail rates provide opportunity recover potential stranded costs depending market prices electricity factors recovery potential stranded costs remains subject numerous risks even cappedrate environment risks include among others exposure longterm power purchase commitment losses future environmental compliance requirements changes certain tax laws nuclear decommissioning costs increased fuel costs inflation increased capital costs recovery certain items virginia electric utility restructuring act enacted 1999 virginia restructuring act established plan restructure electric utility industry virginia 1999 virginia restructuring act generation portion virginia jurisdictional operations longer subject costbased regulation legislation’s deregulation generation event required us discontinue application sfas 71 accounting effects certain types regulation virginia jurisdictional portion generation operations 1999 virginia restructuring act permits wires charges collected utilities july 1 2007 wires charges set zero 2007 rate classes virginia customers pay fee switch us competitive service provider virginia fuel expenses may 2006 virginia law amended modify way virginia jurisdictional fuel factor set three onehalf year period beginning july 1 2007 bill became law effective july 1 2006 n allows annual fuel rate adjustments three twelvemonth periods beginning july 1 2007 one sixmonth period beginning july 1 2010 unless capped rates terminated earlier 1999 virginia restructuring act n allows adjustment end twelvemonth periods account differences projections actual recovery fuel costs prior twelve months n authorizes virginia commission defer 40 fuel factor increase approved first twelvemonth period recovery deferred amount two onehalf year period beginning july 1 2008 prior law deferral possible fuel prices increased considerably since virginia fuel factor provisions frozen 2004 resulted fuel expenses significantly excess rate recovery expect fuel expenses continue exceed rate recovery fuel factor adjusted july 2007 2006 amendments allow us collect unrecovered fuel expenses incurred prior july 1 2007 fuel factor adjusted risk underrecovery prudently incurred fuel costs july 1 2010 greatly diminished 2007 virginia restructuring act amendments february 2007 houses virginia general assembly passed identical bills would significantly change electricity restructuring virginia bills would end capped rates two years early december 31 2008 capped rates end retail choice would eliminated individual retail customers demand 5mw limited number nonresidential retail customers whose aggregated load would exceed 5mw also end capped rates virginia commis sion would set base rates investorowned electric utilities modified costofservice model among features currently proposed model would provide virginia commission n initiate base rate case utility first six months 2009 result virginia commission n establishes return equity roe lower reported group utilities within southeastern us certain limitations earnings rate adjustments n shall increase base rates needed allow utility opportunity recover costs earn fair rate return utility found earnings 50 basis points established roe n may reduce rates alternatively order credit customers utility found earnings 50 basis points established roe n may authorize performance incentives appropriate n initial rate case review base rates biennially result virginia commission n establishes roe lower reported group utilities within southeastern us certain limitations earnings rate adjustments however virginia commission finds roe limit time exceeds roe set time initial base rate case 2009 percentage increase cpi interim may reduce lower roe limit level increases initial roe much change cpi n shall increase base rates needed allow utility opportunity recover costs earn fair rate return utility found earnings 50 basis points established roe n may order credit customers utility found earnings 50 basis points established roe reduce rates utility found excess earnings two consecutive biennial review periods n may authorize performance incentives appropriate n authorize standalone rate adjustments recovery certain costs including new generation projects major generating unit modifications environmental compliance projects fercapproved costs transmission service energy efficiency conservation programs renewable energy programs n authorize enhanced roe financial incentive construction major baseload generation projects renewable energy portfolio standard programs bills would also continue statutory provisions directing us file annual fuel cost recovery cases virginia commission beginning 2007 continuing thereafter however fuel factor increase july 1 2007 would limited amount results residential customers receiving increase 4 total rates date remainder would deferred collected three years follows n calendar year 2008 deferral portion collected limited amount results residential customers receiv ing increase 4 total rates january 1 2008 n calendar year 2009 deferral portion collected limited amount results residential customers receiving increase 4 total rates january 1 2009 n remainder deferral balance would collected fuel factor calendar year 2010 governor march 26 2007 sign propose amendments veto bills governor’s signature bills would become law effective july 1 2007 time cannot predict outcome legislative proposals note 22 fair value financial instruments substantially financial instruments recorded fair value exception instruments described reported historical cost fair values determined using available market information valuation methodologies considered appropriate management financial instruments’ carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 includes securities due within one year note 23 credit risk maintain provision credit losses based factors surrounding credit risk customers historical trends information believe based credit policies december 31 2006 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance sell electricity provide distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers exposure potential concentrations credit risk results primarily sales wholesale customers gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure notes consolidated financial statements continued calculated prior application collateral december 31 2006 gross credit exposure totaled 51 million amount 93 related single counterparty however entire balance investment grade entities held collateral transactions december 31 2006 note 24 relatedparty transactions engage relatedparty transactions primarily affiliates dominion subsidiaries accounts receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions included dominion’s consolidated federal income tax return participate certain dominion benefit plans transactions affiliates transact affiliates certain quantities natural gas commodities ordinary course business also enter certain commodity derivative contracts affiliates use contracts principally comprised commodity swaps options manage commodity price risks associated purchases sales natural gas designate majority contracts cash flow hedges accounting purposes dominion resources services inc dominion services provides accounting legal certain administrative technical services us provide certain services affiliates including charges facilities equipment usage december 31 2005 transferred vpem dominion exchange 633 million contribution capital longer involved facilitating dominion’s enterprise risk management entering certain financial derivative commodity contracts affiliates 2006 vpem continued provide fuel management services us acting agent one indirect whollyowned subsidiaries december 2006 entered agreement vpem enables us directly transact vpem purchase sale fuel transportation fuel facilities agreement approved virginia commission north carolina commission became effective january 2007 significant transactions dominion services affiliates detailed december 31 2006 consolidated balance sheet includes derivative liabilities affiliates 2 million derivative liabilities affiliates december 31 2005 unrealized gains losses representing effective portion changes fair value derivative contracts designated cash flow hedges included aoci consolidated balance sheets lease office building dominion agreement expires 2008 lease agreement accounted capital lease capitalized cost property lease net accumulated amortization approximately 3 million 5 million december 31 2006 2005 respectively rental payments lease 3 million 2006 2005 2004 borrowed funds dominion shortterm longterm borrowing arrangements december 31 2006 2005 nonregulated subsidiaries outstanding borrowings net repayments dominion money pool 140 million 12 million respectively december 31 2006 2005 borrowings dominion long term note totaled 220 million shortterm demand note borrowings december 31 2006 2005 incurred interest charges related borrowings dominion 10 million 9 million 6 million 2006 2005 2004 respectively 2004 approved virginia commission dominion made equity investment company purchase common stock issued 20115 shares common stock dominion cash consideration 500 million used proceeds part pay 345 million shortterm demand note dominion also 2004 recorded 11 million paidin capital connection reduction amounts payable dominion relatedparty transactions upon adoption fin 46r interests special purpose entities december 31 2003 ceased consolidate virginia power capital trust ii finance subsidiary company junior subordinated notes issued us held trust reported longterm debt reported 30 million 30 million 31 million interest expense junior subordinated notes payable affiliated trust 2006 2005 2004 respectively note 25 operating segments organized primarily basis products services sold united states majority revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among delivery energy generation segments manage operations following segments delivery includes regulated electric distribution customer service businesses delivery segment subject costofservice rate regulation accordingly applies sfas 71 energy includes regulated electric transmission operations subject costofservice rate regulation accordingly applies sfas 71 generation includes portfolio electric generating facilities power purchase agreements energy supply operations corporate includes corporate functions contribution net income primary operating segments determined based measure profit management believes represents segments’ core earnings result certain specific items attributable segments excluded profit measures evaluated management either assessing segment performance allocating resources among segments including discontinued operations vpem prior transfer dominion 2006 corporate segment includes 12 million net expenses attributable generation segment net expenses 2006 related following n 13 million 8 million aftertax impairment charge fourth quarter resulting change method assessing otherthantemporary declines fair value securities held investments nuclear decommissioning trusts n 7 million 4 million aftertax charge resulting writeoff certain assets longer use one electric generating facilities 2005 corporate segment included 58 million net expenses attributable operating segments net expenses 2005 primarily related impact following n 77 million 47 million aftertax charge resulting termination longterm power purchase agreement attributable generation n 13 million 8 million aftertax charge related sale interest longterm power tolling contract attributable generation n 6 million 4 million aftertax charge cumulative effect accounting change result adoption fin 47 2004 corporate segment included 155 million net expenses attributable operating segments net expenses 2004 primarily related impact following n 184 million 112 million aftertax charge related interest longterm power tolling contract divested 2005 attributable generation n 71 million 43 million aftertax charge resulting termination three longterm power purchase agreements attributable generation n 12 million 7 million aftertax charge related agreement settle class action lawsuit involving dispute rights lease fiberoptic cable along portion electric transmission corridor attributable energy partially offset n 18 million 11 million aftertax benefit reduction expenses accrued 2003 associated hurricane isabel restoration activities attributable delivery following table presents segment information pertaining operations notes consolidated financial statements continued note 26 quarterly financial data unaudited summary quarterly results operations years ended december 31 2006 2005 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors 2005 results include impact following significant item n first quarter results include 47 million net aftertax charge connection termination longterm power purchase agreement item 9 item 8 financial statements supplementary data report management company’s management responsible information representations contained consolidated financial statements sections company’s annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent consolidated financial statements management maintains system internal accounting controls designed provide reasonable assurance company’s assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits addition management encourages strong ethical climate code ethics routinely communicated employees consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance auditing standards generally accepted united states america included review company’s accounting systems procedures internal controls extent necessary purpose report audit committee board directors dominion resources inc composed entirely directors officers employees dominion resources inc subsidiaries meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters company ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time virginia electric power company g scott hetzer g scott hetzer senior vice president treasurer principal financial officer steven rogers steven rogers vice president principal accounting officer independent auditors’ report board directors virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries company december 31 2001 2000 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2001 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states america discussed note 9 consolidated financial statements effective january 1 2001 company adopted statement financial accounting standards 133 “accounting derivative instruments hedging activities” amended also discussed note 3 consolidated financial statements company changed method accounting used develop marketrelated value pension plan assets 2000 deloitte touche llp richmond virginia january 22 2002 virginia electric power company consolidated statements income accompanying notes integral part consolidated financial statements virginia electric power company consolidated balance sheets accompanying notes integral part consolidated financial statements virginia electric power company consolidated balance sheets continued 1 described note 15 consolidated financial statements 805 junior subordinated notes totaling 139 million principal amount constitute 100 percent trust’s assets accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements comprehensive income company’s net income 579 230 2000 1999 respectively company comprehensive income reportable years accordance sfas 130 reporting comprehensive income accompanying notes integral part consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part consolidated financial statements virginia electric power company notes consolidated financial statements note 1 nature operations virginia electric power company virginia power company virginia public service company whollyowned subsidiary dominion resources inc dominion company regulated public utility generates transmits distributes electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity approximately 21 million retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 virginia’s total land area accounts 80 population company trading relationships beyond geographic limits retail service territory buys sells wholesale electricity natural gas offsystem within document term “company” refers entirety virginia electric power company including virginia north carolina operations subsidiaries company manages daily operations along two operating segments energy delivery energy segment encompasses company’s portfolio generating facilities power purchase contracts trading marketing activities delivery segment includes bulk power transmission distribution metering services customer service delivery segment continues subject requirements statement financial accounting standards sfas 71 accounting effects certain types regulation sfas 71 note 2 significant accounting policies general company includes certain estimates assumptions preparing consolidated financial statements accordance generally accepted accounting principles estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates consolidated financial statements represent company’s accounts elimination intercompany transactions certain amounts 2000 1999 consolidated financial statements reclassified conform 2001 presentation use fair value measurements company reports certain contracts instruments fair value accordance applicable generally accepted accounting principles fair value based actively quoted market prices available absence actively quoted market prices company seeks indicative price information external sources including broker quotes industry publications pricing information external sources available company must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis options contracts optionlike characteristics pricing information available external sources company uses modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value contracts unique characteristics company estimates fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period pricing information available external sources judgment required develop estimates fair value individual contracts use different assumptions could material effect contract’s estimated fair value virginia electric power company notes consolidated financial statementscontinued concentration credit risk company sells electricity provides distribution transmission services diverse group customers including residential commercial industrial customers well rural electric cooperatives municipalities addition company enters contracts various companies energy industry purchases sales energyrelated commodities including natural gas electricity energy trading hedging arbitrage activities transactions principally occur northeast midwest midatlantic regions united states although concentration could affect company’s overall exposure credit risk management believes company exposed minimal risk significant portion company’s energy trading hedging arbitrage business conducted major companies energy industry credit risk associated trade accounts receivable energy consumers limited due large number customers dominion subsidiaries including company maintain credit policies respect counterparties management believes minimize overall credit risk policies include evaluation prospective counterparty’s financial condition collateral requirements deemed necessary case energy trading hedging arbitrage activities use standardized agreements facilitate netting cash flows associated single counterparty dominion behalf company subsidiaries also monitors financial condition existing counterparties ongoing basis company maintains provision credit losses based upon factors surrounding credit risk customers historical trends information management believes based dominion’s credit policies company’s december 31 2001 provision credit losses unlikely material adverse effect company’s financial position results operations cash flows would occur result counterparty nonperformance derivatives company uses derivatives forwards futures swaps options manage commodity currency exchange financial market risks business operations company also manages portfolio commodity contracts held trading purposes part strategy market energy manage related risks effective january 1 2001 upon adoption sfas 133 accounting derivative instruments hedging activities derivatives generally recognized consolidated balance sheets fair value see note 9 discussion company’s use derivatives energy trading contracts including risk management policy accounting policy derivatives sfas 133 results hedging activities year ended december 31 2001 prior january 1 2001 company considered derivative instruments effective hedges item hedged underlying financial commodity instrument showed strong historical correlation company used deferral accounting account futures forwards derivative instruments designated hedges method realized gains losses including payment premium related effective hedges existing assets liabilities recognized earnings conjunction earnings designated asset liability gains losses related effective hedges firm commitments anticipated transactions included measurement subsequent transaction operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services revenue includes revenue energy trading activities sales electricity natural gas marketbased rates brokered gas sales service fees associated rateregulated electric distribution miscellaneous revenue energy trading activities includes realized contract settlements net virginia electric power company notes consolidated financial statementscontinued related cost sales unrealized gains losses resulting marking market commodity contracts yet settled electric fuel energy purchasesdeferred costs permitted regulatory authorities differences actual electric fuel purchased energy levels recovery expenses current rates deferred matched recoveries future rates approximately 94 percent rate regulated fuel costs subject deferral accounting see regulatory assets liabilities note 10 property plant equipment property plant equipment including additions replacements recorded original cost including labor materials direct costs capitalized interest costs repairs maintenance including minor additions replacements charged expense incurred 2001 2000 1999 company capitalized interest costs 20 million 18 million 13 million respectively cost electric transmission distribution property retired related cost removal less salvage charged accumulated depreciation generationrelated property cost removal charged expense incurred company records gains losses upon retirement generationrelated property based upon difference proceeds received property’s undepreciated basis retirement date depreciation property plant equipment computed straightline method based projected useful service lives estimated useful lives company’s property plant equipment follows generation 2060 years transmission 34 years distribution 27 years 525 years amortization nuclear fuel used electric generation provided unitofproduction basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs 2001 company increased estimate useful lives nuclear facilities 20 years change estimate made connection filing applications relicensing nuclear regulatory commission nrc income taxes company files consolidated federal income tax return participates intercompany tax allocation agreement dominion subsidiaries company’s current income taxes based taxable income determined separate company basis however public utility holding company act 1935 act company’s cash payments dominion intercompany tax allocation agreement reduced income tax benefits realized dominion holding company permitted regulatory authorities treatment temporary differences differ requirements sfas 109 accounting income taxes accordingly regulatory asset recognized probable future revenues provided payment deferred tax liabilities deferred investment tax credits amortized service lives property giving rise credits cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 2001 2000 company’s accounts payable included net effect checks outstanding yet presented payment 100 million 78 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand cash banks temporary investments purchased initial maturity three months less virginia electric power company notes consolidated financial statementscontinued impairment longlived assets company performs evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets may recoverable longlived assets written fair value sum expected future undiscounted cash flows less carrying amount regulatory assets liabilities methods allocating costs accounting periods operations subject federal state costofservice rate regulation may differ accounting methods generally applied nonregulated companies economic effects allocations prescribed regulatory authorities ratemaking purposes must considered application generally accepted accounting principles see notes 6 10 impact legislation continued application sfas 71 additional information regulatory assets liabilities amortization debt issuance costs company defers amortizes debt issuance costs debt premiums discounts lives respective debt issues permitted regulatory commissions gains losses resulting refinancing debt allocable utility operations subject costbased regulation also deferred amortized lives new issues note 3 accounting change pension costs effective january 1 2000 connection dominion’s acquisition consolidated natural gas company cng dominion subsidiaries including company adopted new companywide method calculating marketrelated value pension plan assets used determine expected return pension plan assets component net periodic pension cost management believes new method enhances predictability expected return pension plan assets provides consistent treatment investment gains losses results calculated marketrelated pension plan asset values closer market value compared values calculated preacquisition methods used dominion cng primary participating employer dominion resources retirement plan company recorded 2000 proportionate share cumulative effect change accounting principle 21 million net income taxes 11 million impact cumulative effect change accounting principle effect change net income 2000 material retroactive application new method pro forma basis would materially changed company’s net income 1999 note 4 recently issued accounting standards business combinations goodwill 2001 financial accounting standards board fasb issued sfas nos 141 business combinations 142 goodwill intangible assets sfas 141 requires purchase method accounting used business combinations initiated june 30 2001 sfas 141 also includes guidance virginia electric power company notes consolidated financial statementscontinued initial recognition measurement goodwill intangible assets arising business combinations initiated june 30 2001 sfas 142 prohibits amortization goodwill intangible assets indefinite useful lives sfas 142 requires assets reviewed impairment least annually intangible assets finite lives continue amortized estimated useful lives company adopt standard effective january 1 2002 december 31 2001 company material goodwill intangible assets obtained business combinations asset retirement obligations 2001 fasb issued sfas 143 accounting asset retirement obligations provides accounting requirements recognition measurement liabilities associated retirement tangible longlived assets standard liabilities recognized fair value incurred capitalized part cost related tangible longlived assets accretion liabilities due passage time operating expense company adopt standard effective january 1 2003 company identified retirement obligations associated decommissioning nuclear generation facilities however company yet performed complete assessment possible retirement obligations associated electric utility property company yet determined financial impact adopting new standard also new standard realized unrealized earnings external trusts available funding decommissioning activities company’s nuclear power plants recorded income comprehensive income appropriate currently company records trusts’ earnings income offsetting charge expense also recorded income associated accretion decommissioning liability see note 8 upon adoption new standard company discontinue practice accruing part depreciation expense amounts associated future costs removal utility plant however company may continue practice accruing costs subject cost service rate regulation even asset removal obligation exist would recognition regulatory assets liabilities appropriate impairment disposal longlived assets 2001 fasb issued sfas 144 accounting impairment disposal longlived assets provides guidance eliminate inconsistencies accounting impairment disposal longlived assets existing accounting pronouncements company apply provisions standard prospectively beginning january 1 2002 expect adoption material impact results operations financial condition note 5 restructuring costs 2001 restructuring costs fourth quarter 2001 completing transition period fully integrating dominion’s existing organization operations management initiated focused review dominion’s combined operations objective review identify activities resources longer necessary postcng acquisition transition period ended result company recognized 48 million restructuring costs include employee severance termination benefits abandonment leased office space longer needed virginia electric power company notes consolidated financial statementscontinued company recorded 42 million total severance related costs including 26 million billed company dominion resources services inc dominion services restructuring plan company identified approximately 124 positions eliminated recorded 16 million employee severancerelated costs employee terminations expected begin early first quarter 2002 severance payments based individual’s base salary years service time termination restructuring related costs year ended december 31 2001 follows 1 dominion services subsidiary service company 1935 act provides certain services dominion’s operating subsidiaries accordingly charges allocated billed among operating subsidiaries accordance predefined service agreements see note 21 2 includes charges abandonment leased office space related costs company dominion services 2000 restructuring costs 2000 following acquisition cng dominion subsidiaries implemented plan restructure operations combined companies restructuring plan included involuntary severance program voluntary early retirement program erp transition plan implement operational changes provide efficiencies including consolidation postmerger operations integration information technology systems december 31 2001 total 174 positions eliminated approximately 13 million severance benefits paid addition 2001 company adjusted severance liability approximately 1 million reflecting revision severance benefits payable differences estimates used plan actual base salaries years service employees terminated plan 2000 approximately 400 employees elected participate erp resulting expense approximating 51 million erp participants also received benefits involuntary severance package benefits involuntary severance package subject reduction result coordination additional retirement plan benefits provided erp year ended december 31 2000 company recorded 71 million charges connection 2000 restructuring plan follows • 14 million involuntary severance program discussed • 51 million erp see note 18 • 6 million costs related consolidation integration business operations administrative functions december 31 2001 less 1 million severance related benefit costs accrued 2000 restructuring plan paid virginia electric power company notes consolidated financial statementscontinued note 6 extraordinary item discontinuance sfas 71 1999 legislation passed established detailed plan restructure electric utility industry virginia legislation’s deregulation generation event required discontinuation sfas 71 company’s generation operations 1999 company’s transmission distribution operations continue meet criteria recognition regulatory assets liabilities defined sfas 71 addition cost fuel used electric generation continues subject deferral accounting order measure amount regulatory assets written upon discontinuance sfas 71 company evaluated estimated recovery regulatory assets virginia jurisdictional rates transition period ending july 2007 generationrelated assets liabilities recovered transition period rates written 1999 resulting aftertax charge earnings 255 million see note 10 discussion net regulatory assets december 31 2001 255 million charge also included writeoff approximately 38 million aftertax deferred investment tax credits approximately 18 million aftertax generationrelated assets corresponding regulatory asset 23 million established representing amount expected recovered transition period related assets events caused discontinuance sfas 71 generationrelated operations also required review generation assets impairment review based estimates possible future market prices load growth competition many assumptions also included effects nuclear decommissioning currently identified environmental expenditures based analyses plant writedowns appropriate time company also reviewed longterm power purchase contracts potential loss accordance sfas 5 accounting contingencies accounting research bulletin 43 chapter 4 inventory pricing based projections possible future market prices wholesale electricity march 31 1999 results analyses indicated loss recognition appropriate time projections possible future market prices indicated possible loss 500 million absence transition period rates provided legislation potential loss exposure would approximately 32 billion march 31 1999 significant estimates required recording effect deregulation legislation including resulting impact fair value determination generating facilities estimated purchases longterm power purchase contracts projections highly dependent future customer load projections generating unit availability timing type future capacity additions company’s market area future market prices fuel electricity virginia electric power company notes consolidated financial statementscontinued note 7 income taxes details income tax expense follows total statutory us federal income rate reconciles effective income tax rates follows company’s effective income tax rate increased 2001 due utility operations virginia becoming subject state income taxes lieu gross receipts taxes virginia electric power company notes consolidated financial statementscontinued company’s net accumulated deferred income taxes consist following 1 2001 2000 includes 37 million 54 million respectively current deferred tax assets reported current assets note 8 nuclear operations company four licensed nuclear reactors surry north anna plants virginia serve native load regulated electric utility operations decommissioning represents decontamination removal radioactive contaminants nuclear power plant operations ceased accordance standards established nuclear regulatory commission nrc july 2007 amounts collected ratepayers placed external trusts invested fund expected costs decommissioning surry north anna units accounting decommissioning accordance accounting policy recognized regulatory authorities jurisdiction electric utility operations company recognizes expense future cost decommissioning amounts equal amounts collected ratepayers earnings trust investments dedicated funding decommissioning company’s nuclear plants consolidated balance sheets external trusts reported fair value accumulated provision decommissioning included accumulated depreciation net realized unrealized earnings trust investments well offsetting expense decommissioning recorded component income permitted regulatory authorities balance investments held external trusts decommissioning well accumulated provision decommissioning december 31 2001 2000 858 million 851 million respectively company collected 36 million ratepayers years 2001 2000 1999 expensed like amounts component depreciation company recognized net realized gains 32 million 20 million 17 million 2001 2000 1999 company recognized net unrealized losses 61 million 23 million 2001 2000 respectively net unrealized gains 1999 60 million company recognized offsetting increases decreases provision decommissioning amounts equal net realized unrealized gains losses period virginia electric power company notes consolidated financial statementscontinued expected costs decommissioning total estimated cost decommission company’s four nuclear units 16 billion based upon sitespecific study completed 1998 new cost estimate completed 2002 cost estimate assumes method completing decommissioning activities prompt dismantlement current operating licenses decommissioning would begin 2012 detailed table however company filed request nrc 20year life extension surry north anna units 2001 company expects decommission units period 2032 2045 nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities company’s 2001 nrc minimum financial assurance amount aggregated four nuclear units 11 billion satisfied combination surety bonds funds collected external trusts insurance priceanderson act limits public liability owner nuclear power plant 95 billion single nuclear incident priceanderson act amendment 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor united states company could assessed 88 million four licensed reactors exceed 10 million per year per reactor limit number incidents retrospective premium assessed priceanderson act first enacted 1957 renewed three times 1967 1975 1988 priceanderson expires august 1 2002 operating nuclear reactors would continue covered law congress currently holding hearings reauthorize legislation company’s current level property insurance coverage 255 billion north anna 255 billion surry exceeds nrc’s minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc company’s nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 42 million based severity incident board directors company’s nuclear insurer discretion lower eliminate maximum retrospective premium assessment company financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination virginia electric power company notes consolidated financial statementscontinued company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program company subject retrospective premium assessment policy year losses exceed funds available neil current policy period’s maximum assessment 19 million north anna power station jointly owned discussed note 12 coowner responsible share nuclear decommissioning obligation insurance premiums applicable station including retrospective premium assessments losses covered insurance note 9 derivatives hedge accounting energy trading activities adoption sfas 133 company adopted sfas 133 january 1 2001 recorded aftertax charge accumulated comprehensive income aoci 14 million net taxes 9 million company reclassified approximately 13 million aoci associated january 1 2001 transition adjustment earnings 2001 effect amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies risk management policy company uses derivatives manage commodity currency exchange financial market risks business operations company manages price risk associated purchases natural gas oil utilizing derivative commodity instruments including futures swaps company manages foreign exchange risk associated anticipated future purchases denominated foreign currencies utilizing currency forward contracts company manages interest rate risk exposure part entering interest rate swap transactions part strategy market energy manage related risks company manages portfolio derivative commodity contracts held trading purposes contracts sensitive changes prices natural gas electricity company employs established policies procedures manage risks associated price fluctuations uses various commodity instruments futures swaps options reduce risk creating offsetting market positions company operating procedures place administered experienced management help ensure proper internal controls maintained regarding use derivatives addition dominion established independent function monitor compliance price risk management policies subsidiaries company designates substantial portion derivatives held purposes trading fair value cash flow hedges significant portion company’s hedge strategies represents cash flow hedges variable price risk associated purchases natural gas oil commodities company also uses cash flow hedge strategies hedge variability foreign exchange rates variable interest rates longterm debt using derivative instruments discussed preceding paragraphs company also designated interest rate swaps fair value hedges manage exposure fixed interest rates certain longterm debt certain company’s nontrading derivative instruments designated hedges accounting purposes however management believes instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates company’s derivatives designated hedges december 31 2001 represent cash flow hedges variable price risk associated purchases natural gas oil risk variability foreign exchange rates risk variable interest rates longterm debt virginia electric power company notes consolidated financial statementscontinued accounting policy sfas 133 derivatives recognized consolidated balance sheets fair value unless exception available standard commodity contracts representing unrealized gain positions reported derivative energy trading assets commodity contracts representing unrealized losses reported derivative energy trading liabilities addition purchased options sold reported derivative energy trading assets derivative energy trading liabilities respectively estimated market value exercise expiration derivatives designated hedges company formally documents relationship hedging instrument hedged item well risk management objective strategy using hedging instrument company assesses whether hedge relationship derivative hedged item highly effective offsetting changes fair value cash flows inception hedge ongoing basis change fair value derivative effective offsetting changes fair value hedged item recognized currently earnings derivatives ceased highly effective hedges company discontinues hedge accounting prospectively fair value hedge transactions company hedging changes fair value asset liability firm commitment changes fair value derivative generally offset consolidated statements income changes hedged item’s fair value cash flow hedge transactions company hedging variability cash flows related variablepriced asset liability commitment forecasted transaction changes fair value derivative reported aoci derivative gains losses reported aoci reclassified earnings periods earnings impacted variability cash flows hedged item ineffective portion change fair value derivatives change fair value derivatives designated hedges accounting purposes recognized current period earnings foreign currency forward contracts designated cash flow hedges hedge effectiveness measured based changes fair value contract attributable changes forward exchange rate options designated either fair value cash flow hedges changes time value excluded measurement hedge effectiveness therefore recorded earnings gains losses derivatives designated hedges recognized included operating revenue expenses interest related charges consolidated statements income specific line item classification determined based nature risk underlying individual hedge strategies changes fair value derivatives designated hedges portion hedging derivatives excluded measurement effectiveness included operation maintenance expense consolidated statements income cash flows resulting settlement derivatives used hedging instruments included net cash flows operating activities 2001 derivative hedge accounting results company experienced less 1 million ineffectiveness related hedges 2001 approximately 1 million net losses aoci december 31 2001 expected reclassified earnings 2002 actual amounts reclassified earnings 2002 vary amount result changes market prices effect amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies december 31 2001 company hedging exposure variability future cash flows forecasted transactions periods one five years virginia electric power company notes consolidated financial statementscontinued energy trading activities company’s energy trading contracts reported fair value corresponding changes value recognized immediately earnings net gains losses associated company’s commodity trading activities accounted net related cost sales nonregulated electric sales nonregulated gas sales cash flows resulting settlement energy trading contracts included net cash flows operating activities composition operating revenue commodity trading activities years 2001 2000 1999 follows june 2001 fasb cleared guidance permits certain optiontype contracts purchase sale electricity qualify normal purchases normal sales exception certain criteria met qualifying contracts company elects formally documents exception reported fair value otherwise required sfas 133 response june 2001 guidance issued second quarter company reevaluated certain longterm power purchase contracts company determined contracts qualified guidance thus designated normal purchases sales late december 2001 fasb issued revised guidance matter effective april 1 2002 company believes longterm power purchase contracts currently designated normal purchases normal sales continue qualify exception future interpretations sfas 133 fasb standardsetting bodies could result fair value accounting required certain contracts currently subjected requirements accordingly future interpretations may impact company’s ultimate application standard however future sfas 133 interpretive guidance results additional contracts becoming subject fair value accounting company would pursue hedging strategies mitigate potential future volatility reported earnings virginia electric power company notes consolidated financial statementscontinued note 10 regulatory assets company accounts regulated operations accordance sfas 71 regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process regulatory liabilities represent probable future reductions revenues associated amounts credited customers ratemaking process company’s regulatory assets liabilities included following incurred costs underlying regulatory assets may represent past expenditures company’s rate regulated operations may represent recognition liabilities ultimately settled time future december 31 2001 approximately 30 million company’s regulatory assets represented past expenditures earn return expenditures consist primarily deferred fuel costs recovered within two years income taxes recoverable refundable future rates resulted recognition additional deferred income taxes previously recorded past ratemaking practices cost decommissioning department energy’s doe uranium enrichment facilities represents company’s required contributions fund decommissioning decontaminating doe’s uranium enrichment facilities company began making contributions 1992 expected continue 15year period escalation inflation costs currently recovered fuel rates deferred fuel accounting provides difference 1 reasonably incurred actual cost fuels used electric generation energy purchases 2 recovery costs included current rates deferred matched future revenue virginia electric power company notes consolidated financial statementscontinued note 11 property plant equipment property plant equipment nuclear fuel consists following note 12 jointly owned plants following information relates company’s proportionate share jointly owned plants december 31 2001 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest company’s share operating costs classified appropriate operating expense fuel operations maintenance depreciation taxes etc consolidated statements income note 13 shortterm debt credit agreements company credit agreements various expiration dates fees agreements provided maximum borrowings 489 million 800 million december 31 2001 2000 respectively amount borrowed credit agreements either period company commercial paper program supported credit facility supports combined commercial paper programs dominion cng company credit facility established may 2001 175 billion matures second quarter 2002 company full access credit facility however internal allocation may vary depending upon needs participating entities company expects renew credit facility maturity net borrowings commercial paper program 436 million 714 million december 31 2001 2000 weighted average interest rate 403 663 respectively virginia electric power company notes consolidated financial statementscontinued note 14 longterm debt 1 substantially company’s property subject lien mortgage securing first refunding mortgage bonds mortgage bonds 2 company redeemed 1991a mortgage bonds 2001 3 january 2002 company called 200 million 1997a 675 mortgage bonds due february 1 2007 redemption february 2002 price 10274 plus accrued interest january 2002 company issued 650 million 5375 senior notes due february 1 2007 4 weighted average interest rates series variable rate debt ranged 252 4463 2001 5 certain pollution control facilities company’s generating facilities pledged conveyed secure financings 6 represents changes fair value certain fixed rate longterm debt associated fair value hedging relationships described note 9 company’s scheduled principal payments longterm debt december 31 2001 follows millions thereafter total 535 360 325 600 2435 4255 company’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2001 events default company’s covenants note 15 obligated mandatorily redeemable preferred securities subsidiary trust 1995 company established virginia power capital trust vp capital trust transaction vp capital trust sold 54 million trust preferred securities 135 million representing preferred beneficial interests 97 percent beneficial ownership assets held vp capital trust virginia electric power company notes consolidated financial statementscontinued exchange 135 million realized sale trust preferred securities 4 million common securities represent remaining 3 percent beneficial ownership interest assets held vp capital trust company issued 139 million 1995 series 805 junior subordinated notes due september 30 2025 notes constitute 100 percent vp capital trust’s assets notes may extended additional ten years date original maturity certain conditions satisfied note 16 preferred stock company authorized issue 10 million shares preferred stock 100 liquidation preference upon involuntary liquidation dissolution windingup company share entitled receive 100 per share plus accrued dividends cumulative 2001 company purchased redeemed shares money market preferred stock series january 1987 june 1987 125 million representing price 100 per share shown series preferred stock subject mandatory redemption outstanding december 31 2001 1 shares presented thousands 2 73103 amounts decline steps thereafter 10000 73113 3 83103 amounts decline steps thereafter 10000 83113 4 money market preferred dividend rates variable set every 49 days via auction process combined weighted average rates series outstanding 2001 2000 1999 including fees brokerdealer agreements 432 percent 571 percent 482 percent respectively note 17 longterm incentives employees company may receive stockbased awards stock options restricted stock granted dominion sponsored stock plans company measures compensation cost accordance accounting principles board opinion 25 accounting stock issued employees related interpretations apb 25 apb 25 compensation expense recognized grants stock options exercise price equaled market price dominion’s common stock date grant compensation expense recognized issuance stockawards significant 2001 2000 1999 virginia electric power company notes consolidated financial statementscontinued 2001 2000 pro forma impact net income company measured compensation expense based fair value options date grant would material 1999 dominion granted approximately 2 million common stock options certain officers key employees company options vested january 1 2000 company measured compensation expense based fair value options date grant pro forma net income 1999 would reduced approximately 5 million note 18 employee benefit plans company provides certain benefits eligible active employees retirees qualifying dependents terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits company participates dominion resources inc retirement plan dri plan defined benefit pension plan benefits payable plans based primarily years service age employee’s compensation company’s funding policy contribute annually amount accordance provisions employment retirement income security act 1974 1999 1998 company provided certain retiree health care life insurance benefits annual premiums based several factors age retirement date years service beginning 2000 company participated plans provide benefits multiple dominion subsidiaries company primary participating employer dri plan 2000 subsequent dominion’s acquisition cng dominion subsidiaries developed began implementation plan restructure operations combined companies plan included voluntary early retirement program erp salaried employees company excluding officers attained age 52 completed least five years service july 1 2000 eligible erp early retirement option provided three additional years age three additional years employee service subject age service maximums benefit formula purposes dominion’s postretirement medical pension plans effect erp company’s pension plan post retirement benefit expenses 38 million 13 million respectively virginia electric power company notes consolidated financial statementscontinued following tables summarize information pension benefit plans company participates including changes pension postretirement benefit plan obligations plan assets years ended december 31 2001 2000 statement plans’ funded status december 31 2001 2000 virginia electric power company notes consolidated financial statementscontinued components provision net periodic benefit cost follows significant assumptions used determining net periodic pension cost projected benefit obligation postretirement benefit obligations medical cost trend rate assumed gradually decrease 475 2006 continue rate years thereafter assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects funds collected postretirement benefits rates excess benefits actually paid year contributed external benefit trusts see note 19 discussion impact deregulation legislation recoverability potentially stranded costs company also sponsors employee savings plans cover substantially employees employer matching contributions 10 million 12 million 11 million expensed 2001 2000 1999 respectively virginia electric power company notes consolidated financial statementscontinued note 19 commitments contingencies result issues generated course daily business company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money management believes final disposition proceedings material adverse effect company’s operations financial position liquidity results operations utility rate regulation company faces competition result utility industry deregulation virginia’s electric utility industry deregulation legislation company’s base rates remain capped july 2007 unless company petitions virginia commission approves earlier termination anytime january 1 2004 capped rates provide recovery certain generationrelated costs company remains exposed numerous risks including among others exposure potentially stranded costs future environmental compliance requirements changes tax laws inflation increased capital costs december 31 2001 company’s exposure potentially stranded costs comprised longterm power purchase contracts could ultimately determined market see power purchase contracts generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements see notes 8 18 capital expenditures company made substantial commitments connection capital expenditures program expenditures estimated total approximately 827 million 816 million 655 million 2002 2003 2004 respectively purchases nuclear fuel included fuel purchase commitments company expects expenditures met cash flow operations combination sales securities shortterm borrowings power purchase contracts company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 43 nonutility purchase contracts combined dependable summer capacity 3770 megawatts table reflects company’s minimum commitments december 31 2001 power purchases utility nonutility suppliers virginia electric power company notes consolidated financial statementscontinued addition minimum commitments table contracts company may purchase option energy needed purchased power expenditures subject cost service rate regulation including economy emergency limited term shortterm longterm purchases years 2001 2000 1999 11 billion 11 billion 12 billion respectively 2001 company completed purchase three generating facilities termination seven contracts provided electricity company longterm power purchase agreements nonutility generators nug company recorded aftertax charge 136 million connection purchase termination longterm power purchase agreements cash payments related purchase three generating facilities totaled 207 million allocation purchase price assigned assets liabilities acquired based upon estimated fair values date acquisition substantially value attributed power purchase agreements terminated resulted charge included operations maintenance expense see note 6 additional disclosure regarding evaluation company’s potential exposure longterm power purchase commitments fuel purchase commitments company enters longterm purchase commitments fuel used electric generation estimated fuel purchase commitments next five years follows 2002398 million 2003215 million 2004171 million 2005152 million 2006117 million company recovers costs purchases regulated rates lease commitments company leases various facilities vehicles equipment operating capital leases future minimum lease payments company’s capital operating leases initial remaining lease terms excess one year december 31 2001 follows 200237 million 200329 million 200420 million 200519 million 200612 million years 200652 million rental expense included operations maintenance expense 25 million 24 million 26 million 2001 2000 1999 respectively addition company entered agreements another dominion subsidiary order develop construct finance lease new power generation facility company’s possum point station prince william county virginia project scheduled completion 2003 estimated cost 370 million upon completion company operate new generating facility operating lease estimated annual lease payments 26 million energy trading subsidiaries company enter purchases sales commoditybased contracts energyrelated markets including natural gas electricity coal oil agreements may cover current future periods volume transactions varies day based market conditions see note 9 discussion company’s energy trading activities risk management policies virginia electric power company notes consolidated financial statementscontinued environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations historically company recovered costs arising regulated electric operations utility rates however extent environmental costs incurred connection operations regulated virginia state corporation commission period ending june 30 2007 excess level currently included virginia jurisdictional rates company’s results operations decrease date company may seek recovery customers utility rates environmental costs related transmission distribution operations superfund sites 1987 environmental protection agency epa identified company number entities potentially responsible parties prps two superfund sites located kentucky pennsylvania current cost studies estimate total remediation costs sites range 98 million 153 million company’s proportionate share total cost expected range 2 million 3 million based upon allocation formulas volume waste shipped sites majority remediation activities kentucky site complete remediation design ongoing pennsylvania site company accrued reserve 2 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay share costs company generally seeks recover costs associated environmental remediation third party insurers december 31 2001 pending possible claims recognized asset offset obligations epa matters 1999 department justice doj notified company alleged noncompliance epa’s oil spill prevention control countermeasures spcc plans facility response plan frp requirements one company’s power stations december 2001 company reached settlement agreement doj epa covering alleged noncompliance issues settlement material impact company’s financial condition results operations company also identified matters power stations epa might view compliance spcc frp requirements reported matters epa company also reported plans correcting issues company believe settlement selfreported matters material results operations financial conditions 2000 company received notice violation epa alleging company failed obtain new source review permits clean air act prior undertaking specified construction projects mt storm power station west virginia attorney general new york filed suit company alleging similar violations clean air act mt storm power station company also received notices attorneys general connecticut new jersey intentions file suit similar violations management believes company obtained necessary permits generating facilities company reached agreement principle federal government state new york resolve situation agreement principle includes payment 5 million civil penalty virginia electric power company notes consolidated financial statementscontinued commitment 14 million environmental projects virginia west virginia connecticut new jersey new york 12year 12 billion capital investment program environmental improvements companys coalfired generating stations virginia west virginia company already committed substantial portion 12 billion expenditures sulfur dioxide nitrogen oxide emissions controls negotiations terms binding settlement expanded beyond basic agreement principle ongoing december 31 2001 company recorded discounted basis 18 million civil penalty environmental projects spent nuclear fuel provisions nuclear waste policy act 1982 company entered contracts doe disposal spent nuclear fuel doe failed begin accepting spent nuclear fuel january 31 1998 date provided nuclear waste policy act company’s contract doe company continue safely manage spent fuel accepted doe retrospective premium assessments several company’s nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note 8 note 20 fair value financial instruments substantially company’s financial instruments recorded fair value exception instruments described fair value amounts determined using available market information valuation methodologies considered appropriate management company reports following financial instruments based historical cost rather fair value financial instruments’ carrying amounts fair values december 31 2001 2000 follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities used estimate fair value 2 fair value based market quotations 3 upon adoption sfas 133 january 1 2001 derivatives reported fair value fair value unrecognized financial instruments december 31 2000 recognized component january 1 2001 sfas 133 transition adjustment see note 9 discussion company’s derivatives hedge accounting activities 4 fair value based upon present value estimated net future cash flows taking account current interest rates creditworthiness swap counterparties virginia electric power company notes consolidated financial statementscontinued note 21 related party transactions company unregulated subsidiary exchanges certain quantities natural gas oil affiliates index prices electricity market prices ordinary course business company purchased approximately 117 million 60 million natural gas dominion affiliates sold approximately 229 million 33 million affiliates 2001 period january 28 2000 december 31 2000 respectively addition company purchased gas transportation storage services affiliates 16 million 5 million 2001 period january 28 2000 december 31 2000 respectively company sold 4 million 5 million electricity market prices affiliated companies 2001 period january 28 2000 december 31 2000 respectively 2001 company sold 1 million oil affiliates market company unregulated subsidiary involved facilitating dominions enterprise risk management strategy connection strategy company enters certain commodity derivative contracts dominion affiliates contracts principally comprised commodity swaps used dominion affiliates manage commodity price risks associated purchases sales natural gas part dominions enterprise risk management strategy company generally manages risk exposures entering offsetting derivative instruments nonaffiliates company reports affiliated nonaffiliated derivative instruments fair value changes thereto included earnings companys consolidated balance sheets include derivative energy trading assets 159 million 171 million dominion affiliates derivative energy trading liabilities 77 million 55 million dominion affiliates december 31 2001 2000 respectively company reported net realized gains 2 million net realized losses 21 million 2001 2000 respectively related commodity derivative contracts dominion affiliates effective february 1 2000 dominion created subsidiary service company dominion resources services inc dominion services provides certain services company connection formation dominion services certain company’s employees became employees dominion services cost services provided dominion services company 2001 period february 1 2000 december 31 2000 approximately 313 million 202 million respectively 2001 company transferred certain assets liabilities dominion services net book value approximately 27 million gain loss recorded transfer addition prior february 1 2000 certain employees dominion provided services company cost services 2 million 9 million period january 1 2000 january 31 2000 1999 respectively company also charged affiliates certain costs incurred behalf including facility equipment expenses personnel costs cost services charged company affiliates 23 million 15 million 2 million 2001 2000 1999 respectively company leases principal office building dominion agreement approved virginia commission expires 2006 agreement accounted capital lease capitalized cost property lease net accumulated amortization approximately 17 million 19 million december 31 2001 2000 respectively rental payments lease 3 million years ended december 31 2001 2000 1999 information company’s agreement dominion equipment inc develop construct finance lease new power generation facility possum point station prince william county virginia see lease commitments note 19 virginia electric power company notes consolidated financial statementscontinued july 2000 company transferred issued outstanding common stock vps communications inc vps dominion renamed vps dominion telecom inc dti 2001 dominion contributed dti dominion fiber ventures llc dfv telecommunications joint venture dfv sole owner dti company leases fiber optic capacity dti rates subject approval virginia commission payments received company connection dominion telecom’s lease fiber optic equipment related fiber optic support maintenance services 2001 period august 1 2000 december 31 2000 approximately 4 million 1 million respectively capitalized cost property lease net accumulated amortization approximately 5 million december 31 2001 december 31 2000 2001 unregulated division company transferred energy management services contracts related leases another dominion subsidiary 14 million representing company’s net book value recorded books contracts company net outstanding payable balance approximately 192 million 122 million affiliates net outstanding receivable approximately 54 million 30 million december 31 2001 2000 respectively company also 5 million note receivable affiliates outstanding december 31 2001 december 31 2000 balances due affiliates settled based contractual terms monthly basis depending nature underlying transactions see notes 2 17 18 discussion inclusion company dominion’s consolidated federal income tax return company’s participation certain dominion employee incentive benefit plans note 22 dividend restrictions virginia commission may prohibit public service company declaring paying dividend affiliate found public interest december 31 2001 virginia commission restricted payment dividends company note 23 operating segments company organized primarily basis products services sold united states company manages operations based two operating segments • energy encompasses company’s portfolio generating facilities power purchase contracts trading marketing activities • delivery includes bulk power transmission distribution metering services customer service continues subject requirements sfas 71 majority company’s revenue provided bundled rate tariffs generally revenues allocated two segments management reporting based prior cost service studies addition company also reports corporate segment corporate include certain expenses allocated energy delivery segments including 1 corporate operations assets virginia electric power company notes consolidated financial statementscontinued 2 transactions events allocated operating segments internal reporting purposes 2001 nonutility generator power purchase charge see note 19 2001 2000 restructuring costs see note 5 2000 cumulative effect change accounting principle see note 3 1999 extraordinary item see note 6 following table presents segment information pertaining company’s operations virginia electric power company notes consolidated financial statementscontinued note 24 quarterly financial data unaudited summary quarterly results operations years 2001 2000 follows amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors 2000 dominion subsidiaries including company adopted companywide method calculating market related value pension plan assets used determine expected return pension plan assets component net periodic pension cost cumulative effect accounting change prior years recorded january 1 2000 21 million net taxes 11 million item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2015 2014 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2015 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 26 2016 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 26 2016 dominion resources inc consolidated statements income 1 includes income tax benefit 43 million 2013 accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 see note 3 amounts attributable related parties 2 1 billion shares authorized 596 million shares 585 million shares outstanding december 31 2015 2014 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements equity 1 primarily includes 28 million shares issued excess principal amounts related converted securities net reclassification paidin capital see note 17 information convertible securities 2 see note 17 information 3 includes subsidiary preferred dividends related noncontrolling interests 13 million 17 million 2014 2013 respectively 4 contains shares issued excess principal amounts related converted securities see note 17 information convertible securities accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows 1 see note 3 noncash activities related acquisition four brothers three cedars accompanying notes integral part dominion’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2015 2014 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2015 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 26 2016 virginia electric power company consolidated statements income 1 see note 24 amounts attributable affiliates 2 includes 2 million associated writeoff issuance expenses related redemption virginia power’s preferred stock 2014 see note 18 additional information accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 see note 24 amounts attributable affiliates 1 see note 24 amounts attributable affiliates 2 500000 shares authorized 274723 shares outstanding december 31 2015 2014 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors dominion gas holdings llc richmond virginia audited accompanying consolidated balance sheets dominion gas holdings llc whollyowned subsidiary dominion resources inc subsidiaries “dominion gas” december 31 2015 2014 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2015 financial statements responsibility dominion gas’ management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement dominion gas required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness dominion gas’ internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion gas holdings llc subsidiaries december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 26 2016 dominion gas holdings llc consolidated statements income 1 see note 24 amounts attributable related parties 2 includes gains sales assets related parties 59 million 122 million 2014 2013 respectively see note 9 information accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements comprehensive income accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated balance sheets 1 see note 24 amounts attributable related parties 1 see note 24 amounts attributable related parties accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements equity accompanying notes integral part dominion gas’ consolidated financial statements dominion gas holdings llc consolidated statements cash flows accompanying notes integral part dominion gas’ consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power dominion gas virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s stock owned dominion gas holding company conducts business activities regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states regulated gas transportation distribution operations ohio gas gathering processing activities primarily west virginia ohio pennsylvania dominion gas’ membership interests held dominion’s operations also include lng import transport storage facility maryland preferred equity interest contributed dominion midstream 2014 equity investment atlantic coast pipeline regulated gas transportation distribution operations west virginia dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations equity investment blue racer october 2014 dominion midstream launched initial public offering 20125000 common units representing limited partner interests price 21 per unit included overallotment option purchase additional 2625000 common units initial offering price exercised full underwriters dominion received 392 million net proceeds sale units deducting underwriting discounts structuring fees estimated offering expenses december 31 2015 dominion owns general partner 641 limited partner interests dominion midstream owns preferred equity interest general partner interest cove point dcg 2593 noncontrolling partnership interest iroquois public’s ownership interest dominion midstream reflected noncontrolling interest dominion’s consolidated financial statements dominion manages daily operations three primary operating segments dvp dominion generation dominion energy dominion also reports corporate segment includes corporate service company functions including unallocated debt net impact operations discontinued discussed notes 3 25 addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments dominion gas manages daily operations one primary operating segment dominion energy also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance effect certain items recorded dominion gas result recognition dominion’s basis net assets contributed see note 25 discussion companies’ operating segments note 2 significant accounting policies general companies make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates companies’ consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries nonwhollyowned entities controlling financial interest certain partnership structures income allocated based liquidation value underlying contractual arrangements sunedison’s ownership interest four brothers three cedars well terra nova renewable partners’ 33 interest certain dominion’s merchant solar projects reflected noncontrolling interest dominion’s consolidated financial statements see note 3 information transactions sunedison companies report certain contracts instruments investments fair value see note 6 information fair value measurements dominion maintains pension postretirement benefit plans virginia power dominion gas participate certain plans see note 21 information plans certain amounts 2014 2013 consolidated financial statements footnotes reclassified conform 2015 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities equity cash flows amounts disclosed dominion inclusive virginia power andor dominion gas applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers dominion virginia power collect sales consumption consumer utility taxes dominion gas collects sales taxes however amounts excluded revenue dominion’s customer receivables december 31 2015 2014 included 462 million 564 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2015 2014 included 333 million 407 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers dominion gas’ customer receivables december 31 2015 2014 included 98 million 127 million respectively accrued unbilled revenue based estimated amounts natural gas delivered yet billed customers primary types sales service activities reported operating revenue dominion follows • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity • regulated gas sales consist primarily state fercregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity • gas transportation storage consists primarily fercregulated sales gathering transmission distribution storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers • revenue consists primarily sales ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • revenue consists primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities primary types sales service activities reported operating revenue dominion gas follows • regulated gas sales consist primarily state fercregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties • gas transportation storage consists primarily fercregulated sales gathering transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers • ngl revenue consists primarily sales ngl production condensate extracted products associated derivative activity • revenue consists primarily miscellaneous service revenue gas processing handling revenue electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences dominion’s virginia power’s actual electric fuel purchased energy expenses dominion’s dominion gas’ purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms virtually dominion gas’ cove point’s hope’s natural gas purchases either subject deferral accounting recovered customer accounting period sale income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power dominion gas’ subsidiaries addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed although dominion gas disregarded income tax purposes provision income taxes recognized reflect inclusion business activities tax returns parent dominion virginia power dominion gas participate intercompany tax sharing agreements dominion subsidiaries current income taxes based taxable income loss credits determined separate company basis agreements subsidiary incurs tax loss earns credit recognition current income tax benefits limited refunds prior year taxes obtained carryback net operating loss credit extent tax loss credit absorbed taxable income dominion consolidated group members otherwise net operating loss credit carried forward recognized deferred tax asset realized accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes accordingly deferred taxes recognized future consequences different treatments used reporting transactions financial accounting income tax returns companies establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues combined notes consolidated financial statements continued provided payment deferred tax liabilities companies recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets companies recognize interest underpayments overpayments income taxes interest expense income respectively penalties also recognized income dominion’s virginia power’s dominion gas’ interest penalties immaterial 2015 2014 2013 december 31 2015 virginia power’s consolidated balance sheet included 296 million affiliated receivable representing current year excess federal income tax payments expected refunded 9 million federal income taxes payable prior years less 1 million state income taxes payable 10 million state income taxes receivable 14 million noncurrent state income taxes receivable 2 million noncurrent state income taxes payable december 31 2014 virginia power’s consolidated balance sheet included 225 million federal state income taxes receivable 13 million noncurrent state income taxes receivable 38 million noncurrent federal state income taxes payable march 2015 virginia power received 229 million refund 2014 federal income tax payments december 31 2015 dominion gas’ consolidated balance sheet included 91 million affiliated receivables representing current year excess federal income tax payments expected refunded benefit utilizing subsidiary’s tax loss offset taxable income dominion’s consolidated tax return filed 2016 less 1 million state income taxes payable 4 million state income taxes receivable 22 million noncurrent state income taxes payable december 31 2014 dominion gas’ consolidated balance sheet included 96 million federal state income taxes receivable 14 million state income taxes payable 7 million noncurrent state income taxes payable 20 million noncurrent state income taxes receivable march 2015 dominion gas received 93 million refund 2014 federal income tax payments investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment following table illustrates checks outstanding yet presented payment recorded accounts payable companies purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion virginia power use derivative instruments futures swaps forwards options ftrs manage commodity financial market risks business operations dominion gas uses derivative instruments physical financial forwards futures swaps manage commodity price interest rate risks derivatives except exception applies required reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance companies offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 16 million 287 million associated cash collateral december 31 2015 2014 respectively dominion’s margin liabilities associated cash collateral december 31 2015 immaterial dominion margin liabilities 34 million associated cash collateral december 31 2014 virginia power margin assets associated cash collateral december 31 2015 virginia power margin assets 6 million associated cash collateral december 31 2014 virginia power margin liabilities associated cash collateral december 31 2015 2014 dominion gas margin assets liabilities related cash collateral december 31 2015 2014 see note 7 information derivatives manage price risk dominion virginia power hold certain derivative instruments designated hedges accounting purposes however extent dominion virginia power hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates part dominion’s strategy market energy manage related risks formerly managed portfolio commoditybased financial derivative instruments held trading purposes dominion used established policies procedures manage risks associated price fluctuations energy commodities used various derivative instruments reduce risk creating offsetting market positions second quarter 2013 dominion commenced repositioning producer services business repositioning completed first quarter 2014 resulted termination natural gas trading certain energy marketing activities statement income presentation • derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis • derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges based nature underlying risk virginia power’s generation operations changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments companies designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges companies formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges derivative instruments accounted fair value hedges cash flow hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority companies’ hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas ngls energyrelated products companies also use interest rate swaps hedge exposure variable interest rates longterm debt transactions companies hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable dominion entered interest rate derivative instruments hedge forecasted interest payments related planned debt issuances 2013 2014 interest rate derivatives designated dominion cash flow hedges 2012 2013 prior formation dominion gas purposes dominion gas financial statements derivative balances aoci balance income statement impact related interest rate derivative instruments entered dominion continue included dominion gas’ consolidated financial statements forecasted interest payments related debt issuances occur dominion gas fair value hedgesdominion also uses fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition dominion virginia power designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value derivative gains losses hedged item reclassified earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2015 2014 2013 dominion capitalized interest costs afudc property plant equipment 100 million 80 million 66 million respectively 2015 2014 2013 virginia power capitalized afudc property plant equipment 30 million 39 million 33 million respectively 2015 2014 2013 dominion gas capitalized afudc property plant equipment 1 million 1 million 5 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2015 2014 2013 virginia power recorded 19 million 8 million 32 million afudc related projects respectively combined notes consolidated financial statements continued property subject costofservice rate regulation including virginia power electric distribution electric transmission generation property dominion gas natural gas distribution transmission property certain dominion natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable abandoned property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives companies’ average composite depreciation rates utility property plant equipment follows 2013 virginia power revised depreciation rates reflect results new depreciation study change resulted increase 19 million 12 million aftertax depreciation amortization expense virginia power’s consolidated statements income 2014 virginia power also made onetime adjustment depreciation expense ordered virginia commission adjustment resulted increase 38 million 23 million aftertax depreciation amortization expense virginia power’s consolidated statements income 2013 dominion gas revised depreciation rates east ohio reflect results new depreciation study change resulted decrease 8 million 5 million aftertax depreciation amortization expense dominion gas’ consolidated statements income dominion’s nonutility property plant equipment depreciated using straightline method following estimated useful lives depreciation amortization related virginia power’s dominion gas’ nonutility property plant equipment ep properties immaterial years ended december 31 2015 2014 2013 nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets companies perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 6 discussion impairments related certain longlived assets regulatory assets liabilities accounting dominion’s dominion gas’ regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made asset retirement obligations companies recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses least annually companies evaluate key assumptions underlying aros including estimates amounts timing future cash flows associated retirement activities aros adjusted significant changes assumptions identified dominion gas report accretion aros depreciation asset retirement costs associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros virginia power reports accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions additionally virginia power reports accretion aros depreciation asset retirement costs associated certain prospective rider projects adjustment regulatory asset certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense respectively consolidated statements income debt issuance costs companies defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others deferred debt issuance costs recorded asset classified current assets deferred charges assets consolidated balance sheets amortization issuance costs reported interest expense unamortized costs associated redemptions debt securities prior stated maturity dates generally recognized recorded interest expense immediately effective january 2016 deferred debt issuance costs recorded reduction longterm debt consolidated balance sheets permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities • trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income • availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments companies account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include • equity method investments companies ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets companies record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method • cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investmentsspecial considerations • recognition provisions fasb’s otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities • debt securitiesusing information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss dominion virginia power record credit loss earnings remaining portion unrealized combined notes consolidated financial statements continued loss aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors • equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since dominion virginia power limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory dominion gas used east ohio gas distribution operations valued using lifo method lifo method stored gas inventory valued 24 million 12 million december 31 2015 december 31 2014 respectively based average price gas purchased 2015 2014 cost replacing current portion stored gas inventory exceeded amount stated lifo basis 109 million 98 million respectively stored gas inventory dominion held hope certain nonregulated gas operations valued using weightedaverage cost method gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion gas value imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion gas parties reported current assets imbalances dominion gas owe parties reported current liabilities consolidated balance sheets goodwill dominion gas evaluate goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount new accounting standards may 2014 fasb issued revised accounting guidance revenue recognition contracts customers core principle revised accounting guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services amendments update also require disclosure nature amount timing uncertainty revenue cash flows arising contracts customers companies revised accounting guidance effective interim annual periods beginning january 1 2018 companies currently preliminary stages evaluating impact guidance results operations overall liquidity companies plan complete preliminary assessment includes subset representative contracts 2016 initial evaluation complete companies expand scope assessment include contracts customers increased disclosures impacts revised accounting guidance results operations cash flows companies cannot determined assessment process complete november 2015 fasb issued revised accounting guidance simplify presentation deferred income taxes update requires deferred tax liabilities assets classified noncurrent consolidated balance sheet companies adopted guidance prospective basis period ended december 31 2015 prior periods companies presented deferred taxes either current noncurrent sections consolidated balance sheets based classification related financial accounting assets liabilities items operating loss carryforwards period deferred taxes expected reverse january 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure financial instruments notably update revises accounting equity securities except accounted equity method accounting resulting consolidation requiring equity securities measured fair value changes fair value recognized net income however entity may measure equity investments readily determinable fair value cost minus impairment plus changes observable price changes orderly transactions identical similar investment issuer guidance also simplifies impairment assessment equity investments without readily determinable fair values revises presentation financial assets liabilities amends certain disclosure requirements associated fair value financial instruments guidance effective companies’ interim annual reporting periods beginning january 1 2018 cumulativeeffect adjustment balance sheet amendments related equity securities without readily determinable fair values applied prospectively investments exist date adoption companies currently evaluating impact adoption standard consolidated financial statements disclosures february 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure leasing arrangements update requires recognition lease assets liabilities leases currently classified operating leases also refining definition lease addition lessees required disclose key information amount timing uncertainty cash flows arising leasing arrangements guidance effective companies’ interim annual reporting periods beginning january 1 2019 although early adopted modified retrospective approach leases commenced prior date adoption companies currently evaluating impact adoption standard consolidated financial statements disclosures note 3 acquisitions dispositions dominion proposed acquisition questar pursuant terms questar combination announced february 2016 upon closing share questar common stock issued outstanding immediately prior closing converted automatically right receive 25 cash per share approximately 44 billion total addition questar’s debt currently totals approximately 16 billion expected remain outstanding additionally dominion entered agreements several lending banks pursuant committed provide temporary debt financing consisting 39 billion acquisition facility dominion intends permanently finance transaction manner supports existing credit ratings targets issuing combination common stock mandatory convertibles including rsns debt dominion indirectly issuance common units dominion midstream proceeds applied pay dominion certain assets questar expected contributed dominion midstream transaction requires approval questar’s shareholders clearance federal trade commission hartscottrodino act questar dominion also file review approval required utah public service commission wyoming public service commission provide information regarding transaction idaho public utilities commission february 2016 federal trade commission granted antitrust approval questar combination hartscottrodino act questar combination contains certain termination rights dominion questar provides upon termination questar combination specified circumstances dominion would required pay termination fee 154 million questar would required pay dominion termination fee 99 million subject receipt questar shareholder required regulatory approvals meeting closing conditions dominion targets closing end 2016 whollyowned merchant solar projects acquisitions following table presents significant completed acquisitions whollyowned merchant solar projects dominion 2014 2015 longterm power purchase interconnection operation maintenance agreements executed projects dominion claimed andor expects claim federal investment tax credits projects included dominion generation operating segment 1 purchase price primarily allocated property plant equipment 2 includes acquisition cost 3 one projects marin carport expected begin commercial operations 2016 sale interest merchant solar projects september 2015 dominion signed agreement sell noncontrolling interest consisting 33 equity interests currently whollyowned merchant solar projects 24 solar projects totaling approximately 425 mw sunedison approximately 300 million december 2015 sale interest 15 solar projects closed 184 million sale interest remaining projects completed january 2016 sunedison subsequently sold interest projects terra nova renewable partners sunedison future option buy portion dominion’s remaining 67 ownership projects upon occurrence certain events none occurred december 31 2015 expected occur 2016 combined notes consolidated financial statements continued nonwhollyowned merchant solar projects acquisitions four brothers three cedars june 2015 dominion acquired 50 units four brothers sunedison 64 million consideration consisting 2 million cash 62 million payable december 31 2015 43 million payable included current liabilities dominion’s consolidated balance sheets four brothers’ purpose develop operate four solar projects located utah produce sell electricity renewable energy credits projects expected cost approximately 730 million construct including initial acquisition cost dominion obligated contribute 445 million capital fund construction projects contributed 138 million december 31 2015 facilities expected begin commercial operations third quarter 2016 generating approximately 320 mw september 2015 dominion acquired 50 units three cedars sunedison 43 million consideration consisting 6 million cash 37 million payable december 31 2015 29 million payable included current liabilities dominion’s consolidated balance sheets three cedars’ purpose develop operate three solar projects located utah produce sell electricity renewable energy credits projects expected cost approximately 425 million construct dominion obligated contribute 276 million capital fund construction projects contributed 60 million december 31 2015 facilities expected begin commercial operations third quarter 2016 generating approximately 210 mw longterm power purchase interconnection operation maintenance agreements executed four brothers three cedars dominion expects claim 99 federal investment tax credits projects dominion owns 50 voting interests four brothers three cedars controlling financial interest entities rights control operations allocation 64 million purchase price four brothers resulted 89 million property plant equipment 25 million noncontrolling interest allocation 43 million purchase price three cedars resulted 65 million property plant equipment 22 million noncontrolling interest noncontrolling interest entity measured fair value using discounted cash flow method primary components valuation future cash flows incoming outgoing discount rate dominion determined discount rate based cost capital utilityscale investor would expect well cost capital individual project developer could achieve via combination nonrecourse project financing outside equity partners acquired assets four brothers three cedars included dominion generation operating segment four brothers three cedars entered agreements sunedison provide administrative support services connection construction projects operation maintenance facilities administrative technical management services solar facilities addition dominion entered contracts sunedison provide services related construction project management oversight costs related services provided agreements immaterial year ended december 31 2015 subsequent dominion’s acquisition four brothers three cedars december 31 2015 sunedison made contributions four brothers three cedars 103 million aggregate reflected noncontrolling interests consolidated balance sheets december 2015 sunedison entered agreement sell interest four brothers three cedars sale four brothers holdings llc granite mountain renewables llc iron springs renewables llc desri dominion midstream acquisition interest iroquois september 2015 dominion midstream acquired ng njnr 2593 noncontrolling partnership interest iroquois owns operates 416mile fercregulated natural gas transmission pipeline new york connecticut exchange partnership interest dominion midstream issued 86 million common units representing limited partnership interests dominion midstream 68 million common units ng 204 interest 18 million common units njnr 553 interest investment recorded 216 million based value dominion midstream’s common units closing common units reflected noncontrolling interest dominion’s consolidated financial statements dominion midstream’s noncontrolling partnership interest reflected dominion energy operating segment addition acquisition dominion gas currently holds 2472 noncontrolling partnership interest iroquois dominion midstream dominion gas account interest iroquois equity method investment see notes 9 15 information regarding iroquois acquisition dcg january 2015 dominion completed acquisition 100 equity interests dcg scana corporation 497 million cash adjusted working capital dcg owns operates nearly 1500 miles fercregulated interstate natural gas pipeline south carolina southeastern georgia acquisition supports dominion’s natural gas expansion southeastern us allocation purchase price resulted 277 million net property plant equipment 250 million goodwill approximately 225 million expected deductible income tax purposes 38 million regulatory liabilities goodwill reflects value associated enhancing dominion’s regulated gas position economic value attributable future expansion projects well increased opportunities synergies acquired assets dcg included dominion energy operating segment march 24 2015 dcg converted limited liability company laws south carolina changed name carolina gas transmission corporation dcg april 1 2015 dominion contributed 100 issued outstanding membership interests dcg dominion midstream exchange total consideration 501 million adjusted working capital total consideration dominion consisted issuance twoyear 301 million senior unsecured promissory note payable dominion midstream annual interest rate 06 5112139 common units valued 200 million representing limited partner interests dominion midstream number units based volume weighted average trading price dominion midstream’s common units ten trading days prior april 1 2015 3912 per unit since dominion consolidates dominion midstream financial reporting purposes transaction eliminated upon consolidation impact dominion’s financial position cash flows sale electric retail energy marketing business march 2014 dominion completed sale electric retail energy marketing business proceeds 187 million net transaction costs sale resulted gain subject postclosing adjustments 100 million 57 million aftertax net 31 million writeoff goodwill included operations maintenance expense dominion’s consolidated statements income sale electric retail energy marketing business qualify discontinued operations classification sale illinois gas contracts june 2013 dominion completed sale illinois gas contracts sales price 32 million subject postclosing adjustments sale resulted gain 29 million 18 million aftertax net 3 million writeoff goodwill included operations maintenance expense dominion’s consolidated statement income sale illinois gas contracts qualify discontinued operations classification considered component applicable accounting guidance sale brayton point kincaid equity method investment elwood march 2013 dominion entered agreement energy capital partners sell brayton point kincaid equity method investment elwood first second quarters 2013 brayton point’s kincaid’s assets liabilities disposed classified held sale adjusted estimated fair value less cost sell resulting impairment charges totaling 48 million 28 million aftertax included discontinued operations dominion’s consolidated statements income periods dominion used market approach estimate fair value brayton point’s kincaid’s longlived assets considered level 2 fair value measurements given based agreedupon sales price dominion’s 50 interest elwood equity method investment therefore accordance applicable accounting guidance carrying amount investment classified held sale equity earnings investment reported discontinued operations august 2013 dominion completed sale received proceeds 465 million net transaction costs sale resulted 35 million 25 million aftertax gain attributable equity method investment elwood included income dominion’s consolidated statement income partially offset 17 million 18 million aftertax loss attributable brayton point kincaid includes 16 million writeoff goodwill reflected loss discontinued operations dominion’s consolidated statement income following table presents selected information regarding results operations brayton point kincaid reported discontinued operations dominion’s consolidated statements income 1 includes 64 million charges related defeasance brayton point debt early redemption kincaid debt 2013 virginia power acquisition solar project december 2015 virginia power completed acquisition 100 solar development project north carolina morgans corner 47 million allocated property plant equipment project placed service december 2015 total cost 49 million including initial acquisition cost project generates approximately 20 mw output generated project used meet ten year nonjurisdictional supply agreement us navy unilateral option extend additional ten years october 2015 north carolina commission granted transfer existing cpcn morgans corner virginia power acquired asset included virginia power generation operating segment dominion gas blue racer see note 9 discussion transactions related blue racer assignments shale development rights see note 10 discussion assignments shale development rights combined notes consolidated financial statements continued note 4 operating revenue companies’ operating revenue consists following note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently companies routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material december 2015 us federal legislation enacted providing extension 50 bonus depreciation allowance qualifying expenditures incurred 2015 2016 2017 phasing allowance 40 2018 30 2019 expiration thereafter addition legislation extends 30 investment tax credit qualifying expenditures incurred 2019 provides phase credit 26 2020 22 2021 10 2022 thereafter us federal legislation also enacted december 2014 delay expiration bonus depreciation allowance one year available qualifying expenditures incurred 2014 continuing operations details income tax expense continuing operations including noncontrolling interests follows 2015 dominion’s current federal income tax benefit includes recognition 20 million benefit related carryback filed nuclear decommissioning expenditures included 2014 net operating loss continuing operations including noncontrolling interests statutory us federal income tax rate reconciles companies’ effective income tax rate follows dominion’s effective tax rate 2014 reflects recognition state tax credits previously unrecognized tax benefits due expiration statutes limitations dominion gas’ effective tax rate 2015 reflects benefit resulting impact changes allocation income among states existing deferred taxes companies’ deferred income taxes consist following december 31 2015 dominion following deductible loss credit carryforwards • federal loss carryforwards 594 million expire unutilized period 2021 2034 • federal investment tax credits 407 million expire unutilized period 2033 2035 • federal production tax credits 89 million expire unutilized period 2031 2035 • state loss carryforwards 16 billion expire unutilized period 2018 2034 valuation allowance 11 billion carryforwards established • state minimum tax credits 145 million expire • state investment tax credits 40 million expire unutilized period 2019 2024 december 31 2015 virginia power following deductible loss credit carryforwards • federal loss carryforwards 7 million expire unutilized period 2031 2034 • federal investment production tax credits 38 million expire unutilized period 2031 2035 • state investment tax credits 9 million expire unutilized 2024 december 31 2015 dominion gas federal loss carryforwards 10 million expire unutilized period 2031 2034 credit carryforwards combined notes consolidated financial statements continued reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion subsidiaries unrecognized tax benefits 69 million 77 million 126 million december 31 2015 2014 2013 respectively dominion change unrecognized tax benefits decreased income tax expense 6 million 47 million 29 million 2015 2014 2013 respectively virginia power unrecognized tax benefits 8 million december 31 2015 2014 2013 virginia power change unrecognized tax benefits affected income tax expense less 1 million 2015 2014 increased income tax expense 4 million 2013 dominion gas unrecognized tax benefits 19 million december 31 2015 2014 2013 dominion gas change unrecognized tax benefits affected income tax expense less 1 million 2015 2014 2013 irs examination tax years 2008 2009 2010 2011 concluded late 2013 resulting payment 46 million adjustment refund previously received dominion carryback 2008 losses 2007 loss carryback adjusted submitted us congressional joint committee taxation review early 2014 dominion received notification matter resolved adjustments effective 2014 tax year dominion accepted cap dominion opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions agreed irs precap plan irs audit tax years 2012 2013 began early 2014 concluded late 2015 irs audit cap tax year 2014 also began 2014 irs issued partial acceptance letter late 2015 completed postfiling review 2014 tax year early 2016 irs audit cap tax year 2015 began 2015 accordingly dominion’s earliest tax year remaining open federal examination 2015 reasonably possible settlement negotiations expiration statutes limitations could result decrease unrecognized tax benefits 2016 30 million dominion 22 million dominion gas changes occur revisions accrual interest tax underpayments overpayments earnings could increase 15 million dominion 10 million dominion gas otherwise regard 2015 prior years dominion gas cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2016 considering possibility potential changes status remaining unrecognized tax benefits virginia power concluded significant changes reasonably possible occur 2016 major states dominion operates earliest tax year remaining open examination follows 1 considered major state dominion gas’ operations 2 considered major state virginia power’s operations companies also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes operating losses tax credits generated years statute limitations expired amounts generally subject examination discontinued operations details income tax expense dominion’s discontinued operations follows dominion’s effective tax rate 2013 reflects impact goodwill written sale kincaid brayton point deductible tax purposes note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact companies’ nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion virginia power apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments including held dominion’s rabbi pension postretirement benefit plan trusts accordance requirements described dominion gas applies fair value measurements certain assets liabilities including commodity interest rate derivative instruments investments held pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values inputs assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions companies’ commodity derivative valuations prepared dominion’s erm department erm department creates daily marktomarket valuations companies’ derivative transactions using computerbased statistical models inputs go market valuations transactional information stored systems record market pricing information resides data warehouse databases majority forward prices automatically uploaded data warehouse databases various thirdparty sources inputs obtained thirdparty sources evaluated reliability considering reputation independence market presence methodology used thirdparty forward prices available thirdparty sources erm department models forward prices based available market data team consisting risk management risk quantitative analysts meets business day assess validity market prices marktomarket valuations meeting changes marktomarket valuations period examined qualified historical expectations discrepancies identified process marktomarket valuations market pricing information evaluated adjusted necessary options contracts optionlike characteristics observable pricing information available external sources dominion virginia power generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value dominion virginia power use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity derivative contracts • forward commodity prices • transaction prices • price volatility • price correlation • volumes • commodity location • interest rates • credit quality counterparties companies • credit enhancements • time value combined notes consolidated financial statements continued interest rate derivative contracts • interest rate curves • credit quality counterparties companies • volumes • credit enhancements • time value investments • quoted securities prices indices • securities trading information including volume restrictions • maturity • interest rates • credit quality • nav alternative investments commoncollective trust funds companies regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels • level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments certain exchangetraded derivatives exchangelisted equities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion virginia power benefit plan trust funds dominion gas rabbi trust funds dominion • level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include commodity forwards swaps interest rate swaps restricted cash equivalents certain treasury securities money market funds commoncollective trust funds corporate state municipal debt securities held nuclear decommissioning trust funds dominion virginia power benefit plan trust funds dominion gas rabbi trust funds dominion • level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 companies consist longdated commodity derivatives ftrs natural gas peaking options modeled commodity derivatives additional instruments categorized level 3 dominion gas include alternative investments consisting investments partnerships joint ventures alternative investments held benefit plan trust funds fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability derivative contracts companies recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations fair value measurements categorized level 3 price inputs considered unobservable significant valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions generally considered liquid markets modeled commodity derivatives unobservable inputs valuation mostly due non transparent illiquid markets alternative investments categorized level 3 due absence quoted market prices illiquidity longterm nature assets investments generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date companies enter certain physical financial forwards futures options swaps considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures contracts option model used value level 3 physical financial options discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices original sales prices volumes level 3 fair value measurements forward market prices credit spreads implied price volatilities considered unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty pricing sources following table presents dominion’s quantitative information level 3 fair value measurements december 31 2015 range weighted average presented dollars market price inputs percentages price volatility credit spreads 1 averages weighted volume 2 includes basis 3 includes ngls oil 4 represents market prices beyond defined terms levels 1 2 5 represents credit spreads unrepresented published markets 6 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows nonrecurring fair value measurements dominion see note 3 information regarding sale brayton point kincaid dominion’s equity method investment elwood dominion gas natural gas assets fourth quarter 2014 dominion gas recorded impairment charge 9 million 6 million aftertax operations maintenance expense consolidated statements income write previously capitalized costs following cancellation development project june 2013 dominion gas purchased certain natural gas infrastructure facilities previously leased third parties purchase price based terms lease exceeded current market pricing result purchase price expected losses dominion gas recorded impairment charge 49 million 29 million aftertax operations maintenance expense consolidated statements income write longlived assets estimated fair values less 1 million management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion gas used income approach discounted cash flows estimate fair value assets impairment test considered level 3 fair value measurement due use significant unobservable inputs including estimates future production commodity prices combined notes consolidated financial statements continued also june 2013 dominion gas recorded impairment charge 6 million 4 million aftertax operations maintenance expense consolidated statements income write previously capitalized costs following cancellation two development projects recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s dominion gas’ pension postretirement benefit plans presented note 21 dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category 1 march 2015 dominion changed classification certain short term ngl derivatives level 3 level 2 due increase liquidity financial forward markets transfers level 3 relate ngls year ended december 31 2015 9 million following table presents dominion’s gains losses included earnings level 3 fair value category combined notes consolidated financial statements continued virginia power following table presents virginia power’s quantitative information level 3 fair value measurements december 31 2015 range weighted average presented dollars market price inputs percentages credit spreads 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents credit spreads unrepresented published markets 5 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2015 2014 2013 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2015 2014 2013 dominion gas following table presents dominion gas’ quantitative information level 3 fair value measurements december 31 2015 range weighted average presented dollars market price inputs percentages credit spreads 1 averages weighted volume 2 represents market prices beyond defined terms levels 1 2 combined notes consolidated financial statements continued following table presents dominion gas’ assets liabilities commodity interest rate derivatives measured fair value recurring basis hierarchy level including current noncurrent portions following table presents net change dominion gas’ derivative assets liabilities measured fair value recurring basis included level 3 fair value category 1 march 2015 dominion gas changed classification certain short term ngl derivatives level 3 level 2 due increase liquidity financial forward markets transfers level 3 relate ngls year ended december 31 2015 9 million gains losses included earnings level 3 fair value category classified operating revenue dominion gas’ consolidated statements income years ended december 31 2015 2014 2013 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2015 2014 2013 fair value financial instruments substantially companies’ financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents restricted cash recorded current assets customer receivables shortterm debt affiliated current borrowings payables affiliates accounts payable representative fair value shortterm nature instruments companies’ financial instruments recorded fair value carrying amounts estimated fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes amounts represent unamortized discount andor premium december 31 2015 2014 includes valuation certain fair value hedges associated dominion’s fixed rate debt 7 million 19 million respectively 3 carrying amount includes amounts represent unamortized discount andor premium note 7 derivatives hedge accounting activities companies exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well interest rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross companies’ consolidated balance sheets dominion’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared virginia power’s dominion gas’ derivative contracts include overthecounter transactions overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized companies’ consolidated balance sheets well letters credit forms security included tables subject offset master netting similar arrangements would reduce net exposure combined notes consolidated financial statements continued dominion balance sheet presentation tables present dominion’s derivative asset liability balances type financial instrument effects offsetting volumes following table presents volume dominion’s derivative activity december 31 2015 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil ineffectiveness aoci years ended december 31 2015 2014 2013 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2015 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates combined notes consolidated financial statements continued fair value gains losses derivative instruments following tables present fair values dominion’s derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheets 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheets following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 2 amounts recorded dominion’s consolidated statements income classified interest related charges virginia power balance sheet presentation tables present virginia power’s derivative asset liability balances type financial instrument effects offsetting combined notes consolidated financial statements continued volumes following table presents volume virginia power’s derivative activity december 31 2015 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options ineffectiveness years ended december 31 2015 2014 2013 gains losses hedging instruments determined ineffective material fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets virginia power’s consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases combined notes consolidated financial statements continued dominion gas balance sheet presentation tables present dominion gas’ derivative asset liability balances type financial instrument effects offsetting volumes following table presents volume dominion gas’ derivative activity december 31 2015 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions ineffectiveness aoci years ended december 31 2015 2014 2013 gains losses hedging instruments determined ineffective material following table presents selected information related gains losses cash flow hedges included aoci dominion gas’ consolidated balance sheet december 31 2015 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates fair value gains losses derivative instruments following tables present fair values dominion gas’ derivatives presented consolidated balance sheets 1 current derivative assets presented current assets dominion gas’ consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets dominion gas’ consolidated balance sheets 3 current derivative liabilities presented current liabilities dominion gas’ consolidated balance sheets 4 noncurrent derivative liabilities presented deferred credits liabilities dominion gas’ consolidated balance sheets combined notes consolidated financial statements continued following tables present gains losses dominion gas’ derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion gas’ consolidated statements income 2 amounts recorded dominion gas’ consolidated statements income classified interest related charges note 8 earnings per share following table presents calculation dominion’s basic diluted eps 1 dilutive securities consist primarily 2013 equity units 2015 2013 equity units contingently convertible senior notes 2014 contingently convertible senior notes 2013 dominion redeemed contingently convertible senior notes 2014 see note 17 information 2014 equity units potentially dilutive securities excluded calculation diluted eps year ended december 31 2015 inclusion would antidilutive 2014 equity units excluded calculation diluted eps year ended december 31 2014 dilutive stock price threshold met 2013 equity units potentially dilutive securities excluded calculation diluted eps year ended december 31 2013 see note 17 information note 9 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 100 million 110 million december 31 2015 2014 respectively decommissioning trust securities dominion holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 12 million 3 million december 31 2015 2014 respectively 3 fair value securities unrealized loss position 592 million 379 million december 31 2015 2014 respectively fair value dominion’s marketable debt securities held nuclear decommissioning trust funds december 31 2015 contractual maturity follows presented selected information regarding dominion’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 combined notes consolidated financial statements continued dominion recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 9 million 3 million 18 million december 31 2015 2014 2013 respectively virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 8 million 6 million december 31 2015 2014 respectively 3 fair value securities unrealized loss position 281 million 170 million december 31 2015 2014 respectively fair value virginia power’s marketable debt securities december 31 2015 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 6 million 2 million 9 million december 31 2015 2014 2013 respectively equity method investments dominion gas investments dominion gas account equity method accounting follows 1 comprised dominion midstream’s interest 2593 dominion gas’ interest 2472 see note 15 information 2 dominion 50 million commitment invest clean power technology businesses 2018 dominion’s equity earnings investments totaled 56 million 46 million 14 million 2015 2014 2013 respectively dominion received distributions investments 83 million 60 million 33 million 2015 2014 2013 respectively december 31 2015 2014 carrying amount dominion’s investments exceeded share underlying equity net assets 234 million 126 million respectively differences comprised december 31 2015 2014 72 million 87 million respectively related basis differences dominion’s investments blue racer wind projects amortized useful lives underlying assets 162 million 39 million respectively reflecting equity method goodwill amortized dominion gas’ equity earnings investment totaled 23 million 21 million 22 million 2015 2014 2013 respectively dominion gas received distributions investment 28 million 20 million 19 million 2015 2014 2013 respectively december 31 2015 2014 carrying amount dominion gas’ investment exceeded share underlying equity net assets 8 million difference reflects equity method goodwill amortized equity earnings recorded income dominion’s dominion gas’ consolidated statements income blue racer december 2012 dominion formed joint venture caiman provide midstream services natural gas producers operating utica shale region ohio portions pennsylvania blue racer equal partnership dominion caiman dominion contributing midstream assets caiman contributing private equity capital march 2013 dominion gas sold line tl404 affiliate subsequently sold line tl404 blue racer cash proceeds 47 million sale resulted gain 25 million 14 million aftertax net 2 million writeoff goodwill included operations maintenance expense dominion gas’ dominion’s consolidated statement income phase 1 natrium completed second quarter 2013 contributed dominion blue racer third quarter 2013 resulting increased equity method investment blue racer 473 million also third quarter 2013 dominion gas sold line tpl2a affiliate subsequently sold line tpl2a blue racer sold line tl388 blue racer received 78 million cash proceeds sales resulted 74 million 41 million aftertax gain included operations maintenance expense dominion gas’ dominion’s consolidated statements income fourth quarter 2013 dominion gas sold western system affiliate subsequently sold western system blue racer cash proceeds 30 million sale resulted gain 3 million 2 million aftertax dominion gas 4 million 2 million aftertax dominion included operations maintenance expense dominion gas’ dominion’s consolidated statement income dominion ngl pipelines llc contributed january 2014 dominion blue racer prior commencement service resulting increased equity method investment 155 million including 6 million goodwill allocated dominion’s goodwill balance equity method investment blue racer march 2014 dominion gas sold northern system affiliate subsequently sold northern system blue racer consideration 84 million dominion gas’ consideration consisted 17 million cash proceeds extinguishment affiliated current borrowings 67 million dominion’s consideration consisted cash proceeds 84 million sale resulted gain 59 million 35 million aftertax dominion gas 34 million aftertax dominion net 3 million writeoff goodwill included operations maintenance expense dominion gas’ dominion’s consolidated statements income dominion atlantic coast pipeline september 2014 dominion along duke energy piedmont agl announced formation atlantic coast pipeline members subsidiaries abovereferenced parent companies hold following membership interests dominion 45 duke energy 40 piedmont 10 agl 5 october 2015 duke energy entered merger agreement piedmont atlantic coast pipeline partnership agreement includes provisions allow dominion option purchase additional ownership interest atlantic coast pipeline maintain leading ownership percentage atlantic coast pipeline focused constructing approximately 600mile natural gas pipeline running west virginia north carolina subsidiaries affiliates four members plan customers pipeline 20year contracts public service company north carolina inc also plans customer pipeline 20year contract atlantic coast pipeline considered equity method investment dominion ability exercise significant influence control investee see note 15 information combined notes consolidated financial statements continued note 10 property plant equipment major classes property plant equipment respective balances companies follows significant ep properties development defined sec excluded dominion gas’ amortization december 31 2015 gas oil reserves proved drilling properties deemed impaired excluded costs related reserves transferred ongoing wellbywell basis amortization calculation 2015 dominion gas recorded ceiling test impairment charge 16 million 10 million aftertax operations maintenance expense consolidated statement income dominion sold substantially appalachian ep properties april 2010 retaining wells around dti’s storage facilities net book basis remaining properties december 31 2015 14 million jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2015 follows 1 units jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income assignments shale development rights december 2013 dominion gas closed agreements two natural gas producers convey time approximately 100000 acres marcellus shale development rights underneath several natural gas storage fields agreements provide payments dominion gas subject customary adjustments approximately 200 million period nine years overriding royalty interest gas produced acreage 2013 dominion gas received approximately 100 million cash proceeds resulting 20 million 12 million aftertax gain recorded operations maintenance expense dominion gas’ consolidated statements income 2014 dominion gas received 16 million additional cash proceeds resulting postclosing adjustments december 31 2014 deferred revenue totaled 85 million march 2015 dominion gas one natural gas producers closed amendment agreement included immediate conveyance approximately 9000 acres marcellus shale development rights twoyear extension term original agreement conveyance development rights resulted recognition 43 million 27 million aftertax previously deferred revenue operations maintenance expense dominion gas’ consolidated statements income december 31 2015 deferred revenue totaled 37 million expected recognized remaining term agreement november 2014 dominion gas closed agreement natural gas producer convey time approximately 24000 acres marcellus shale development rights underneath one natural gas storage fields agreement provides payments dominion gas subject customary adjustments approx imately 120 million period four years overriding royalty interest gas produced acreage november 2014 dominion gas closed agreement received proceeds 60 million associated initial conveyance approximately 12000 acres resulting 60 million 36 million aftertax gain recorded operations maintenance expense dominion gas’ consolidated statements income march 2015 dominion gas conveyed natural gas producer approximately 11000 acres marcellus shale development rights underneath one natural gas storage fields received proceeds 27 million overriding royalty interest gas produced acreage transaction resulted 27 million 16 million aftertax gain included operations maintenance expense dominion gas’ consolidated statements income september 2015 dominion gas closed agreement natural gas producer convey approximately 16000 acres utica point pleasant shale development rights underneath one natural gas storage fields agreement provided payment dominion gas subject customary adjustments 52 million overriding royalty interest gas produced acreage september 2015 dominion gas received proceeds 52 million associated conveyance acreage resulting 52 million 29 million aftertax gain included operations maintenance expense dominion gas’ consolidated statements income note 11 goodwill intangible assets goodwill changes dominion’s dominion gas’ carrying amount segment allocation goodwill presented 1 goodwill recorded corporate segment allocated primary operating segments goodwill impairment testing purposes 2 goodwill amounts contain accumulated impairment losses 3 recast reflect nonregulated retail energy marketing operations dominion energy segment 4 see note 3 discussion dominion’s dispositions related goodwill writeoffs 5 related assets sold contributed affiliate blue racer intangible assets companies’ intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 78 million 71 million 72 million 2015 2014 2013 respectively 2015 dominion acquired 78 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 8 years amortization expense virginia power’s intangible assets 25 million 24 million 22 million 2015 2014 2013 respectively 2015 virginia power acquired 34 million intangible assets primarily representing software estimated weightedaverage amortization period 6 years dominion gas’ amortization expense intangible assets 18 million 17 million 16 million 2015 2014 2013 respectively 2015 dominion gas acquired 24 million intangible assets primarily representing software estimated weightedaverage amortization period approximately 14 years components intangible assets follows annual amortization expense intangible assets estimated follows combined notes consolidated financial statements continued note 12 regulatory assets liabilities regulatory assets liabilities include following 1 primarily reflects deferred fuel expenses virginia jurisdiction dominion’s virginia power’s generation operations see note 13 information 2 reflects deferrals electric transmission ferc formula rate deferral costs associated certain current prospective rider projects virginia power reflects deferrals costs associated certain current prospective rider projects dominion gas see note 13 information 3 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 4 reflects unrecovered gas costs regulated gas operations recovered filings applicable regulatory authority 5 represents unrecognized pension postretirement employee benefit costs expected recovered future rates generally expected remaining service period plan participants certain dominion’s dominion gas’ rateregulated subsidiaries 6 reflects amount related pjm transmission cost allocation matter see note 13 information 7 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 8 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 9 pipp eligible customers make reduced payments based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rate adjustment clause according east ohio tariff provisions see note 13 information 10 current regulatory liabilities presented current liabilities dominion’s consolidated balance sheets 11 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 12 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aros december 31 2015 131 million dominion’s 100 million virginia power’s 29 million dominion gas’ regulatory assets represented past expenditures currently earn return majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business companies involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders andor involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate range possible loss statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties may represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect companies’ financial position liquidity results operations fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public utilities dominion’s merchant generators sell electricity pjm miso caiso isone wholesale markets wholesale purchasers states tennessee georgia california utah dominion’s marketbased sales tariffs authorized ferc virginia power purchases ferc marketbased rate authority sells electricity wholesale market addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure march 2010 odec north carolina electric membership corporation filed complaint ferc virginia power claiming 223 million transmission costs related specific projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate october 2010 ferc issued order dismissing complaint part established hearings settlement procedures remaining part complaint february 2012 virginia power submitted ferc settlement agreement resolve issues set hearing settlement accepted ferc may 2012 provides payment virginia power transmission customer parties collectively 250000 per year ten years resolves matters allocation incremental cost certain underground transmission facilities march 2014 ferc issued order excluding virginia power’s transmission rates wholesale transmission customers located outside virginia incremental costs undergrounding certain transmission line projects ferc found reasonable nonvirginia wholesale transmission customers allocated incremental costs undergrounding facilities projects direct result virginia legislation virginia commission pilot programs intended benefit citizens virginia order retroactively effective march 2010 cause reallocation costs charged wholesale transmission customers loads outside virginia wholesale transmission customers loads virginia ferc determined sufficient evidence record determine magnitude underground increment held hearing determine appropriate amount undergrounding cost allocated wholesale transmission customer virginia power cannot predict outcome hearing expected material effect results operations pjm transmission rates april 2007 ferc issued order regarding transmission rate design allocation costs among pjm transmission customers including virginia power transmission service provided pjm new pjmplanned transmission facilities operate 500 kv ferc established pjm regional rate design customers pay according customer’s share region’s load recovery costs existing facilities ferc approved existing methodology whereby customer pays cost facilities located zone customer number parties appealed order us court appeals seventh circuit august 2009 court issued decision affirming ferc order regard existing facilities remanded ferc issue cost allocation associated new facilities 500 kv consideration ferc remand ferc reaffirmed earlier decision allocate costs new facilities 500 kv according customer’s share region’s load number parties filed appeals order us court appeals seventh circuit june 2014 court remanded cost allocation issue ferc december 2014 ferc issued order setting evidentiary hearing settlement proceeding regarding cost combined notes consolidated financial statements continued allocation issue hearing concerns costs new facilities approved pjm prior february 1 2013 transmission facilities approved february 1 2013 allocated hybrid cost allocation method approved ferc subject court review virginia power expects settlement agreement executed regarding matter terms settlement virginia power would required pay 200 million pjm next 10 years although ferc order issued expected settlement agreement filed accepted ferc virginia power believes probable required make payment outcome hearing settlement proceedings accordingly december 31 2015 virginia power recorded contingent liability 200 million deferred credits liabilities offset 192 million regulatory asset amount recovered retail rates virginia remaining 8 million recorded operations maintenance expense consolidated statement income regulatory matters electric regulation virginia regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs underground distribution lines environmental compliance conservation energy efficiency programs renewable energy programs also contains statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission amended provides enhanced returns capital expenditures specific newlyproposed generation projects virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows regulation act legislation february 2015 virginia governor signed legislation law keep virginia power’s base rates unchanged least december 1 2022 addition biennial reviews conducted virginia commission five successive 12month test periods beginning january 1 2015 ending december 31 2019 legislation states virginia power’s 2015 biennial review filed march 2015 would proceed sole purpose reviewing determining whether refunds due customers based earnings performance generation distribution services 2013 2014 test periods addition legislation requires virginia commission conduct proceedings 2017 2019 determine utility’s roe use connection rate adjustment clauses requires utilities file integrated resource plans annually rather biennially however november 2015 virginia commission ordered testimony briefs separate bifurcated hearing virginia power’s currently pending rider b rider r rider w cases whether virginia commission adjust roe applicable rate adjustment clauses prior 2017 legislation also required virginia power writeoff 85 million priorperiod deferred fuel costs first quarter 2015 addition legislation required virginia commission implement fuel rate reduction virginia power soon practicable based nonrecovery well overrecovery 20142015 fuel year projected fuel expense 20152016 fuel year legislation also deems construction purchase one utilityscale solar facilities located virginia 500 mw total public interest biennial review pursuant regulation act march 2015 virginia power filed base rate case schedules virginia commission’s 2015 biennial review virginia power’s rates terms conditions per legislation enacted february 2015 biennial review limited reviewing virginia power’s earnings rates generation distribution services combined 2013 2014 test period determining whether credits due customers event virginia power’s earnings exceeded earnings band determined 2013 biennial review order november 2015 virginia commission issued 2015 biennial review order deciding several contested regulatory earnings adjustments virginia commission ruled virginia power earned average roe approximately 1089 generation distribution services combined 2013 2014 test periods roe 70 basis points virginia power’s authorized roe 100 virginia commission ordered approximately 20 million excess earnings credited customer bills based usage 2013 2014 sixmonth period beginning within 60 days 2015 biennial review order based upon 2015 legislation keeping virginia power’s base rates unchanged least december 1 2022 virginia commission order certain existing rate adjustment clauses combined virginia power’s base rates virginia commission determine whether virginia power revenue deficiency sufficiency projecting annual revenues generated base rates revenues required recover costs service earn fair return december 2015 group large industrial customers filed notices appeal supreme court virginia 2015 biennial review order virginia commission’s order denying petition rehearing reconsideration appeal pending virginia fuel expenses february 2015 virginia power submitted annual fuel factor filing virginia commission august 2015 virginia commission approved virginia power’s annual fuel factor filing recover estimated 16 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2015 virginia power’s new approved fuel rate effect interim basis since april 1 2015 represents fuel revenue decrease 512 million applied projected kilowatthour sales period april 1 2015 june 30 2016 solar facility projects january 2015 virginia power applied cpcn construct operate 20 mw utilityscale solar facility near existing remington power station fauquier county virginia total estimated cost remington solar facility approximately 47 million excluding financing costs virginia power also applied approval rider us1 recover projected costs facility october 2015 virginia commission denied approval cpcn rider us1 based evidence record stated application could refiled address concerns cited virginia commission virginia power assessing options refiling october 2015 virginia power filed cpcn virginia commission construct three solar facilities woodland scott solar whitehouse would increase dominion’s renewable generation combined 56 mw estimated cost approximately 130 million excluding financing costs virginia power also applied approval rider us2 case pending facilities expected commence commercial operations subject regulatory approvals fourth quarter 2016 rate adjustment clauses discussion significant riders associated various virginia power projects • virginia commission previously approved rider t1 concerning transmission rates may 2015 virginia power proposed 668 million total revenue requirement rate year beginning september 1 2015 represents 130 million increase previous year virginia power also presented mitigation proposal defer 96 million revenue requirement rate year beginning september 1 2016 would reduce 50 oneyear rate impact residential customers august 2015 virginia commission rejected mitigation proposal approved full recovery proposed revenue requirement • virginia commission previously approved rider conjunction virginia city hybrid energy center june 2015 virginia power proposed 250 million revenue requirement rate year beginning april 1 2016 represents 5 million increase previous year case pending • virginia commission previously approved rider w conjunction warren county june 2015 virginia power proposed 118 million revenue requirement rate year beginning april 1 2016 represents 17 million decrease versus previous year case pending • virginia commission previously approved rider r conjunction bear garden june 2015 virginia power proposed 74 million revenue requirement rate year beginning april 1 2016 represents 10 million decrease versus previous year case pending • virginia commission previously approved rider b conjunction conversion three power stations biomass june 2015 virginia power proposed 30 million revenue requirement rate year beginning april 1 2016 represents 21 million increase previous year case pending • virginia legislation provides recovery costs move certain electric distribution facilities underground became effective july 2014 october 2014 virginia power filed approval rider u proposed revenue requirement 28 million initial rate year beginning september 1 2015 may 2015 virginia power revised revenue requirement 24 million july 2015 virginia commission denied approval rider u based evidence record found alternative plan addressing certain concerns lack costbenefit analysis could reasonably satisfy regulatory requirements approval december 2015 virginia power filed approval limited undergrounding program along revised rider u proposing revenue requirement 24 million initial rate year beginning september 1 2016 case pending • virginia commission previously approved riders c1a c2a connection cost recovery dsm programs august 2015 virginia power proposed total revenue requirement 50 million rate year beginning may 1 2016 virginia power proposed two new energy efficiency programs virginia commission approval requested fiveyear cost cap 51 million programs extend existing peakshaving program additional five years current funding case pending • virginia commission previously approved rider bw conjunction brunswick county october 2015 virginia power proposed 156 million total revenue requirement rate year beginning september 1 2016 represents 45 million increase versus previous year case pending • july 2015 virginia power filed application virginia commission cpcn construct operate greensville county related transmission interconnection facilities virginia power also applied approval rider gv recover costs greensville county proposed total revenue requirement 42 million rate year beginning april 1 2016 case pending electric transmission projects november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton february 2014 virginia commission granted reconsideration requested virginia power issued order amending certificate several appeals filed supreme court virginia april 2015 supreme court virginia issued opinion consolidated appeals virginia commission’s order granting cpcn skiffes creek transmission line related facilities supreme court virginia unanimously affirmed one alleged grounds appeal court approved proposed project including proposed route combined notes consolidated financial statements continued 500 kv overhead transmission line surry skiffes creek switching station site court reversed remanded virginia commission’s determination one set appeals skiffes creek switching station transmission line purposes statutory exemption local zoning ordinances may 2015 supreme court virginia denied separate petitions filed virginia power virginia commission rehear ruling regarding skiffes creek switching station pending receipt remaining required permits approvals virginia power expects construct project may 2015 virginia power filed application virginia commission cpcn construct operate loudoun county virginia new approximately 230 kv poland road substation new approximately four mile overhead 230 kv double circuit transmission line existing 230 kv loudounbrambleton line poland road substation total estimated cost project approximately 55 million case pending november 2015 virginia power filed application virginia commission cpcn convert existing transmission line 230 kv prince william county virginia loudoun county virginia construct operate new approximately five mile overhead 230 kv double circuit transmission line tap point near gainesville substation new tobeconstructed haymarket substation total estimated cost project approximately 51 million case pending november 2015 virginia power filed application virginia commission cpcn construct operate multiple virginia counties approximately 38 mile overhead 230 kv transmission line remington gordonsville substations along associated facilities total estimated cost project approximately 104 million case pending february 2016 virginia commission issued order granting virginia power cpcn construct operate remington ctwarrenton 230 kv double circuit transmission line vint hillwheeler wheelergainesville 230 kv lines 230 kv vint hill wheeler switching stations along virginia power’s proposed route total estimated cost project approximately 105 million north anna virginia power considering construction third nuclear unit site located north anna virginia power decides build new unit must first receive col nrc approval virginia commission certain environmental permits approvals col expected 2017 virginia power yet committed building new nuclear unit north anna motions petitions filed bredl prior april 2015 dismissed previous ruling nrc contested portion col proceeding remains terminated nrc required conduct hearing col proceedings new contention admitted mandatory nrc hearing uncontested april 2015 bredl filed new motion petition seeking object nrc’s reliance continued storage rule licensing proceedings bredl filings substantially filed col proceedings final environmental impact statements issued prior promulgation continued storage rule like north anna 3 june 2015 nrc denied april 2015 motion petition august 2015 bredl filed petition us court appeals dc circuit seeking review nrc’s june 2015 decision along petition judicial review bredl also filed motion hold judicial review abeyance pending outcome ongoing judicial review nrc’s rule pertaining continued onsite storage spent nuclear fuel litigation pending court similar petitions filed seeking judicial review nrc’s decision applies col license renewal proceedings virginia power filed motion court intervene proceeding case pending north anna offshore wind legislation april 2014 legislation enacted virginia permits virginia power recover 70 costs previously deferred capitalized related development third nuclear unit located north anna offshore wind facilities december 31 2013 part 2013 2014 base rates virginia power deferred capitalized costs totaling 577 million projects december 31 2013 substantially relate north anna 70 portion previously deferred capitalized costs allocable customers virginia power recognized amounts charges net income beginning second quarter 2014 remainder year 2014 virginia power recognized 374 million 248 million aftertax charges income representing cumulative recovery costs january 2013 december 2014 primarily included operations maintenance expense consolidated statements income remaining deferred capitalized costs well costs incurred december 31 2013 continue eligible inclusion future rate adjustment clause north carolina regulation december 2012 north carolina commission approved 36 million increase virginia power’s annual nonfuel base revenues based authorized roe 102 14 million decrease annual base fuel revenues combined total base revenue increase 22 million rate changes became effective january 1 2013 following appeal supreme court north carolina north carolina commission issued opinion reaffirming 102 roe determination july 2015 august 2015 virginia power submitted annual filing north carolina commission adjust fuel component electric rates virginia power proposed 11 million decrease fuel component electric rates rate year beginning january 1 2016 decrease includes north carolina commission’s previous approval defer recovering 50 virginia power’s estimated 17 million jurisdictional deferred fuel balance 2016 fuel year without interest december 2015 north carolina commission approved virginia power’s proposed fuel charge adjustment ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 25 pipeline system march 2015 east ohio filed application ohio commission requesting approval extend pir program additional five years increase annual capital investment corresponding increases annual rateincrease caps application east ohio proposed pir investments 2016 fall existing authorization new fiveyear period include investment december 31 2021 east ohio also proposed pir investment increased 20 million 2017 another 20 million 2018 bringing total annual investment 200 million thereafter east ohio proposed capital investment increases 3 per year 2019 2021 mitigate inflation cost pressures experienced date continue future case pending february 2015 east ohio filed application adjust pir cost recovery 2014 costs filing reflects gross plant investment 2014 155 million cumulative gross plant investment 829 million revenue requirement 108 million application approved ohio commission april 2015 amr program 2007 east ohio began installing automated meter reading technology 12 million customers ohio amr program approved ohio commission completed 2012 although capital investment added east ohio approved recover depreciation property taxes carrying charges return east ohio another rate case february 2015 east ohio filed application ohio commission adjust amr cost recovery charge recover costs calendar year 2014 associated amr deployment filing reflects projected revenue requirement approximately 8 million application approved ohio commission april 2015 pipp plus program ohio pipp plus program eligible customers make reduced payments based ability pay bill difference customer’s total bill pipp amount deferred collected pipp rider accordance rules ohio commission july 2015 east ohio’s annual update pipp rider automatically approved ohio commission 45day waiting period date filing revised rider rate reflects refund twelvemonth period july 2015 june 2016 overrecovery accumulated arrearages approximately 57 million march 31 2015 net projected deferred program costs approximately 35 million april 2015 june 2016 uex rider east ohio approval uex rider recovers bad debt expense customers participating pipp plus program uex rider adjusted annually achieve dollar recovery east ohio’s actual writeoffs uncollectible amounts july 2015 ohio commission approved east ohio’s application decrease uex rider reflects refund overrecovered accumulated bad debt expense 14 million march 31 2015 recovery prospective net bad debt expense projected total approximately 20 million twelvemonth period april 2015 march 2016 psmp october 2015 east ohio requested approval ohio commission defer operation maintenance costs associated implementing proposed psmp costs expected exceed 15 million per year west virginia regulation september 2015 hope requested approval prep west virginia commission application hope proposed projected capital investment 2016 24 million part total fiveyear projected capital investment 158 million january 2016 hope west virginia commission reached settlement allowing hope include costs related capital investment 2016 20 million new prep customer rates effective march 1 2016 fercgas second quarter 2013 dcg executed binding precedent agreements approximately 35 million edgemoor project ferc approved edgemoor project february 2015 construction commenced march 2015 project placed service december 2015 april 2014 dcg executed binding precedent agreement approximately 35 million columbia eastover project may 2015 dcg filed application request ferc authorization construct operate project facilities expected service third quarter 2016 october 2015 cove point received authorization construct approximately 30 million st charles transportation project approximately 40 million keys energy project construction project commenced fourth quarter 2015 st charles transportation project anticipated placed service june 2016 keys energy project anticipated placed service march 2017 note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain companies’ longlived assets dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities also include ash pond closures future abatement asbestos expected disturbed generation facilities dominion gas’ aros primarily include plugging abandonment gas oil wells interim retirement natural gas gathering transmission distribution storage pipeline components companies also identified recognized aros related retirement dominion’s lng facility dominion gas’ storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises combined notes consolidated financial statements continued lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed dominion’s virginia power’s generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2014 2015 follows 1 relates primarily shift delayed planned date doe expected begin accepting spent nuclear fuel 2 includes 81 million 216 million reported current liabilities december 31 2014 2015 respectively 3 primarily reflects future ash pond landfill closure costs certain utility generation facilities see note 22 information 4 includes 140 million 137 million reported deferred credits liabilities remainder recorded current liabilities december 31 2014 2015 respectively dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2015 2014 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 42 billion december 31 2015 2014 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 19 billion note 15 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie dominion august 2013 dominion leased fairless generating facility pennsylvania began commercial operations june 2004 juniper lessor august 2013 lease expired dominion purchased fairless 923 million juniper per terms lease agreement however dominion previously consolidated juniper purchase accounted equity transaction acquire noncontrolling interests juniper 923 million dominion retained control fairless dominion initial 45 membership interest atlantic coast pipeline see note 9 details regarding nature entity dominion concluded atlantic coast pipeline vie insufficient equity finance activities without additional subordinated financial support dominion concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance power direct shared among multiple unrelated parties dominion obligated provide capital contributions based ownership percentage dominion’s maximum exposure loss limited current future investment dominion gas dominion midstream dominion gas 2593 2472 noncontrolling partnership interest iroquois respectively see note 3 details regarding nature entity dominion concluded iroquois vie nonaffiliated iroquois equity holder ability limited period time transfer ownership interests another iroquois equity holder affiliate december 31 2015 dominion concluded neither dominion midstream dominion gas primary beneficiary iroquois power direct activities iroquois significantly impact economic performance power direct shared among multiple unrelated parties iroquois determines capital contributions required dominion midstream dominion gas would obligated provide portion capital contributions based ownership percentage dominion midstream’s dominion gas’ maximum exposure loss limited current future investment dominion gas dti engaged oversee construction subsequently operate maintain projects undertaken atlantic coast pipeline based overall direction oversight atlantic coast pipeline’s members affiliate dti holds membership interest atlantic coast pipeline therefore dti considered variable interest atlantic coast pipeline members atlantic coast pipeline hold power direct construction operations maintenance activities entity dti concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance dti obligation absorb losses vie see note 24 information associated related party receivable balances virginia power virginia power longterm power capacity contracts five nonutility generators contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests contracts two nonutility generators expired 2015 leaving remaining aggregate summer generation capacity approximately 418 mw evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance entities remaining terms virginia power’s contracts years entities expected operate contractual relationships expire remaining contracts expire various dates ranging 2017 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 439 million december 31 2015 virginia power paid 200 million 223 million 217 million electric capacity 83 million 138 million 98 million electric energy entities years ended december 31 2015 2014 2013 respectively virginia power dominion gas virginia power dominion gas purchased shared services drs affiliated vie 318 million 115 million 335 million 106 million 331 million 115 million years ended december 31 2015 2014 2013 respectively virginia power dominion gas determined closely associated entity drs therefore neither primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power dominion gas virginia power dominion gas obligation absorb allocated shares drs costs note 16 shortterm debt credit agreements companies use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations january 2016 dominion expanded shortterm funding resources 10 billion increase one joint revolving credit facility limits addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties dominion commercial paper letters credit outstanding well capacity available credit facilities follows 1 credit facilities mature april 2019 used support bank borrowings issuance commercial paper well support combined 20 billion letters credit 2 january 2016 facility limit increased 40 billion 50 billion 3 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 062 038 december 31 2015 2014 respectively virginia power virginia power’s shortterm financing supported access coborrower two joint revolving credit facilities credit facilities used working capital support combined commercial paper programs companies general corporate purposes combined notes consolidated financial statements continued virginia power’s share commercial paper letters credit outstanding joint credit facilities dominion gas follows 1 full amount facilities available virginia power less amounts outstanding coborrowers dominion gas sublimits virginia power set within facility limit changed option companies multiple times per year december 31 2015 sublimit virginia power aggregate 175 billion virginia power liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion credit facilities mature april 2019 used support bank borrowings issuance commercial paper well support 20 billion sublimit whichever less letters credit 2 january 2016 facility limit increased 40 billion 50 billion 3 weightedaverage interest rates outstanding commercial paper supported credit facilities 060 036 december 31 2015 2014 respectively addition credit facility commitments mentioned virginia power also 120 million credit facility maturity date april 2019 december 31 2015 facility supports 119 million certain variable rate taxexempt financings virginia power dominion gas dominion gas’ shortterm financing supported access coborrower two joint revolving credit facilities december 2014 dominion gas entered commercial paper program pursuant began accessing commercial paper markets january 2015 dominion gas’ share commercial paper letters credit outstanding joint credit facilities dominion virginia power follows 1 maximum combined 15 billion facilities available dominion gas assuming adequate capacity available giving effect uses coborrowers dominion virginia power sublimits dominion gas set within facility limit changed option companies multiple times per year december 31 2015 sublimit dominion gas aggregate 500 million january 2016 aggregate sublimit dominion gas increased 10 billion dominion gas liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion credit facilities mature april 2019 used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit 2 weightedaverage interest rate outstanding commercial paper supported credit facilities 063 december 31 2015 note 17 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2015 2 financings relate certain pollution control equipment virginia power’s generating facilities certain variable rate taxexempt financings supported 120 million credit facility terminates april 2019 3 option holders 510 million dominion’s 525 senior notes due 2033 subject redemption 100 principal amount plus accrued interest august 2015 result december 31 2014 notes included securities due within one year dominion’s consolidated balance sheets option redeem notes expired june 2015 december 31 2015 notes included longterm debt dominion’s consolidated balance sheets 4 represents debt assumed dominion merger former cng subsidiary 5 represents valuation certain fair value hedges associated dominion’s fixed rate debt 6 includes 4 million fair value hedge valuation 2014 excludes 100 million variable rate shortterm notes scheduled mature may 2016 purchased cancelled using proceeds february 2016 issuance senior notes mature 2018 combined notes consolidated financial statements continued based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2015 follows 1 february 2016 dominion purchased cancelled 100 million variable rate shortterm notes would otherwise matured may 2016 using proceeds february 2016 issuance senior notes mature 2018 result december 31 2015 100 million notes included longterm debt consolidated balance sheets companies’ shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2015 events default covenants january 2016 virginia power issued 750 million 315 senior notes mature 2026 february 2016 dominion issued 500 million 2125 senior notes private placement notes mature 2018 senior note redemptions part dominion’s liability management exercise december 2014 dominion redeemed five outstanding series senior notes aggregate outstanding principal 19 billion aggregate redemption price paid december 2014 22 billion represents principal amount outstanding accrued unpaid interest applicable makewhole premium 263 million total charges liability management exercise 284 million including makewhole premium recognized recorded interest expense dominion’s consolidated statements income proceeds dominion’s issuance senior notes november 2014 used offset payment redemption price also see convertible securities called redemption convertible securities part dominion’s liability management exercise november 2014 dominion provided notice redeem 22 million outstanding contingent convertible senior notes senior notes eligible conversion 2014 however lieu redemption holders elected convert remaining 22 million notes december 2014 26 million common stock proceeds dominion’s issuance senior notes november 2014 used offset portion conversions paid cash december 31 2014 senior notes converted none remain outstanding junior subordinated notes payable affiliated trusts previous years dominion established several subsidiary capital trusts finance subsidiary dominion holds 100 voting interests trusts sold capital securities representing preferred beneficial interests 97 beneficial ownership assets held trusts exchange funds realized sale capital securities common securities represent remaining 3 beneficial ownership interest assets held capital trusts dominion issued various junior subordinated notes junior subordinated notes constitute 100 capital trust’s assets trust must redeem capital securities respective junior subordinated notes repaid maturity redeemed prior maturity january 2013 dominion repaid 258 million 783 unsecured junior subordinated debentures redeemed 250 thousand units 250 million 783 dominion resources capital trust capital securities due december 1 2027 securities redeemed price 101958 per capital security plus accrued unpaid distributions interest charges related dominion’s junior subordinated notes payable affiliated trusts 1 million years ended december 31 2015 2014 2013 enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids bear interest 75 per year june 30 2016 thereafter bear interest threemonth libor plus 2825 reset quarterly september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly june 2009 dominion issued 685 million 8375 june 2009 hybrids june 2009 hybrids listed nyse symbol dru october 2014 dominion issued 685 million october 2014 hybrids bear interest 575 per year october 1 2024 thereafter bear interest threemonth libor plus 3057 reset quarterly dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion executed rccs connection issuance june 2006 hybrids september 2006 hybrids june 2009 hybrids terms rccs dominion covenants benefit designated covered debtholders may designated time dominion shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days july 2014 dominion amended rcc june 2009 hybrids expand measurement period consideration proceeds sale common stock equitylike issuances 180 days 365 days proceeds dominion receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price part dominion’s liability management exercise october 2014 dominion redeemed 685 million june 2009 hybrids plus accrued interest net proceeds issuance october 2014 hybrids 2015 dominion purchased canceled 14 million 3 million june 2006 hybrids september 2006 hybrids respectively first quarter 2016 dominion purchased cancelled 37 million 2 million june 2006 hybrids september 2006 hybrids respectively redemption purchases conducted compliance rccs remarketable subordinated notes june 2013 dominion issued 550 million 2013 series 6125 equity units 550 million 2013 series b 6 equity units initially form corporate units july 2014 dominion issued 10 billion 2014 series 6375 equity units initially form corporate units corporate units listed nyse symbols dcua dcub dcuc respectively corporate unit consists stock purchase contract 120 interest rsn issued dominion stock purchase contracts obligate holders purchase shares dominion common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts dominion makes quarterly interest payments rsns quarterly contract adjustment payments stock purchase contracts rates described dominion may defer payments stock purchase contracts rsns one consecutive periods generally beyond purchase contract settlement date payments deferred dominion may make cash distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated rsns dominion recorded present value stock purchase contract payments liability offset charge equity interest payments rsns recorded interest expense stock purchase contract payments charged liability accretion stock purchase contract liability recorded imputed interest expense calculating diluted eps dominion applies treasury stock method equity units pursuant terms 2013 equity units 2014 equity units dominion expects remarket 2013 series 2013 series b 2014 series rsns first second quarters 2016 second quarter 2017 respectively following successful remarketing interest rate rsns reset interest payable semiannual basis dominion cease ability redeem rsns option defer interest payments proceeds remarketing belong investors related equity units held applied behalf settlement date related stock purchase contracts pay purchase price dominion issuance common stock combined notes consolidated financial statements continued terms stock purchase contracts assuming antidilution adjustments dominion issue 85 million 100 million shares common stock april 2016 july 2016 115 million 144 million shares july 2017 total 403 million shares dominion’s common stock reserved issuance connection stock purchase contracts selected information dominion’s equity units presented 1 payments 101 million 66 million made 2015 2014 respectively stock purchase contract liability 115 million 216 million december 31 2015 2014 respectively note 18 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2015 2014 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 2014 virginia power redeemed 259 million shares represented outstanding series preferred stock redeemed part dominion’s liability management exercise september 2014 upon redemption series longer outstanding purpose dividends ceased accumulate virginia power preferred stock issued outstanding december 31 2015 2014 note 19 equity issuance common stock dominion maintains dominion direct® number employee savings plans contributions may invested dominion’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion began purchasing common stock open market plans april 2014 dominion began issuing new common shares direct stock purchase plans 2015 dominion received cash proceeds net fees commissions 783 million issuance approximately 11 million shares common stock various programs resulting approximately 596 million shares common stock outstanding december 31 2015 proceeds include cash 284 million received issuance 41 million shares dominion direct® employee savings plans december 2014 dominion filed sec shelf registration sale debt equity securities including ability sell common stock atthemarket program also december 2014 dominion entered four separate sales agency agreements effect sales program pursuant may offer time 500 million aggregate amount common stock sales common stock made means privately negotiated transactions nyse market prices transactions agreed upon dominion sales agents conformance applicable securities laws first second quarters 2015 dominion provided sales instructions sales agents issued 40 million shares atthemarket issuances received cash proceeds 297 million net fees commissions paid 3 million following issuances dominion ability issue approximately 200 million stock 2014 sales agency agreements however dominion completed 2015 planned market issuances equity may 2015 issuance 28 million shares receipt proceeds 202 million registered underwritten public offering virginia power 2015 2014 2013 virginia power issue shares common stock dominion gas september 30 2013 dominion contributed whollyowned subsidiaries dti east ohio dominion iroquois dominion gas exchange 100 limited liability company membership interests shares reserved issuance december 31 2015 dominion approximately 50 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans issuance connection stock purchase contracts see note 17 information repurchase common stock dominion repurchase shares 2015 2014 plan repurchase shares 2016 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization purchase dominion midstream units september 2015 dominion initiated program purchase market 50 million common units representing limited partner interests dominion midstream common units may acquired dominion 12 month period following commencement program discretion management december 31 2015 dominion purchased approximately 887000 common units 25 million first quarter 2016 dominion purchased approximately 377000 additional common units approximately 10 million february 23 2016 dominion still ability purchase 15 million common units program combined notes consolidated financial statements continued accumulated comprehensive income loss presented table summary aoci component dominion following table presents dominion’s changes aoci component net tax 1 see table details reclassifications following table presents dominion’s reclassifications aoci component virginia power following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications combined notes consolidated financial statements continued following table presents virginia power’s reclassifications aoci component dominion gas following table presents dominion gas’ changes aoci component net tax 1 see table details reclassifications following table presents dominion gas’ reclassifications aoci component stockbased awards 2005 2014 incentive compensation plans permit stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2015 approximately 25 million shares available future grants plans dominion measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion’s results years ended december 31 2015 2014 2013 include 39 million 39 million 31 million respectively compensation costs 14 million 14 million 11 million respectively income tax benefits related dominion’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income excess tax benefits classified financing cash flow dominion realized 3 million excess tax benefits vesting restricted stock awards exercise stock options year ended december 31 2015 less 1 million years ended december 31 2014 2013 restricted stock restricted stock grants made officers dominion’s ltip may also granted certain key nonofficer employees time fair value dominion’s restricted stock awards equal closing price dominion’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2015 2014 2013 december 31 2015 unrecognized compensation cost related nonvested restricted stock awards totaled 27 million expected recognized weightedaverage period 20 years fair value restricted stock awards vested 37 million 19 million 20 million 2015 2014 2013 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates goalbased stock goalbased stock awards granted dominion’s ltip officers achieved certain targeted level share combined notes consolidated financial statements continued ownership lieu cashbased performance grants goalbased stock awards may also made certain key nonofficer employees time current outstanding goalbased shares include awards granted officers february 2014 february 2015 issuance awards based achievement two performance metrics twoyear period tsr relative companies listed members philadelphia utility index end performance period roic actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock equal closing price dominion’s stock date grant goalbased stock awards granted key nonofficer employees convert restricted stock end twoyear performance period generally vest three years original grant date awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares following table provides summary goalbased stock activity years ended december 31 2015 2014 2013 december 31 2015 targeted number shares expected issued february 2014 february 2015 awards approximately 24 thousand january 2016 cgn committee determined actual performance metrics established february 2014 awards performance period ended december 31 2015 based determination total number shares issued february 2014 goalbased stock awards approximately 10 thousand december 31 2015 unrecognized compensation cost related nonvested goalbased stock awards material cashbased performance grants cashbased performance grants made dominion’s officers dominion’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved february 2012 cashbased performance grant made officers portion grant representing initial payout 8 million paid december 2013 based achievement two performance metrics 2012 2013 tsr relative companies listed members philadelphia utility index end performance period roic total amount award grant 12 million remaining portion grant paid january 2014 february 2013 cashbased performance grant made officers portion grant representing initial payout 14 million paid december 2014 based achievement two performance metrics 2013 2014 tsr relative companies listed members philadelphia utility index end performance period roic total amount award grant 20 million remaining portion grant paid february 2015 february 2014 cashbased performance grant made officers payout performance grant expected occur march 15 2016 based achievement two performance metrics 2014 2015 tsr relative companies listed members philadelphia utility index end performance period roic total expected award grant 10 million grant expected paid march 15 2016 december 31 2015 liability 10 million accrued award february 2015 cashbased performance grant made officers payout performance grant expected occur march 15 2017 based achievement two performance metrics 2015 2016 tsr relative companies listed members philadelphia utility index end performance period roic december 31 2015 targeted amount grant 14 million liability 7 million accrued award note 20 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2015 virginia commission restricted payment dividends virginia power ohio commission may prohibit public service company including east ohio declaring paying dividend affiliate found detrimental public interest december 31 2015 ohio commission restricted payment dividends east ohio certain agreements associated companies’ credit facilities contain restrictions ratio debt total capitalization limitations restrict companies’ ability pay dividends receive dividends subsidiaries december 31 2015 see note 17 description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes equity units initially form corporate units note 21 employee benefit plans dominion gasdefined benefit plans dominion provides certain retirement benefits eligible active employees retirees qualifying dependents dominion gas participates number dominionsponsored retirement plans terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension program also provides benefits certain retired executives companysponsored nonqualified employee benefit plan nonqualified plan funded contributions grantor trust dominion also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension benefits dominion gas employees represented collective bargaining units covered dominion pension plan defined benefit pension plan sponsored dominion provides benefits multiple dominion subsidiaries pension benefits dominion gas employees represented collective bargaining units covered separate pension plans east ohio dti plan provides benefits employees dti hope employee compensation basis allocating pension costs obligations dti hope determining east ohio’s share total pension costs retiree healthcare life insurance benefits dominion gas employees represented collective bargaining units covered dominion retiree health welfare plan sponsored dominion provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries retiree healthcare life insurance benefits dominion gas employees represented collective bargaining units covered separate postretirement benefit plans east ohio dti plan provides benefits dti hope employee headcount basis allocating postretirement benefit costs obligations dti hope determining east ohio’s share total postretirement benefit costs pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates rate compensation increases dominion uses december 31 measurement date employee benefit plans including dominion gas participates dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost pension plans including dominion gas participates marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments dominion’s pension postretirement plan assets experienced aggregate actual losses 72 million 2015 aggregate actual returns 706 million 2014 versus expected returns 648 million 610 million respectively dominion gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual losses 13 million 2015 aggregate actual returns 157 million 2014 versus expected returns 150 million 138 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans medicare act introduced federal subsidy sponsors retiree healthcare benefit plans provide prescription drug benefit least actuarially equivalent medicare part dominion determined prescription drug benefit offered postretirement benefit plans least actuarially equivalent medicare part dominion gas received federal subsidy 4 million 1 million respectively 2014 effective january 1 2013 dominion changed method receiving subsidy medicare part retiree prescription drug coverage retiree drug subsidy egwp change reduced postretirement benefit costs approximately 20 million annually beginning 2012 result adoption egwp dominion begins receive increased level medicare part subsidies form reduced costs rather direct reimbursement october 2014 society actuaries published new mortality tables mortality improvement scales tables scales used develop mortality assumptions use determining pension postretirement benefit liabilities expense following evaluation new tables dominion changed assumption mortality rates reflect generational improvement scale result change assumption december 31 2014 dominion gas employees represented collective bargaining units increased pension benefit obligations 131 million 10 million respectively increased accumulated postretirement benefit obligations 32 million 7 million respectively change increased net periodic benefit cost dominion gas employees represented collective bargaining units 25 million 3 million respectively 2015 dominion remeasured pension postretirement benefit plans second quarter 2013 remeasurement resulted reduction pension benefit obligation 354 million reduction accumulated postretirement benefit obligation 78 million dominion gas employees represented collective bargaining units remeasurement resulted reduction pension benefit obligation 28 million reduction accumulated postretirement benefit obligation 9 million impact combined notes consolidated financial statements continued remeasurement net periodic benefit credit cost recognized prospectively remeasurement date reduced net periodic benefit cost 2013 36 million excluding impacts curtailments dominion gas employees represented collective bargaining units 2 million discount rate used remeasurement 480 pension plans 470 postretirement benefit plans assumptions used remeasurement consistent measurement december 31 2012 fourth quarter 2013 dominion remeasured postretirement benefit plans result plan amendment changed medical coverage certain medicareeligible retirees effective april 2014 remeasurement resulted reduction accumulated postretirement benefit obligation 220 million impact remeasurement net periodic benefit credit cost recognized prospectively remeasurement date reduced net periodic benefit cost 2013 8 million amendment expected reduce net periodic benefit cost 40 million 60 million next five years discount rate used remeasurement 480 assumptions used remeasurement consistent measurement december 31 2012 third quarter 2014 east ohio remeasured postretirement benefit plan result amendment changed medical coverage upon attainment age 65 certain future retirees effective january 1 2016 employees represented collective bargaining units remeasurement resulted increase accumulated postretirement benefit obligation 22 million impact remeasurement net periodic benefit credit recognized prospectively remeasurement date reduced net periodic benefit credit 2014 employees represented collective bargaining units less 1 million discount rate used remeasurement 420 expected longterm rate return used 850 assumptions used remeasurement consistent measurement december 31 2013 funded status following table summarizes changes pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status dominion gas employees represented collective bargaining units combined notes consolidated financial statements continued 1 2015 amount relates primarily plan amendment changed retiree medical benefits certain nonunion employees medicare eligibility 2 relates primarily settlement charge certain executives 3 reflected deferred credits liabilities dominion gas’ consolidated balance sheets abo dominion’s defined benefit pension plans 58 billion 60 billion december 31 2015 2014 respectively abo defined benefit pension plans covering dominion gas employees represented collective bargaining units 578 million 604 million december 31 2015 2014 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time 2015 dominion gas made contributions qualified defined benefit pension plans contributions currently expected 2016 july 2012 map 21 act signed law act includes increase interest rates used determine plan sponsors’ pension contributions required funding purposes 2014 hatfa 2014 signed law similar map 21 act hatfa 2014 adjusts rules calculating interest rates used determining funding obligations estimated new interest rates reduce required pension contributions 2019 dominion believes required pension contributions rise subsequent 2019 resulting estimated 200 million reduction net cumulative required contributions 10year period certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries including dominion gas fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion’s contributions vebas pertained dominion gas employees totaled 12 million 2015 2014 dominion expects contribute approximately 12 million dominion vebas 2016 pertains dominion gas employees dominion gas expect pension postretirement plan assets returned 2016 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets dominion gas employees represented collective bargaining units following table provides information abo fair value plan assets dominion’s pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid dominion’s dominion gas’ employees represented collective bargaining units plans plan assets dominion’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk participating employer various pension plans sponsored dominion gas subject dominion’s investment policies plans minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations dominion’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments us equity includes investments largecap midcap smallcap companies located united states nonus equity includes investments largecap smallcap companies located outside united states including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity reits investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies dominion also utilizes commoncollective trust funds investment vehicle defined benefit plans commoncollective trust fund pooled fund operated bank trust company investment assets various organizations individuals welldiversified portfolio commoncollective trust funds grouped assets follow various investment strategies strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 combined notes consolidated financial statements continued fair values dominion’s dominion gas’ employees represented collective bargaining units pension plan assets asset category follows 1 commoncollective trust funds include 330 million 360 million john hancock insurance contracts held december 31 2015 2014 respectively see description individual investments included within line item nature risk respective fund 2 investments measured fair value using nav per share equivalent practical expedient classified fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented consolidated balance sheets 3 includes net assets related pending sales securities 112 million net accrued income 16 million excludes net assets related pending purchases securities 118 million december 31 2015 includes net assets related pending sales securities 31 million net accrued income 18 million excludes net assets related pending purchases securities 38 million december 31 2014 4 commoncollective trust funds include 78 million 84 million john hancock insurance contracts held december 31 2015 2014 respectively see description individual investments included within line item nature risk respective fund 5 includes net assets related pending sales securities 27 million net accrued income 4 million excludes net assets related pending purchases securities 28 million december 31 2015 includes net assets related pending sales securities 7 million net accrued income 4 million excludes net assets related pending purchases securities 9 million december 31 2014 fair values dominion’s dominion gas’ employees represented collective bargaining units postretirement plan assets asset category follows 1 commoncollective trust funds include 18 million 19 million john hancock insurance contracts held december 31 2015 2014 respectively see description individual investments included within line item nature risk respective fund 2 investments measured fair value using nav per share equivalent practical expedient classified fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented consolidated balance sheets 3 see description individual investments included within line item nature risk respective fund combined notes consolidated financial statements continued investments commoncollective trust funds dominion’s pension postretirement plans including dominion gas participates stated fair value determined issuer commoncollective trust funds based fair value underlying investments commoncollective trusts unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment strategies commoncollective trust funds follows dominion gas • wells fargo closed end bond trustthe fund invests stocks bonds combination shares fund traded stock exchange subject market risk like stocks bonds mutual funds fund may invest less liquid portfolio stocks bonds fund need sell securities meet shareholder redemptions mutual funds order keep percentage portfolio cash pay back investors withdraw shares • jpmorgan core bond trustthe fund seeks maximize total return investing primarily diversified portfolio intermediate longterm debt securities fund invests primarily investmentgrade bonds generally maintains average weighted maturity four 12 years may shorten average weighted maturity deemed appropriate temporary defensive purposes • ssga russell 2000 value index common trustthe fund measures performance smallcap value segment us equity universe russell 2000 value index constructed provide comprehensive unbiased barometer smallcap value segment index completely reconstituted annually ensure larger stocks distort performance characteristics true smallcap opportunity set represented companies continue reflect value characteristics • nt common shortterm investment fundthe fund seeks maximize current income cash reserves extent consistent principal preservation maintenance liquidity portfolio approved money market instruments short maturities liquidity emphasized provide redemption units par business day principal preservation primary objective within quality maturity sector diversification guidelines investments made securities attractive yields dominion • ssga daily msci emerging markets index nonlending fundthe fund seeks investment return approximates closely practicable expenses performance msci emerging markets index long term fund may invest directly indirectly securities instruments including pooled investment vehicles sponsored managed otherwise affiliated trustee state street bank trust company • ssga daily msci acwi exusa index nonlending fundthe fund seeks investment return approximates closely practicable expenses performance msci acwi exusa index long term fund may invest directly indirectly securities instruments including pooled investment vehicles sponsored managed otherwise affiliated trustee state street bank trust company • ssga sp 400 midcap indexthe fund seeks investment return approximates closely practicable expenses performance benchmark index long term sp midcap 400 comprised approximately 400 us midcap securities accounts approximately 7 coverage us stock market capitalization ssga typically attempt invest equity securities comprising index approximately proportions represented index • ssga sp 500 flagship nonlending fundthe fund seeks investment return approximates closely practicable expenses performance sp 500 index long term sp 500 comprised approximately 500 largecap us equities captures approximately 80 coverage available market capitalization ssga typically attempt invest equity securities comprising sp 500 index approximately proportions represented index • cf goldman sachs gstco long duration fundthe fund seeks generate total return prudent investment management investments fixed income securities fund actively managed benchmarked versus barclays us long government credit index least 75 fund’s total assets rated investment grade better nrsro time purchase fund may invest 25 total assets time purchase noninvestment grade securities fund may invest nondollar denominated securities fully hedged unhedged partially hedged • jpmorgan chase bank us active core plus equity fundthe fund seeks outperform sp 500 index benchmark gross fees market cycle fund invests primarily portfolio long short positions equity securities large mid capitalization us companies characteristics similar benchmark • nt collective russell 2000 growth indexthe fund seeks investment return approximates overall performance common stocks included russell 2000 growth index fund primarily invests common stocks one companies deemed representative industry diversification entire russell 2000 growth index • nt collective shortterm investment fundthe fund composed highgrade money market instruments shortterm maturities fund’s objective provide investment vehicle cash reserves offering competitive rate return liquidity emphasized provide redemption units business day principal preservation also prime objective admissions withdrawals made daily interest accrued daily distributed monthly investments group insurance annuity contracts john hancock entered 1992 stated fair value based fair value underlying securities provided managers include investments us government securities corporate debt instruments state municipal debt securities net periodic benefit credit cost net periodic benefit credit cost reflected operations maintenance expense consolidated statements income components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans follows 1 2013 amounts relate primarily decommissioning kewaunee 2 assumptions used determine net periodic cost following year 3 society actuaries model used determine healthcare cost trend rates updated 2014 new model converges ultimate trend rate much quickly previous models combined notes consolidated financial statements continued components aoci regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans recognized components net periodic benefit credit cost follows 1 december 31 2015 24 billion 123 million related pension benefits postretirement benefits 14 billion 90 million respectively included aoci remainder included regulatory assets liabilities december 31 2014 24 billion 94 million related pension benefits postretirement benefits 14 billion 81 million respectively included aoci remainder included regulatory assets liabilities 2 december 31 2015 381 million related pension benefits 138 million included aoci remainder included regulatory assets liabilities 40 million related postretirement benefits included entirely regulatory assets liabilities december 31 2014 304 million related pension benefits 112 million included aoci remainder included regulatory assets liabilities 50 million related postretirement benefits included entirely regulatory assets liabilities following table provides components aoci regulatory assets liabilities dominion’s dominion gas’ employees represented collective bargaining units plans december 31 2015 expected amortized components net periodic benefit credit cost 2016 expected longterm rates return plan assets discount rates healthcare cost trend rates mortality critical assumptions determining net periodic benefit credit cost dominion develops assumptions compared forecasts independent investment advisor except expected longterm rates return ensure reasonableness internal committee selects final assumptions used dominion’s pension postretirement plans including dominion gas participates including discount rates expected longterm rates return healthcare cost trend rates mortality rates dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans including dominion gas participates using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forecasts independent investment advisor • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans including dominion gas participates dominion develops mortality assumption using planspecific studies projects mortality improvement using scales developed society actuaries plans including dominion gas participates assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans including dominion gas participates one percentage point change assumed healthcare cost trend rates would following effects dominion’s dominion gas’ employees represented collective bargaining units postretirement benefit plans dominion gas employees represented collective bargaining units virginia powerparticipation defined benefit plans virginia power employees dominion gas employees represented collective bargaining units covered dominion pension plan described participating employers virginia power dominion gas subject dominion’s funding policy contribute annually amount accordance erisa 2015 virginia power dominion gas made contributions dominion pension plan contributions plan currently expected 2016 virginia power’s net periodic pension cost related plan 97 million 75 million 96 million 2015 2014 2013 respectively dominion gas’ net periodic pension credit related plan 38 million 37 million 27 million 2015 2014 2013 respectively net periodic pension credit cost reflected operations maintenance expense respective consolidated statements income funded status various dominion subsidiary groups employee compensation basis determining share total pension costs participating dominion subsidiaries see note 24 virginia power dominion gas amounts due tofrom dominion related plan retiree healthcare life insurance benefits virginia power employees dominion gas employees represented collective bargaining units covered dominion retiree health welfare plan described virginia power’s net periodic benefit credit cost related plan 16 million 18 million 5 million 2015 2014 2013 respectively dominion gas’ net periodic benefit credit cost related plan 5 million 5 million less 1 million 2015 2014 2013 respectively net periodic benefit credit cost reflected operations maintenance expenses respective consolidated statements income employee headcount basis determining share total postretirement benefit costs participating dominion subsidiaries see note 24 virginia power dominion gas amounts due tofrom dominion related plan dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power dominion gas’ employees participate investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash virginia power dominion gas provide dominion shares employee benefit plan contributions certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power dominion gas fund postretirement benefit costs vebas 2015 2014 virginia power made contributions veba expect contribute veba 2016 dominion gas made contributions vebas employees represented collective bargaining units 2015 expect contribute 2016 dominion gas’ contributions vebas employees represented collective bargaining units 1 million 2014 defined contribution plans dominion also sponsors defined contribution employee savings plans cover substantially employees 2015 2014 2013 dominion recognized 43 million 41 million 40 million respectively employer matching contributions plans dominion gas participates employee savings plans specific dominion gas cover multiple dominion subsidiaries 2015 2014 2013 dominion gas recognized 7 million employer matching contributions plans virginia power also participates employee savings plans 2015 2014 2013 virginia power recognized 18 million 17 million 16 million respectively employer matching contributions plans note 22 commitments contingencies result issues generated ordinary course business companies involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate range possible loss statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect financial position liquidity results operations companies environmental matters companies subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements mats december 2011 epa issued mats coal oilfired electric utility steam generating units rule establishes strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases rule includes limited use provision oilfired units combined notes consolidated financial statements continued annual capacity factors 8 provides exemption emission limits allows compliance operational work practice standards compliance required april 16 2015 certain limited exceptions however june 2014 virginia department environmental quality granted oneyear mats compliance extension two coalfired units yorktown defer planned retirements allow continued operation units address reliability concerns necessary electric transmission upgrades completed coal units need continue operating least april 2017 due delays transmission upgrades needed maintain electric reliability based assumptions timing required agency actions construction schedules expected completed earlier second quarter 2017 therefore october 2015 virginia power submitted request epa additional one year compliance extension epa administrative order june 2015 us supreme court issued decision holding epa failed take cost account agency first decided regulate emissions coal oilfired plants remanded mats rule back dc circuit court however supreme court vacate stay effective date implementation mats rule november 20 2015 response supreme court decision epa proposed supplemental finding consideration cost alter agency’s previous conclusion appropriate necessary regulate coal oilfired electric utility steam generating units section 112 caa december 15 2015 dc court appeals issued order remanding mats rulemaking proceeding back epa without setting aside judgment noting epa represented track issue april 15 2016 final finding regarding consideration cost actions change virginia power’s plans close coal units yorktown need complete necessary electricity transmission upgrades 2017 since mats rule remains effect dominion complying requirements rule dominion expect adverse impacts operations time cair epa established cair intent require significant reductions so2 nox emissions electric generating facilities july 2008 us court appeals dc circuit issued ruling vacating cair december 2008 court denied rehearing also issued decision remand cair epa july 2011 epa issued replacement rule cair called csapr required 28 states reduce power plant emissions cross state lines csapr established new so2 nox emissions cap trade programs completely independent current arp specifically csapr required reductions so2 nox emissions fossil fuelfired electric generating units 25 mw annual nox emissions caps nox emissions caps ozone season may 1 september 30 annual so2 emission caps differing requirements two groups affected states csapr following numerous petitions industry participants review successful motion stay october 2014 us court appeals dc circuit ordered epa’s motion lift stay csapr granted court granted epa’s request shift csapr compliance deadlines three years phase 1 emissions budgets would gone effect 2012 2013 apply 2015 2016 phase 2 emissions budgets apply 2017 beyond csapr replaced cair beginning january 2015 cost comply expected material consolidated financial statements future outcomes additional litigation andor action issue revised rule could affect assessment regarding cost compliance ozone standards october 2015 epa issued final rule tightening ozone standard 75ppb 70ppb epa expected complete attainment designations new standard december 2017 states 2020 2021 develop plans address new standard states developed implementation plans companies unable predict whether extent new rules ultimately require additional controls however significant expenditures required implement additional controls could adversely affect companies’ results operations cash flows hazardous air pollutants standards august 2010 epa issued revised national emission standards hazardous air pollutants reciprocating internal combustion engines amended march 2011 january 2013 rule establishes emission standards control hazardous air pollutants engines smaller facilities known area sources result regulations dominion gas spent 2 million install emissions controls several compressor engines capital spending expected material nsps august 2012 epa issued first nsps impacting natural gas production gathering sectors made revisions nsps natural gas processing transmission facilities rules establish equipment performance specifications emissions standards control voc emissions natural gas production wells tanks pneumatic controllers compressors upstream sector september 2015 epa issued proposed nsps regulate methane voc emissions transmission storage gathering boosting production processing facilities projects commence construction september 2015 required comply regulation dominion evaluating proposed regulation cannot currently estimate potential impacts results operations financial condition andor cash flows related matter methane emissions january 2015 part climate action plan epa announced plans reduce methane emissions oil gas sector including natural gas processing transmission sources july 2015 epa announced next generation voluntary natural gas star program natural gas star methane challenge program proposed program covers entire natural gas sector production distribution emphasis transparency increased reporting annual emissions reductions achieved implementation measures dominion evaluating proposed program cannot currently estimate potential impacts results operations financial condition andor cash flows related matter climate change legislation regulation october 2013 us supreme court granted petitions filed several industry groups states us chamber commerce seeking review dc circuit court’s june 2012 decision upholding epa’s regulation ghg emissions stationary sources caa’s permitting programs june 2014 us supreme court ruled epa lacked authority caa require psd title v permits stationary sources based solely ghg emissions however court upheld epa’s ability require bact ghg sources otherwise subject psd title v permitting conventional pollutants july 2014 epa issued memorandum specifying longer apply enforce federal regulations epaapproved psd state implementation plan provisions require new modified stationary sources obtain psd permit ghgs pollutant would emitted levels exceed permitting thresholds august 2015 epa published final rule rescinding requirement new modified major sources obtain permits based solely ghg emissions addition epa stated continue use existing thresholds apply sources otherwise subject psd conventional pollutants completes new rulemaking either justifying upholding thresholds setting new ones states issued interim guidance follows epa guidance due uncertainty regarding additional actions states may take amend existing regulations action epa ultimately takes address court ruling new rulemaking companies cannot predict impact financial statements time july 2011 epa signed final rule deferring need psd title v permitting co2 emissions biomass projects rule temporarily deferred period three years consideration co2 emissions biomass projects determining whether stationary source meets psd title v applicability thresholds including application bact deferral policy expired july 2014 july 2013 us court appeals dc circuit vacated rule however mandate making decision effective issued virginia power converted three coalfired generating stations altavista hopewell southampton biomass co2 deferral period unclear court’s decision epa’s final policy regarding treatment specific feedstock affect biomass sources permitted deferral period however expenditures comply new requirements could material dominion’s virginia power’s financial statements water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms companies must comply applicable aspects cwa programs operating facilities october 2014 final regulations section 316b cwa govern existing facilities new units existing facilities employ cooling water intake structure flow levels exceeding minimum threshold became effective rule establishes national standard impingement based seven compliance options forgoes creation single technology standard entrainment instead epa delegated entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination five mandatory facilityspecific factors including social costbenefit test six optional facilityspecific factors rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd dominion virginia power 14 11 facilities respectively may subject final regulations dominion anticipates install impingement control technologies many stations oncethrough cooling systems dominion virginia power currently evaluating need potential entrainment controls final rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies impacts rule could material dominion’s virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts virginia power september 2015 epa released final rule revise effluent limitations guidelines steam electric power generating category final rule establishes updated standards wastewater discharges apply primarily coal oil steam generating stations affected facilities required convert wet dry closed cycle coal ash management improve existing wastewater treatment systems andor install new wastewater treatment technologies order meet new discharge limits virginia power eight facilities may subject additional wastewater treatment requirements associated final rule expenditures comply new requirements expected material solid hazardous waste cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites jointly severally strictly liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight combined notes consolidated financial statements continued time dominion virginia power dominion gas may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power dominion gas may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste except noted companies believe material effect results operations financial condition andor cash flows september 2011 epa issued uao virginia power 22 parties ordering specific remedial action certain areas ward transformer superfund site located raleigh north carolina virginia power believe liable party cercla based alleged connection site november 2011 virginia power number parties notified epa declining undertake work set forth uao epa may seek enforce uao court pursuant enforcement authority cercla may seek recovery costs undertaking removal remedial action court determines respondent failed comply uao without sufficient cause epa may also seek civil penalties 37500 per day violation punitive damages three times costs incurred epa result party’s failure comply uao virginia power currently unable make estimate potential financial statement impacts related ward transformer matter dominion determined associated 17 former manufactured gas plant sites three pertain virginia power 12 pertain dominion gas studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none former sites companies associated investigation state federal environmental agency one former sites dominion conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program virginia power currently evaluating nature extent contamination site well potential remedial options preliminary costs options evaluation site range 1 million 22 million due uncertainty surrounding sites companies unable make estimate potential financial statement impacts see discussion ash pond landfill closure costs legal matters companies defendants number lawsuits claims involving unrelated incidents property damage personal injury due uncertainty surrounding matters companies unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows appalachian gateway following completion appalachian gateway project 2012 dti received multiple change order requests claims additional payments pipeline contractor project july 2013 dti filed complaint us district court eastern district virginia breach contract well accounting declaratory relief contractor filed motion dismiss alternative motion transfer venue pennsylvania andor west virginia pipelines constructed dti filed opposition contractor’s motion august 2013 november 2013 court granted contractor’s motion basis dti must first comply dispute resolution process july 2015 contractor filed complaint dti us district court western district pennsylvania august 2015 dti filed motion dismiss alternative motion transfer venue virginia case pending dti accrued liability 6 million matter dominion gas cannot currently estimate additional financial statement impacts could material impact financial condition andor cash flows ash pond landfill closure costs september 2014 virginia power received notice selc behalf potomac riverkeeper sierra club alleging cwa violations possum point notice alleges unpermitted discharges surface water groundwater possum point’s historical active ash storage facilities similar notice selc behalf sierra club subsequently received related chesapeake december 2014 virginia power offered close coal ash ponds landfills possum point chesapeake bremo settlement potential litigation issue open potential negotiations selc declined offer presented january 2015 march 2015 filed lawsuit related claims alleged cwa violations chesapeake virginia power filed motion dismiss april 2015 denied november 2015 result december 2014 settlement offer virginia power recognized charge 121 million operations maintenance expense consolidated statements income companies’ annual report form 10k year ended december 31 2014 april 2015 epa’s final rule regulating management ccrs stored impoundments ash ponds landfills published federal register final rule regulates ccr landfills existing ash ponds still receive manage ccrs inactive ash ponds receive still store ccrs virginia power currently operates inactive ash ponds existing ash ponds ccr landfills subject final rule eight different facilities enactment final rule april 2015 created legal obligation virginia power retrofit close inactive existing ash ponds certain period time well perform required monitoring corrective action postclosure care activities necessary 2015 virginia power recorded 386 million aro related future ash pond landfill closure costs recognition aro also resulted 99 million incremental charge recorded operations maintenance expense consolidated statement income 166 million increase property plant equip ment associated asset retirement costs 121 million reduction noncurrent liabilities related reversal contingent liability described since aro obligation created final ccr rule represents similar activities virginia power process obtaining necessary permits complete work actual aros related ccr rule may vary substantially estimates used record increased obligation 2015 cove point dominion constructing liquefaction project cove point facility would enable facility liquefy domesticallyproduced natural gas export lng september 2014 ferc issued order granting authorization cove point construct modify operate liquefaction project october 2014 several parties filed motion ferc stay order requested rehearing may 2015 ferc denied requests stay rehearing two parties separately filed petitions review ferc order us court appeals dc circuit petitions consolidated separately one party requested stay ferc order judicial proceedings complete court denied june 2015 may 2014 maryland commission granted cpcn authorizing construction generating station connection liquefaction project cpcn obligates cove point make payments totaling 48 million payments consist 40 million strategic energy investments fund fiveyear period beginning 2015 8 million maryland low income energy assistance programs twentyyear period expected begin 2018 december 2014 upon receipt applicable approvals commence construction generating station dominion recorded present value obligation increase property plant equipment corresponding liability june 2014 party filed notice petition judicial review cpcn circuit court baltimore city maryland september 2014 party filed maryland commission motion stay cpcn pending judicial review cpcn december 2014 circuit court issued order affirming maryland commission’s grant cpcn dismissing appeal motion stay denied maryland commission january 2015 party filed notice appeal baltimore circuit court’s order affirming maryland commission’s grant cpcn court special appeals maryland february 2016 court special appeals maryland issued order affirming judgment circuit court baltimore city maryland affirmed decision maryland commission granting cpcn nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups inpo like us nuclear operators dominion gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisting actions staff determined started without unnecessary delay december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropriations act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactors construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion requiring implementation safety enhancements related mitigation strategies respond extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation implemented information requests issued nrc request reactor reevaluate seismic external flooding hazards site using presentday methods information conduct walkdowns facilities ensure protection hazards current design basis reevaluate emergency communications systems staffing levels walkdowns unit completed audited nrc found adequate reevaluation seismic external flooding hazards expected continue 2018 dominion virginia power currently expect compliance nrc’s information requests materially impact financial position results operations cash flows implementation period nrc staff evaluating implementation longer term tier 2 tier 3 recommendations dominion virginia power currently unable estimate potential financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2015 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 29 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2015 nrc minimum financial assurance amounts calculated using preliminary december 31 2015 us bureau labor statistics indices dominion believes combined notes consolidated financial statements continued amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion virginia power continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial instruments recognized nrc see note 9 additional information nuclear decommissioning trust investments nuclear insurance priceanderson amendments act 1988 provides public 135 billion liability protection per nuclear incident via obligations required owners nuclear power plants allows inflationary provision adjustment every five years dominion virginia power purchased 375 million coverage commercial insurance pools reactor site remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us companies could assessed 127 million licensed reactors exceed 19 million per year per reactor limit number incidents retrospective premium assessed however nrc granted exemption march 2015 remove kewaunee secondary financial protection program current levels nuclear property insurance coverage dominion’s virginia power’s nuclear units follows 1 surry north anna share blanket property limit 200 million dominion’s virginia power’s nuclear property insurance coverage millstone surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site kewaunee meets nrc minimum requirement 106 billion includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum retrospective premium assessment current policy period 84 million 48 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination millstone virginia power also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program dominion virginia power subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum retrospective premium assessment current policy period 23 million 10 million respectively odec part owner north anna massachusetts municipal green mountain part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel dominion virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act dominion’s virginia power’s contracts doe dominion virginia power previously received damages award payments settlement payments related contracts 2012 dominion virginia power resolved additional claims damages incurred millstone kewaunee surry north anna authorized representative attorney general dominion virginia power entered settlement agreements resolved claims damages incurred december 31 2010 also provided periodic payments date damages incurred december 31 2013 mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 settlement agreements surry north anna millstone plants extended provide periodic payments damages incurred december 31 2016 possible extension kewaunee settlement agreement evaluated 2015 virginia power dominion received payments 8 million resolution claims incurred north anna surry period january 1 2013 december 31 2013 17 million resolution claims incurred millstone period july 1 2013 june 30 2014 virginia power dominion received payments 27 million resolution claims incurred north anna surry period january 1 2011 december 31 2012 17 million resolution claims incurred millstone period july 1 2012 june 30 2013 2014 dominion also received payments totaling 7 million resolution claims incurred kewaunee periods january 1 2011 december 31 2013 dominion virginia power continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion’s receivables spent nuclear fuelrelated costs totaled 87 million 69 million december 31 2015 2014 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 54 million 41 million december 31 2015 2014 respectively pursuant november 2013 decision us court appeals dc circuit january 2014 secretary doe sent recommendation us congress adjust zero current fee 1 per mwh electricity paid civilian nuclear power generators disposal spent nuclear fuel processes specified nuclear waste policy act adjustment fee completed may 2014 dominion virginia power longer required pay waste fee 2014 dominion virginia power recognized fees 16 million 10 million respectively dominion virginia power continue manage spent fuel accepted doe longterm purchase agreements december 31 2015 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2015 present value virginia power’s total commitment capacity payments 577 million capacity payments totaled 305 million 330 million 345 million energy payments totaled 198 million 304 million 236 million years ended 2015 2014 2013 respectively lease commitments companies’ lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2015 follows rental expense dominion totaled 99 million 92 million 101 million 2015 2014 2013 respectively rental expense virginia power totaled 51 million 43 million 42 million 2015 2014 2013 respectively rental expense dominion gas totaled 37 million 35 million 15 million 2015 2014 2013 respectively majority rental expense reflected operations maintenance expense consolidated statements income guarantees surety bonds letters credit december 31 2015 dominion issued 74 million guarantees primarily support equity method investees significant amounts related guarantees recorded december 31 2015 dominion’s exposure guarantees 39 million primarily related certain reserve requirements associated nonrecourse financing dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2015 dominion issued following subsidiary guarantees 1 represents estimated portion guarantee’s stated limit utilized december 31 2015 based upon prevailing economic conditions fact patterns specific guarantee arrangement guarantees related obligations recorded liabilities dominion’s subsidiaries value includes recorded amount combined notes consolidated financial statements continued 2 guarantee debt dei subsidiary event default subsidiary dominion would obligated repay amounts 3 guarantees related commodity commitments certain subsidiaries including subsidiaries virginia power dominion gas dei guarantees provided counterparties order facilitate physical financial transactions gas oil electricity pipeline capacity transportation related commodities services subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation dominion subsidiaries receive similar guarantees collateral credit extended others value provided includes certain guarantees stated limits 4 guarantees related certain dei subsidiaries’ potential retrospective premiums could assessed nuclear incident dominion’s nuclear insurance programs guarantees dei subsidiary’s virginia power’s commitment buy nuclear fuel excludes dominion’s agreement provide 150 million 60 million two dei subsidiaries pay operating expenses millstone event prolonged outage kewaunee respectively part satisfying certain nrc requirements concerned ensuring adequate funding operations nuclear power stations agreement kewaunee also provides funds completion decommissioning 5 guarantees related cove point support terminal services transportation construction two guarantees stated limit one guarantee 150 million limit one guarantee 175 billion aggregate limit annual draw limit 175 million 6 includes guarantees facilitate development solar projects including guarantees stated limits also includes guarantees entered dei behalf certain subsidiaries facilitate acquisition development solar projects 7 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects also includes guarantees related certain dei subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower december 31 2015 dominion’s maximum remaining cumulative exposure equity funding agreements 55 million 2019 maximum annual future contributions could range approximately 4 million 19 million value provided includes certain guarantees stated limits additionally december 31 2015 dominion purchased 92 million surety bonds including 34 million virginia power 23 million dominion gas authorized issuance letters credit financial institutions 59 million facilitate commercial transactions subsidiaries third parties terms surety bonds companies obligated indemnify respective surety bond company amounts paid december 31 2015 virginia power issued 14 million guarantees primarily support taxexempt debt issued conduits related debt matures 2031 included longterm debt virginia power’s consolidated balance sheets event default conduit virginia power would obligated repay amounts limited principal interest outstanding indemnifications part commercial contract negotiations normal course business companies may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law companies unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2015 companies believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position note 23 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction companies maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2015 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest regions us dominion believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2015 dominion’s credit exposure totaled 149 million amount investment grade counterparties including internally rated represented 79 single counterparty whether investment grade noninvestment grade exceeded 31 million exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2015 virginia power’s exposure potential concentrations credit risk considered material dominion gas dominion gas transacts mainly major companies energy industry residential commercial energy consumers transactions principally occur northeast midatlantic midwest regions us dominion gas believe geographic concentration contributes overall exposure credit risk addition result large diverse customer base dominion gas exposed significant concentration credit risk receivables arising gas utility operations 2015 dti provided service 266 customers approximately 94 storage transportation revenue provided firm services ten largest customers provided approximately 42 total storage transportation revenue thirty largest provided approximately 72 total storage transportation revenue east ohio distributes natural gas residential commercial industrial customers ohio using rates established ohio commission approximately 98 east ohio revenues derived regulated gas distribution services east ohio’s bad debt risk mitigated regulatory framework established ohio commission see note 13 information ohio’s pipp uex riders mitigate east ohio’s overall credit risk creditrelated contingent provisions majority dominion’s derivative instruments contain creditrelated contingent provisions require dominion provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2015 2014 dominion would required post additional 12 million 20 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion posted collateral december 31 2015 1 million collateral december 31 2014 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2015 2014 49 million include impact offsetting asset positions creditrelated contingent provisions virginia power dominion gas material december 31 2015 2014 see note 7 information derivative instruments note 24 relatedparty transactions virginia power dominion gas engage related party transactions primarily dominion subsidiaries affiliates virginia power’s dominion gas’ receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power dominion gas included dominion’s consolidated federal income tax return see note 2 information dominion’s transactions equity method investments described note 9 discussion significant related party transactions follows virginia power transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps manage commodity price risks associated purchases natural gas see notes 7 19 information december 31 2015 virginia power’s derivative assets liabilities affiliates 13 million 22 million respectively december 31 2014 virginia power’s derivative assets liabilities affiliates material virginia power participates certain dominion benefit plans described note 21 december 31 2015 2014 virginia power’s amounts due dominion associated dominion pension plan reflected noncurrent pension postretirement benefit liabilities consolidated balance sheets 316 million 219 million respectively december 31 2015 2014 virginia power’s amounts due dominion associated dominion retiree health welfare plan reflected deferred charges assets consolidated balance sheets 77 million 37 million respectively drs affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage combined notes consolidated financial statements continued presented significant transactions drs affiliates 1 includes capitalized expenditures virginia power borrowed funds dominion shortterm borrowing arrangements 376 million 427 million shortterm demand note borrowings dominion december 31 2015 2014 respectively virginia power outstanding borrowings net repayments dominion money pool nonregulated subsidiaries december 31 2015 2014 interest charges related virginia power’s borrowings dominion immaterial years ended december 31 2015 2014 2013 issuances virginia power’s common stock dominion 2015 2014 2013 dominion gas transactions related parties dominion gas transacts affiliates certain quantities natural gas commodities market prices ordinary course business additionally dominion gas provides transportation storage services affiliates dominion gas also enters certain contracts affiliates presented separately contracts involving commodities services december 31 2015 2014 dominion gas’ commodity derivatives affiliates see notes 7 19 information see note 9 information regarding sales assets affiliate dominion gas participates certain dominion benefit plans described note 21 december 31 2015 2014 dominion gas’ amounts due dominion associated dominion pension plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 652 million 614 million respectively december 31 2015 2014 dominion gas’ liabilities dominion associated dominion retiree health welfare plan reflected deferred credits liabilities consolidated balance sheets 2 million 7 million respectively drs affiliates provide accounting legal finance certain administrative technical services dominion gas dominion gas provides certain services related parties including technical services costs services follow 1 includes capitalized expenditures 2 amounts primarily attributable atlantic coast pipeline following table presents affiliated related party activity reflected dominion gas’ consolidated balance sheets 1 represents amounts due atlantic coast pipeline related party vie 2 amounts presented current assets dominion gas’ consolidated balance sheets 3 amounts presented deferred charges assets dominion gas’ consolidated balance sheets dominion gas’ borrowings irca dominion totaled 95 million 384 million december 31 2015 2014 respectively interest charges related dominion gas’ total borrowings dominion immaterial year ended december 31 2015 4 million 35 million years ended december 31 2014 2013 respectively note 25 operating segments companies organized primarily basis products services sold us description operations included companies’ primary operating segments follows 1 includes remaining producer services activities 2 result dominion’s decision realign business units effective 2015 yearend reporting nonregulated retail energy marketing operations moved dominion generation segment dominion energy segment addition operating segments companies also report corporate segment dominion corporate segment dominion includes corporate service company functions including unallocated debt net impact operations discontinued sold addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments march 2014 dominion exited electric retail energy marketing business result earnings impact electric retail energy marketing business included corporate segment dominion 2014 first quarter results operations second quarter 2013 dominion commenced restructuring producer services business aggregates natural gas supply engages natural gas trading marketing activities natural gas supply management provides price risk management services dominion affiliates restructuring completed first quarter 2014 resulted termination natural gas trading certain energy marketing activities result earnings impact natural gas trading certain energy marketing activities included corporate segment dominion 2014 2015 dominion reported aftertax net expense 391 million corporate segment 136 million net expenses attributable specific items related operating segments net expenses specific items 2015 primarily related impact following items • 99 million 60 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable dominion generation • 85 million 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 attributable dominion generation 2014 dominion reported aftertax net expense 970 million corporate segment 544 million net expenses attributable specific items related operating segments net expenses specific items 2014 primarily related impact following items • 374 million 248 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities attributable dominion generation • 319 million 193 million aftertax net loss related producer services business discussed attributable dominion energy • 121 million 74 million aftertax charge related settlement offer incur future ash pond closure costs certain utility generation facilities attributable dominion generation 2013 dominion reported aftertax net expense 452 million corporate segment 184 million net expenses attributable specific items related operating segments net expenses specific items 2013 primarily related impact following items • 135 million 92 million aftertax net loss discontinued operations brayton point kincaid including debt extinguishment 64 million 38 million aftertax related sale impairment charges 48 million 28 million aftertax 17 million 18 million aftertax loss sale includes 16 million writeoff goodwill 6 million 8 million aftertax loss operations attributable dominion generation • 182 million 109 million aftertax net loss including 55 million 33 million aftertax impairment charge related certain natural gas infrastructure assets 127 million 76 million aftertax loss related producer services business discussed attributable dominion energy partially offset • 81 million 49 million aftertax net gain investments held nuclear decommissioning trust funds attributable dominion generation combined notes consolidated financial statements continued following table presents segment information pertaining dominion’s operations 1 amounts recast reflect nonregulated retail energy marketing operations dominion energy segment intersegment sales transfers dominion based contractual arrangements may result intersegment profit loss eliminated consolidation virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments 2015 virginia power reported aftertax net expenses 153 million specific items attributable operating segments corporate segment net expenses specific items 2015 primarily related impact following • 99 million 60 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable dominion generation • 85 million 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 attributable dominion generation 2014 virginia power reported aftertax net expenses 342 million specific items attributable operating segments corporate segment net expenses specific items 2014 primarily related impact following • 374 million 248 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities attributable dominion generation • 121 million 74 million aftertax charge related settlement offer incur future ash pond closure costs certain utility generation facilities attributable dominion generation 2013 virginia power reported aftertax net expenses 47 million specific items attributable operating segments corporate segment net expenses specific items 2013 primarily related impact following • 40 million 28 million aftertax charge connection 2013 biennial review order attributable dominion generation following table presents segment information pertaining virginia power’s operations dominion gas corporate segment dominion gas primarily includes specific items attributable dominion gas’ operating segment included profit measures evaluated executive management assessing segment’s performance effect certain items recorded dominion gas result dominion’s basis net assets contributed 2015 dominion gas reported aftertax net expenses 21 million corporate segment 13 million net expenses attributable specific items related operating segment net expenses specific items 2015 primarily related impact following • 16 million 10 million aftertax ceiling test impairment charge 2014 dominion gas reported aftertax net expenses 9 million corporate segment none net expenses attributable specific items related operating segment 2013 dominion gas reported aftertax net expenses 49 million corporate segment 41 million net expenses attributable specific items related operating segment net expenses specific items 2013 primarily related impact following • 55 million 33 million aftertax impairment charges related certain natural gas infrastructure assets • 14 million 8 million aftertax charge primarily reflecting severance pay benefits related workforce reductions combined notes consolidated financial statements continued following table presents segment information pertaining dominion gas’ operations note 26 quarterly financial common stock data unaudited summary companies’ quarterly results operations years ended december 31 2015 2014 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion 1 amounts attributable dominion’s common shareholders significant items impacting dominion’s 2015 quarterly results dominion’s 2014 results include impact following significant items • fourth quarter results include 172 million aftertax charges associated liability management exercise 2014 74 million aftertax costs related virginia power’s settlement offer incur future ash pond closure costs certain utility generation facilities • second quarter results include 191 million aftertax charges associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities • first quarter results include 193 million aftertax reduction revenues associated repositioning dominion’s producer services business completed first quarter 2014 virginia power virginia power’s quarterly results operations follows virginia power’s 2015 results include impact following significant items • fourth quarter results include 32 million aftertax charge related incremental future ash pond landfill closure costs certain utility generation facilities • second quarter results include 28 million aftertax charge related incremental future ash pond landfill closure costs certain utility generation facilities due enactment final ccr rule april 2015 • first quarter results include 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 virginia power’s 2014 results include impact following significant items • fourth quarter results include 74 million aftertax costs related virginia power’s settlement offer incur future ash pond closure costs certain utility generation facilities • second quarter results include 191 million aftertax charge associated virginia legislation enacted april 2014 relating development third nuclear unit located north anna offshore wind facilities dominion gas dominion gas’ quarterly results operations follows dominion gas’ 2015 results include impact following significant items • third quarter results include 29 million aftertax gain agreement convey shale development rights underneath natural gas storage field • first quarter results include 43 million aftertax gain agreements convey shale development rights underneath several natural gas storage fields dominion gas’ 2014 results include impact following significant item • fourth quarter results include 36 million aftertax gain agreements convey marcellus shale development rights underneath several natural gas storage fields combined notes consolidated financial statements continued item 9 item 8 financial statements supplementary data index report management companys management responsible information representations contained financial statements sections companys annual report form 10k financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent financial statements management maintains system internal accounting controls designed provide reasonable assurance reasonable cost companys assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 1994 system internal control adequate accomplish intended objective financial statements audited deloitte touche llp independent auditors whose designation approved board directors audits conducted accordance generally accepted auditing standards included review companys accounting systems procedures internal controls performance tests auditing procedures sufficient provide reasonable assurance financial statements materially misleading contain material errors audit committee board directors composed entirely directors officers employees company meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time management recognizes responsibility fostering strong ethical climate companys affairs conducted according highest standards personal corporate conduct responsibility characterized reflected companys code ethics distributed throughout company code ethics addresses among things importance ensuring open communication within company potential conflicts interest compliance domestic foreign laws including relating financial disclosure confidentiality proprietary information full disclosure public information virginia electric power company report independent auditors board directors virginia electric power company audited accompanying balance sheets virginia electric power company whollyowned subsidiary dominion resources inc december 31 1994 1993 related statements income earnings reinvested business cash flows three years period ended december 31 1994 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements present fairly material respects financial position virginia electric power company december 31 1994 1993 results operations cash flows three years period ended december 31 1994 conformity generally accepted accounting principles company changed methods accounting postretirement benefits pensions 1993 see note accounting income taxes 1992 see note b order conform recently issued accounting standards deloitte touche llp richmond virginia february 6 1995 virginia electric power company statements income accompanying notes integral part financial statements virginia electric power company balance sheets assets accompanying notes integral part financial statements virginia electric power company balance sheets liabilities shareholders equity accompanying notes integral part financial statements virginia electric power company statements earnings reinvested business accompanying notes integral part financial statements virginia electric power company statements cash flows accompanying notes integral part financial statements virginia electric power company notes financial statements significant accounting policies general companys accounting practices generally prescribed uniform system accounts promulgated regulatory commissions jurisdiction accordance generally accepted accounting principles applicable regulated enterprises company whollyowned subsidiary dominion resources inc virginia corporation revenues operating revenues recorded basis service rendered property plant equipment utility plant recorded original cost includes labor materials services afc permitted regulators indirect costs cost maintenance repairs charged appropriate operating expense clearing accounts cost additions replacements charged appropriate utility plant account except cost minor additions replacements provided uniform system accounts charged maintenance expense depreciation amortization depreciation utility plant nuclear fuel computed straightline method based projected useful service lives cost depreciable utility plant retired cost removal less salvage charged accumulated depreciation provision depreciation based weighted average depreciable plant using rate 32 percent 1994 1993 1992 operating expenses include amortization nuclear fuel provided unit production basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs federal income taxes company adopted sfas 109 accounting income taxes sfas 109 1992 standard requires companies measure record deferred tax assets liabilities temporary differences regulatory treatment temporary differences differ requirements sfas 109 accordingly company recognizes regulatory asset probable future revenues provided payment deferred tax liabilities similarly event deferred tax liability reduced reflect changes tax rates regulatory liability established probable future reduction revenue result prior 1992 company recorded deferred taxes timing differences book income taxable income extent differences permitted regulatory commissions ratemaking purposes company files consolidated federal income tax return dominion resources accumulated investment tax credits amortized service lives property giving rise credits allowance funds used construction applicable regulatory uniform system accounts defines afc cost construction period borrowed funds used construction purposes reasonable rate funds used pretax afc rates 1994 1993 1992 89 94 103 percent respectively approximately 83 percent companys construction work progress included rate base cash return collected currently thereon deferred capacity fuel expense 1992 company began defer certain capacity expenses based order virginia commission approximately 80 percent capacity expenses 90 percent fuel expenses subject deferral accounting difference reasonably incurred actual expenses level expenses included current rates deferred matched future revenues amortization debt issuance costs company defers amortizes expenses incurred issuance longterm debt including premiums discounts associated debt lives respective issues gains losses resulting refinancing debt also deferred amortized lives new issues longterm debt permitted appropriate regulatory jurisdictions gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues cash investments current banking arrangements generally require checks funded actually presented payment december 31 1994 1993 companys accounts payable included net effect checks outstanding yet presented payment 668 million 725 million respectively purposes statement cash flows company considers cash equivalents include cash hand temporary investments purchased initial maturity three months less reclassification certain amounts 1993 1992 financial statements reclassified conform 1994 presentation b income taxes details income tax expense follows total federal income tax expense differs amount computed applying statutory federal income tax rate pretax income following reasons 1992 company adopted provisions sfas 109 company reported implementation standard change accounting principle cumulative effect prior years 143 million reported 1992 earnings adoption sfas 109 increased deferred income tax liabilities 4590 million resulted establishment net regulatory asset 4590 million additional information see federal income taxes note financial statements companys net accumulated deferred income taxes consist following c nuclear operations decommissioning nuclear plant decommissioning costs accrued recovered rates expected service lives companys nuclear generating units amounts collected customers placed trusts accumulated earnings thereon utilized solely fund future decommissioning obligations approximately every four years sitespecific studies prepared determine decommissioning cost estimate companys four nuclear units current cost estimate based decon method assumes decontamination prompt removal radioactive contaminants property may released unrestricted use shortly cessation operations company currently estimates decommissioning begin expiration date units operating license occur 2012 2013 2018 2020 surry units 1 2 north anna units 1 2 respectively based companys latest decommissioning study completed 1994 total decommissioning costs including reclamation costs estimated 10 billion 1994 dollars accumulated provision decommissioning 2609 million 2264 million included utility plant accumulated depreciation december 31 1994 1993 respectively provisions decommissioning 245 million 244 million 243 million applicable 1994 1993 1992 respectively included depreciation amortization expense balance companys nuclear decommissioning trust funds 2609 million 2264 million december 31 1994 1993 respectively net unrealized loss 52 million december 31 1994 included accumulated provision decommissioning earnings trust funds 152 million 163 million 91 million 1994 1993 1992 respectively included income companys statements income 1994 1993 accretion accumulated provision decommissioning equal earnings trust funds recorded income see miscellaneous net results operations item 7 managements discussion analysis financial condition results operations amounts 1992 recorded interest charges financial accounting standards board fasb reviewing accounting nuclear plant decommissioning current electric utility industry practices decommissioning changed annual provisions decommissioning could increase fasb may ultimately determine estimated cost decommissioning reported liability rather accumulated depreciation substantial portion decommissioning obligation recognized earlier operating life nuclear plant insurance priceanderson act limits public liability owner nuclear power plant 89 billion single nuclear incident priceanderson amendments act 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risk sharing program event nuclear incident licensed nuclear reactor united states company could assessed 817 million including 3 percent insurance premium tax virginia four licensed reactors exceed 103 million including 3 percent insurance premium tax virginia per year per reactor limit number incidents retrospective premium assessed nuclear liability coverage claims made nuclear workers first hired january 1 1988 except arising extraordinary nuclear occurrence provided master worker insurance program first hired nuclear industry prior january 1 1988 covered policy discussed aggregate limit coverage industry 400 million 200 million policy limit automatic reinstatements additional 200 million companys maximum retrospective assessment approximately 127 million including 3 percent insurance premium tax virginia companys current level property insurance coverage 255 billion north anna 240 billion surry exceeds nrcs minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc property insurance coverage provided company subject retrospective premium assessments policy year losses exceed funds available insurance companies maximum assessment first incident current policy period 454 million maximum assessment related second incident additional 151 million based severity incident board directors companys nuclear insurers discretion lower maximum retrospective premium assessment eliminate either completely losses exceed limits insurance proceeds available must first used stabilization decontamination company financial responsibility losses company purchases insurance nuclear electric insurance limited neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program virginia power subject retrospective premium assessment policy year losses exceed funds available neil current policy periods maximum assessment 92 million part owner north anna power station odec responsible proportionate share 116 percent insurance premiums applicable station including retrospective premium assessments losses covered insurance sale receivables company agreement sell limited recourse certain accounts receivable including unbilled amounts maximum 200 million additional receivables continually sold companys discretion replace collected limit december 31 1994 1993 160 million 200 million respectively receivables sold outstanding agreement limited recourse provided companys assignment additional undivided interest accounts receivable cover potential losses purchaser due uncollectible accounts company provided estimated amount losses accounts e utility plant utility plant december 31 consisted following f jointly owned plants following information relates companys proportionate share jointly owned plants december 31 1994 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest companys share operating costs classified appropriate operating expense fuel maintenance depreciation taxes etc statements income g regulatory assets certain expenses normally reflected income deferred balance sheet regulatory assets recognized income related amounts included rates recovered customers companys regulatory assets included following income taxes recoverable future rates represent principally tax effect depreciation differences normalized amounts amortized related temporary differences reverse costs decommissioning department energys doe uranium enrichment facilities deferred represents unamortized portion virginia powers required contributions fund decommissioning decontaminating uranium enrichment facilities virginia power making contributions fifteenyear period escalation inflation costs recovered fuel rates deferred losses gains reacquired debt deferred amortized lives new issues longterm debt gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues construction north anna unit 3 terminated november 1982 retail jurisdictions permitted recovery incurred costs amounts deferred amortized fifteenyear period virginia ferc jurisdictional customers h leases plant property capital leases included following company leases principal office building parent dominion resources capitalized cost property lease net accumulated amortization represented 250 million 260 million december 31 1994 1993 respectively rental payments lease 30 million three years ended december 31 1994 1993 1992 company responsible expenses connection leases noted including maintenance future minimum lease payments noncancellable capital leases operating leases initial remaining lease terms excess one year december 31 1994 follows rents leases charged operation expenses 96 million 112 million 106 million 1994 1993 1992 respectively longterm debt longterm debt included following 1 substantially companys property subject lien mortgage securing first refunding mortgage bonds 2 certain pollution control facilities companys generating facilities pledged conveyed secure financings 3 interest rates vary based shortterm taxexempt market rates weighted average daily interest rates 296 253 1994 1993 respectively pollution control bonds subject remarketing within one year classified longterm debt extent companys intention maintain debt supported longterm bank commitments terms intercompany credit agreement company may borrow funds dominion resources daily basis repay part loan time borrowings agreement limited 300 million outstanding one time less amounts outstanding commercial paper program december 31 1994 amounts outstanding agreement amounts borrowed 1994 portion proceeds sale 200 million first refunding mortgage bonds 1993 series g company 1993 irrevocably placed 1382 million trust defease 1191 million 1990 series bonds result 1990 series bonds considered extinguished financial reporting purposes excluded balance sheet december 31 1994 1993 cost 191 million deferred amortized life new issue maturities 1999 follows millions 1995 3122 1996 2596 1997 3113 1998 2935 1999 2610 j preferred stock subject mandatory redemption preferred stock subject mandatory redemption 100 liquidation preference december 31 1994 follows shares noncallable prior redemption b shares redeemed 312000 c shares redeemed 912000 1995 portion 1996 sinking fund requirements satisfied 1994 open market purchase maturities 07 million 1996 15 million years 19971999 years 1992 1994 following shares redeemed total number authorized shares preferred stock 10000000 shares upon involuntary liquidation presently outstanding preferred stock entitled receive 100 per share plus accrued dividends cumulative k preferred stock subject mandatory redemption preferred stock subject mandatory redemption 100 liquidation preference december 31 1994 follows money market preferred mmp dividend rates variable set every 49 days via auction process combined weighted average rates series 1994 1993 1992 including fees brokerdealer agreements 375 percent 301 percent 343 percent respectively 1993 350000 500000 shares 772 1972 series dividend preferred stock respectively redeemed l common stock years 1992 1994 following changes common stock occurred retirement plan postretirement benefits company participates dominion resources inc retirement plan retirement plan defined benefit pension plan retirement plan covers virtually employees dominion resources subsidiaries including company benefits based years service average base compensation consecutive 60month period pay highest pension plan expenses 193 million 159 million 131 million 1994 1993 1992 respectively amounts funded 427 million 160 million 123 million 1994 1993 1992 respectively company adopted provisions statement financial accounting standards 106 employers accounting postretirement benefits pensions effective january 1 1993 standard requires accrual cost providing postretirement benefits opeb including medical life insurance coverage active service employee prior 1993 company recognized expense payasyougo basis company recognized expense 105 million benefits 1992 terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits net periodic postretirement benefit expense 1994 1993 follows following table sets forth funded status plan one percent increase health care cost trend rate would result increase 48 million service interest cost components 269 million increase accumulated postretirement benefit obligation significant assumptions used determining postretirement benefit obligation company recovering costs rates accrual basis material respects jurisdictions current future recoveries opeb accruals expected collect sufficient amounts provide unfunded accumulated postretirement obligation time funds collected opeb accruals rates excess opeb benefits actually paid year contributed external benefit trusts companys current funding policy n early retirement voluntary separation programs first quarter 1994 company offered early retirement program employees aged 50 older offered voluntary separation program regular fulltime employees offers program expired september 1 1994 approximately 1400 employees accepted offers programs costs associated programs 901 million company capitalized 259 million based upon prior regulatory precedent expensed 642 million commitments contingencies company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies regarding matters arising ordinary course business involve substantial amounts management opinion final disposition proceedings material adverse effect results operations financial position company rate matters information principal rate proceedings company involved 1994 see rates item 1 business information effect rate changes see results operations item 7 managements discussion analysis financial condition results operations retrospective premium assessments several companys nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note c financial statements construction program company made substantial commitments connection construction program nuclear fuel expenditures estimated total 6732 million excluding afc 1995 additional financing contemplated connection program information see capital requirements managements discussion analysis financial condition results operations purchased power contracts since 1984 company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 75 nonutility purchase contracts combined dependable summer capacity 3506 mw 65 projects aggregating 3244 mw operational end 1994 balance become operational various dates 1997 table reflects companys minimum commitments december 31 1994 power purchases utility nonutility suppliers currently operating obtained construction financing addition minimum purchase commitments table contracts company may purchase option additional power needed actual payments purchased power including economy emergency limited term shortterm longterm purchases years 1994 1993 1992 10250 million 9580 million 7660 million respectively fuel purchase commitments companys estimated fuel purchase commitments next five years system generation follows millions 1995 351 1996 266 1997 153 1998 33 1999 32 sale power information companys commitment sell power see purchases sales power sources energy used fuel costs item 1 business environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations laws regulations result increased capital operating costs result remediation containment monitoring obligations company costs historically recovered ratemaking process however material costs incurred recovered rates companys results operations financial condition could adversely impacted additional information environmental matters see future issues item 7 managements discussion analysis financial condition results operations site remediation epa identified company several entities potentially responsible parties prps two superfund sites located kentucky pennsylvania estimated future remediation costs sites range 465 million 1346 million companys proportionate share cost expected range 05 million 67 million based upon allocation formulas volume waste shipped sites december 31 1994 company provided 14 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay costs apportioned company dominion resources along consolidated natural gas remedial action responsibilities remaining two coal tar sites company provided 2 million reserve meet estimated liability based site studies investigations performed sites company generally seeks recover costs associated environmental remediation third party insurers december 31 1994 pending possible claims recognized asset offset recorded obligations company west virginia air act information see regulation item 1 business legal proceedings information legal proceedings see item 3 legal proceedings p fair value financial instruments company used available market information appropriate valuation methodologies estimate fair value class financial instrument practicable estimate fair value estimates necessarily indicative amounts company could realize market exchange addition use different market assumptions may material effect estimated fair value amounts cash equivalents pollution control project funds shortterm debt carrying amount items approximates fair value short maturity nuclear decommissioning trust funds fair value based available market information generally average bid asked price first refunding mortgage bonds pollution control bonds fair value based market quotations mediumterm notes valued discounting remaining cash flows rate estimated issue yield curve rate estimated relate treasury bond rates specific issues corresponding maturities money market municipal pollution control notes variable interest rates set fair value approximates carrying value preferred stock subject mandatory redemption fair value based market quotations estimated discounting dividend principal payments representative issue series average remaining life series q quarterly financial data unaudited following amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions rate relief factors first quarter 1994 company offered early retirement program employees aged 50 older offered voluntary separation program regular fulltime employees offers programs expired september 1 1994 approximately 1400 employees accepted offers programs costs associated programs 901 million company capitalized 259 million based upon prior regulatory precedent expensed 28 million 104 million 51 million second third fourth quarters respectively impact writeoff reduce balance available common stock 18 million 67 million 331 million second third fourth quarters respectively item 9 item 8 financial statements supplementary data index report management companys management responsible information representations contained consolidated financial statements sections companys annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent consolidated financial statements management maintains system internal accounting controls designed provide reasonable assurance reasonable cost companys assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 1998 system internal control adequate accomplish intended objective consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance generally accepted auditing standards included review companys accounting systems procedures internal controls performance tests auditing procedures sufficient provide reasonable assurance consolidated financial statements materially misleading contain material errors audit committee board directors composed entirely directors officers employees company meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time management recognizes responsibility fostering strong ethical climate companys affairs conducted according highest standards personal corporate conduct responsibility characterized reflected companys code ethics distributed throughout company code ethics addresses among things importance ensuring open communication within company potential conflicts interest compliance domestic foreign laws including relating financial disclosure confidentiality proprietary information full disclosure public information virginia electric power company report independent auditors board directors virginia electric power company audited accompanying consolidated balance sheets virginia electric power company wholly owned subsidiary dominion resources inc subsidiaries company december 31 1998 1997 related consolidated statements income earnings reinvested business cash flows three years period ended december 31 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 1998 1997 results operations cash flows three years period ended december 31 1998 conformity generally accepted accounting principles deloitte touche llp richmond virginia february 8 1999 virginia electric power company consolidated statements income company comprehensive income reportable accordance sfas 130 reporting comprehensive income accompanying notes integral part financial statements virginia electric power company consolidated balance sheets assets accompanying notes integral part financial statements virginia electric power company consolidated balance sheets liabilities shareholders equity described note consolidated financial statements 805 junior subordinated notes totaling 1392 million principal amount constitute 100 trusts assets accompanying notes integral part financial statements virginia electric power company consolidated statements earnings reinvested business accompanying notes integral part financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part financial statements virginia electric power company notes consolidated financial statements significant accounting policies general virginia electric power company regulated public utility engaged generation transmission distribution sale electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 percent virginias total land area accounts 80 percent population company engages offsystem wholesale purchases sales electricity purchases sales natural gas developing trading relationships beyond geographic limits retail service territory within document terms virginia power company shall refer entirety virginia electric power company including without limitation virginia north carolina operations subsidiaries companys accounting practices accordance generally accepted accounting principles applicable regulated enterprises financial statements include accounts company subsidiaries significant intercompany transactions accounts eliminated consolidation company whollyowned subsidiary dominion resources inc virginia corporation preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities date financial statements revenues expenses reporting period actual results could differ estimates revenues recorded basis services rendered commodities delivered contracts settled include amounts yet billed customers revenues trading activities include realized commodity contract revenues net related cost sales amortization option premiums unrealized gains losses resulting marking market commodity contracts yet settled fuel net fuel net includes cost fossil fuel nuclear fuel purchased energy used serve electric sales also includes cost purchased energy associated power marketing sales subject cost service rate regulation approximately 90 companys rate regulated fuel costs subject deferral accounting deferral accounting provides difference reasonably incurred actual expenses level expenses included current rates deferred matched future revenues fuel net includes effect deferral accounting may therefore show expenses marginally higher lower actual cost fuel consumed period property plant equipment property plant equipment recorded original cost includes labor materials services afc permitted regulators indirect costs cost maintenance repairs charged appropriate operating expense clearing accounts cost additions replacements charged appropriate utility plant account except cost minor additions replacements charged maintenance expense depreciation amortization depreciation utility plant nuclear fuel computed straightline method based projected useful service lives cost depreciable utility plant retired cost removal less salvage charged accumulated depreciation provision depreciation provides recovery cost assets including estimated cost removal net salvage based weighted average depreciable plant using rate 32 percent 1998 1997 1996 operating expenses include amortization nuclear fuel provided unit production basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs federal income taxes company files consolidated federal income tax return dominion resources deferred investment tax credits amortized service lives property giving rise credits regulatory assets companys financial statements reflect assets costs accordance statement financial accounting standards 71 sfas 71 accounting effects certain types regulation sfas 71 provides certain expenses normally reflected income deferred balance sheet regulatory assets regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process see note f utility rate regulation note q consolidated financial statements information companys regulatory assets potential impact legislation continued application sfas 71 allowance funds used construction applicable regulatory uniform system accounts defines afc cost construction period borrowed funds used construction purposes reasonable rate funds used afc rates 1998 1997 1996 67 percent 66 percent 81 percent respectively afc accrued approximately 87 percent companys construction work progress instead included rate base cash return collected portion construction work progress included rate base amortization debt issuance costs company defers amortizes expenses incurred issuance longterm debt including premiums discounts associated debt lives respective issues gains losses resulting refinancing debt also deferred amortized lives new issues longterm debt permitted appropriate regulatory jurisdictions gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 1998 1997 companys accounts payable included net effect checks outstanding yet presented payment 486 million 558 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand temporary investments purchased initial maturity three months less commodity contracts part virginia powers strategy market energy generation capacity manage risks related thereto company enters contracts purchase sale energy commodities trading activities virginia powers wholesale power group include fixedprice forward contracts purchase sale overthecounter options require physical delivery underlying commodity furthermore order manage price risk associated natural gas sales fuel requirements utility operations company uses exchangeforphysical contracts basis swaps exchangetraded futures options exchangeforphysical contracts basis swaps futures marked market resulting gains losses reported earnings unless instruments designated hedges accounting purposes fixed price forward contracts initiated trading purposes also marked market resulting gains losses reported earnings exchangeforphysical contracts basis swaps fixed price forward contracts options require physical delivery underlying commodity market value reflects managements best estimates considering overthecounter quotations time value volatility factors underlying commitments exchangetraded futures options marked market based closing exchange prices commodity contracts designated hedges 1998 1997 commodity contracts representing unrealized gain positions reported commodity contract assets commodity contracts representing unrealized losses reported commodity contract liabilities addition purchased options sold reported commodity contract assets commodity contract liabilities respectively estimated market value exercise expiration realized commodity contract revenues net related cost sales settlement futures contracts amortization option premiums unrealized gains losses resulting marking positions market included revenue cash flows trading activities reported net cash flow operating activities reclassification certain amounts 1997 1996 financial statements reclassified conform 1998 presentation addition fourth quarter 1998 company changed way reports energy commodity contracts thus reclassifications include netting cost commodities purchased trading purposes subject cost service rate regulation commodity trading revenue gross amount revenue expense generated contracts previously reported revenue fuel net respectively within statements income b income taxes details income tax expense follows total federal income tax expense differs amount computed applying statutory federal income tax rate pretax income following reasons companys net accumulated deferred income taxes consist following c nuclear operations decommissioning companys nuclear units cease operations company obligated decontaminate remove radioactive contaminants property require nrc oversight phase nuclear power plants life cycle termed decommissioning units operating amounts currently collected ratepayers combined investment earnings used fund future obligation dollars deposited external trusts funds invested amount accrued decommissioning equal amount collected ratepayers included depreciation amortization expense decommissioning collections 362 million per year period 1996 1998 however additional 96 million expensed 1997 based expected increase decommissioning collections 1997 provided companys rate case pending virginia commission since virginia rate case settlement include increase 1998 expense provision decreased 96 million therefore expense levels 266 million 458 million 362 million 1998 1997 1996 respectively net earnings trusts investments included income companys consolidated statements income 1998 1997 1996 net earnings 175 million 205 million 160 million respectively accretion decommissioning obligation equal trusts net earnings also recorded income accumulated provision decommissioning included accumulated depreciation companys consolidated balance sheets includes accrued expense accretion described unrealized gains losses trusts investments december 31 1998 net unrealized gains 2305 million increase 810 december 31 1997 amount 1495 million accumulated provision decommissioning december 31 1998 1997 7039 million 5787 million respectively total estimated cost decommission companys four nuclear units 16 billion based upon sitespecific study completed 1998 cost estimate assumes method completing decommissioning activities prompt dismantlement method assumes dismantlement decommissioning activities begin shortly cessation operations current operating licenses begin 2012 detailed table excludes additional 13 million deposited trusts prior settlement virginia rate case considered partial prepayment calendar year 1999 contributions financial accounting standards board fasb reviewing accounting nuclear plant decommissioning 1996 fasb tentatively determined estimated cost decommissioning reported liability rather accumulated depreciation substantial portion decommissioning obligation recognized earlier operating life nuclear unit industrys accounting changed reflect fasbs tentative proposal annual provisions nuclear decommissioning would also increase deliberations fasb expanded scope project include similar unavoidable obligations perform closure postclosure activities longlived assets including nonnuclear power plants therefore forthcoming standard also may change industry plant depreciation practices impact related company assets cannot determined time insurance priceanderson act limits public liability owner nuclear power plant 97 billion single nuclear incident priceanderson act amendment 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risk sharing program event nuclear incident licensed nuclear reactor united states company could assessed 907 million including 3 percent insurance premium tax virginia four licensed reactors exceed 103 million including 3 percent insurance premium tax virginia per year per reactor limit number incidents retrospective premium assessed companys current level property insurance coverage 255 billion north anna 240 billion surry exceeds nrcs minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc companys nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 288 million based severity incident board directors companys nuclear insurer discretion lower eliminate maximum retrospective premium assessment losses exceed limits insurance proceeds available must first used stabilization decontamination company financial responsibility losses company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program virginia power subject retrospective premium assessment policy year losses exceed funds available neil current policy periods maximum assessment 68 million part owner north anna power station odec responsible share nuclear decommissioning obligation insurance premiums applicable station including retrospective premium assessments losses covered insurance property plant equipment property plant equipment nuclear fuel consists following e jointly owned plants following information relates companys proportionate share jointly owned plants december 31 1998 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest companys share operating costs classified appropriate operating expense fuel operations maintenance depreciation taxes etc consolidated statements income f regulatory assets companys regulatory assets include following income taxes recoverable future rates represent principally tax effect depreciation differences normalized earlier years ratemaking purposes amounts amortized related temporary differences reverse amounts net related regulatory liabilities 109 million associated deferred income taxes established rates excess current federal rate subject internal revenue code normalization requirements cost decommissioning department energys doe uranium enrichment facilities represents virginia powers required contributions fund decommissioning decontaminating uranium enrichment facilities virginia power making contributions 15year period escalation inflation costs currently recovered fuel rates losses gains reacquired debt deferred amortized lives new issues longterm debt gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues cost preparing detailed design documentation companys nuclear power stations required nuclear regulatory commission deferred currently recovered rates life respective power stations construction north anna unit 3 terminated november 1982 retail jurisdictions permitted recovery incurred costs virginia ferc jurisdictional customers amounts deferred amortized date termination costs first includible rates recovery costs completed 1999 incurred costs underlying regulatory assets may represent expenditures company may represent recognition liabilities ultimately settled time future company earn return 154 million regulatory assets effectively excluded rate base recovered various recovery periods 20 years depending nature deferred costs information impairment regulatory assets resulting settlement companys virginia rate proceedings potential impact regulatory assets certain legislation currently considered virginia general assembly enacted see note p utility rate regulation note q consolidated financial statements g leases property plant equipment capital leases includes following company leases principal office building parent dominion resources capitalized cost property lease net accumulated amortization represented 20 million 22 million december 31 1998 1997 respectively rental payment lease 3 million three years ended december 31 1998 1997 1996 company responsible expenses connection leases noted including maintenance future minimum lease payments noncancellable capital leases operating leases initial remaining lease terms excess one year december 31 1998 follows rents leases charged operations expense 177 million 176 million 165 million 1998 1997 1996 respectively h longterm debt longterm debt includes following 1 first refunding mortgage bonds secured mortgage lien substantially companys property 2 certain pollution control facilities companys generating facilities pledged conveyed secure financings 3 interest rates vary based shortterm taxexempt market rates 1998 1997 weighted average daily interest rates 349 percent 374 percent respectively although bonds remarketed within one year period classified longterm debt company intends maintain debt supported longterm bank commitments following amounts debt mature next five years millions 1999 3210 2000 1955 2001 1607 2002 3150 2003 2405 company obligated mandatorily redeemable preferred securities subsidiary trust virginia power capital trust vp capital trust established subsidiary company sole purpose selling 135 million preferred securities 54 million shares 25 par 1995 company concurrently issued 1392 million 1995 series 805 junior subordinated notes exchange 135 million realized sale preferred securities 42 million common securities vp capital trust preferred securities common securities represent total beneficial ownership interest assets held vp capital trust notes sole assets vp capital trust preferred securities subject mandatory redemption upon repayment notes liquidation amount 25 plus accrued unpaid distributions including interest notes due september 30 2025 however date may extended additional ten years certain conditions satisfied j preferred stock subject mandatory redemption total number authorized shares preferred stock whether subject mandatory redemption 10000000 shares upon involuntary liquidation dissolution windingup company presently outstanding preferred stock entitled receive 100 per share plus accrued dividends cumulative two series preferred stock subject mandatory redemption outstanding december 31 1998 redemptions preferred stock years 1996 1998 k preferred stock subject mandatory redemption shown series preferred stock subject mandatory redemption outstanding december 31 1998 money market preferred mmp dividend rates variable set every 49 days via auction process combined weighted average rates series 1998 1997 1996 including fees brokerdealer agreements 460 percent 471 percent 448 percent respectively l common stock changes number authorized outstanding shares companys common stock three years ended december 31 1998 shortterm debt companys commercial paper program maximum borrowing capacity 500 million supported two credit facilities one 300 million fiveyear credit facility expires june 2001 200 million credit facility originated june 1996 subject annual renewal total amount commercial paper outstanding december 31 1998 2217 million weighted average interest rate 538 percent represents decrease 45 million december 31 1997 balance 2262 million weighted average interest rate 588 percent n retirement plan postretirement benefits terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits retirement plan company participates dominion resources inc retirement plan retirement plan defined benefit pension plan benefits based years service average base compensation consecutive 60month period pay highest companys pension plan expenses 205 million 206 million 248 million 1998 1997 1996 respectively amounts funded company 205 million 270 million 284 million 1998 1997 1996 respectively postretirement benefits addition providing pension benefits company provides certain health care life insurance benefits retired employees health care benefits provided retirees complete least 10 years service attaining age 45 similar benefits active employees provided insurance companies net periodic postretirement benefit expense follows following table sets forth funded status plan significant assumptions used determining postretirement benefit obligations assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects company recovering costs rates accrual basis material respects jurisdictions however see utility rate regulation note q consolidated financial statements discussion legislation enacted would provide necessary details restructuring electric utility industry virginia funds collected postretirement benefits rates excess benefits actually paid year contributed external benefit trusts companys current funding policy restructuring company announced program anticipation industry restructuring march 1995 program resulted outsourcing decentralization reorganization downsizing portions companys operations restructuring charges 184 million 649 million recorded 1997 1996 respectively charges included severance costs purchased power contract restructuring negotiated settlement costs company established comprehensive involuntary severance package salaried employees may longer employed result initiatives package provides severance paid period twenty months less cost associated employee terminations recognized accordance emerging issues task force issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring management identifies positions eliminated recognition severance costs resulted charges operations 18 million 125 million 492 million 1998 1997 1996 respectively december 31 1998 management identified 1932 positions eliminated 1810 employees terminated severance payments totaling 89 million paid 1998 severance costs charged operations maintenance expense p virginia rate settlement 1998 virginia power staff virginia commission office virginia attorney general virginia committee fair utility rates apartment office building association metropolitan washington joined proposed agreement settle companys outstanding base rate proceedings virginia commission approved settlement order dated august 7 1998 settlement defines new regulatory framework companys transition electric competition major provisions settlement follows twophased base rate reduction 100 million per annum beginning march 1 1998 one additional 50 million per annum reduction beginning march 1 1999 base rate freeze february 28 2002 unless change necessary protect legitimate interests company shareholders ratepayers immediate onetime refund 150 million period march 1 1997 february 28 1998 discontinuation deferral accounting purchased power capacity expenses effective february 28 1998 writeoff minimum 220 million regulatory assets addition normal amortization thereof base rate freeze period incentive mechanism march 1 2002 earnings following return equity roe benchmarks 1998 105 1998 30year treasury bond rates plus 450 basis points rate incentive mechanism purposes earnings roe benchmark would benefit companys shareholder earnings benchmark would allocated onethird companys shareholder twothirds 220 million writeoff regulatory assets except earnings roe benchmark plus 270 basis points initially 132 would allocated writeoff regulatory assets due required writeoff minimum 220 million regulatory assets addition normal amortization thereof rate freeze period company evaluated regulatory assets potential impairment sfas 71 based uncertainty companys earnings potential rate freeze period management could longer conclude recovery 220 million probable ie earnings authorized rate return would available offset 220 million writeoff regulatory assets company previously identified reductions operating costs 384 million 1997 267 million 1996 used establish reserve potential impairment regulatory assets accordingly company charged 1586 million second quarter 1998 earnings combined reserve accelerated cost recovery accrued 1996 1997 provides impairment regulatory assets resulting settlement q commitments contingencies company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies regarding matters arising ordinary course business involve substantial amounts except described utility rate regulation management believes final disposition proceedings material adverse effect operations financial position liquidity results operations company utility rate regulation current session general assembly virginia scheduled end late february 1999 legislators considering proposed legislation would establish detailed plan restructure electric utility industry virginia senate approved restructuring legislation senate bill 1269 february 9 1999 senate bill enacted would provide necessary details implement legislation passed 1998 established timeline transition retail competition virginia power actively supporting senate bill whether provisions senate bill ultimately included enacted legislation uncertain virginia power currently believes passage virginia restructuring legislation likely 1999 cannot predict provisions would included restructuring legislation ultimately enacted senate bill companys base rates would remain unchanged july 2007 senate bill enacted generation portion companys virginia jurisdictional operations would longer subject costbased regulation beginning 2002 although recovery generationrelated costs would continue provided capped rates july 2007 enacted legislation provides sufficient details transition deregulation generation company would discontinue application sfas 71 generation portion virginia jurisdictional operations determine amount regulatory assets written order measure amount regulatory assets written virginia power must evaluate extent recovery regulatory assets would provided costbased rates virginia power would required write regulatory assets recovery would provided either costbased rates separate stranded cost recovery mechanism emerging issues task force issue 974 deregulation pricing electricity issues related application fasb statements 71 accounting effects certain types regulation 101 regulated enterprises accounting discontinuance application fasb statement 71 eitf 974 provides guidance writing regulatory assets sfas 71 discontinued portion utilitys operations however final provisions virginia legislation known virginia power believes measurement regulatory assets written sfas 71 eitf 974 uncertain writeoff regulatory assets required writeoff could materially affect virginia powers financial position results operations see note f consolidated financial statements management believes stable rates would provided july 2007 senate bill coupled opportunity pursue reductions companys operating costs would present reasonable opportunity recover substantial portion companys potentially stranded costs however discussed application sfas 71 discontinued part utility operations virginia power would perform impairment evaluation respect property plant equipment well longterm power purchase commitments see note purchased power contracts note q consolidated financial statements impairment assessment may required disaggregated basis rather aggregate portfolio thus recognition impairments could potentially mitigated assets contracts estimated values excess respective carrying amounts contract payments companys evaluation concludes impairment exists additional loss would charged earnings impairment evaluation completed company cannot estimate amount loss would recognized however amount could materially affect companys financial position results operations retrospective premium assessments several companys nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note c construction program company made substantial commitments connection construction program nuclear fuel expenditures estimated total 8025 million excluding afc 1999 company presently estimates 1999 construction expenditures including nuclear fuel met cash flow operations combination sales securities shortterm borrowing purchased power contracts company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 55 nonutility purchase contracts combined dependable summer capacity 3285 mw table reflects companys minimum commitments december 31 1998 power purchases utility nonutility suppliers addition minimum purchase commitments table contracts company may purchase option additional power needed purchased power expenditures subject cost service rate regulation including economy emergency limited term shortterm longterm purchases years 1998 1997 1996 1137 million 1381 million 1183 million respectively fuel purchase commitments companys estimated fuel purchase commitments next five years system generation follows millions 1999 328 2000 248 2001 205 2002 115 2003 118 sales power company enters agreements utilities parties purchase sell capacity energy agreements may cover current future periods forward positions volume transactions varies day based market conditions current anticipated load factors combined amounts sales purchases range 3000 mw 15000 mw various times given year operations closely monitored risk management perspective environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations company costs historically recovered ratemaking process however see utility rate regulation discussion legislation enacted would restructure electric utility industry virginia material costs incurred recovered rates companys results operations financial position could adversely impacted site remediation epa identified company several entities potentially responsible parties prps two superfund sites located kentucky pennsylvania estimated future remediation costs sites range 618 million 695 million companys proportionate share cost expected range 16 million 22 million based upon allocation formulas volume waste shipped sites company accrued reserve 17 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay costs apportioned company remedial action responsibilities remaining several coal tar sites december 31 company expended 2 million site studies investigation remedial efforts sites material expenditures remain incurred company addition civil suit seeking compensatory damages 2 million punitive damages 1 million filed virginia power property owner alleged property contaminated toxic pollutants originating one coal tar sites matter resolved settlement parties company generally seeks recover costs associated environmental remediation third party insurers december 31 1998 pending possible claims recognized asset offset obligations company r fair value financial instruments company used available market information appropriate valuation methodologies estimate fair value class financial instrument practicable estimate fair value estimates necessarily indicative amounts company could realize market exchange addition use different market assumptions may material effect estimated fair value amounts cash equivalents shortterm debt carrying amount items approximates fair value short maturity nuclear decommissioning trust funds fair value based available market information generally average bid asked price first refunding mortgage bonds fair value based market quotations mediumterm notes valued discounting remaining cash flows rate estimated issue yield curve rate estimated relate treasury bond rates specific issues corresponding maturities money market municipal taxexempt securities interest rates notes vary fair value approximates carrying value convertible interest rate taxexempt bonds preferred stock subject mandatory redemption fair value based market quotations estimated discounting dividend principal payments representative issue series average remaining life series preferred securities subsidiary trust fair value based market quotations forward treasury lock contracts fair value based difference yield december 31 1998 current 30year treasury note rates specified contracts february 5 1999 contracts closed resulting gain 56 million business segments effective december 31 1998 virginia power implemented sfas 131 disclosures segments enterprise related information virginia powers principal business segment regulated public utility business serving virginia northeastern north carolina reported utility operations category includes companys wholesale power groups trading marketing activities telecommunications subsidiary nuclear consulting services subsidiary energy services activities managements review companys operations focuses earnings interest income taxes company purchases sells power regions outside traditional service territory including marketing available generating capacity required serve native load customers also markets natural gas revenues wholesale power trading activities include realized commodity contract revenues net related cost sales settlement futures contracts amortization option premiums unrealized gains losses resulting marking market commodity contracts yet settled quarterly financial data unaudited following amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors certain accruals recorded 1998 1997 ordinary recurring adjustments included 1 impact resulting 1998 settlement companys virginia rate proceeding 2 1997 restructuring costs rate refund company recognized 1537 million provision rate refund related interest expense 107 million taxes 39 million second quarter 1998 result settlement companys rate proceeding virginia see note p consolidated financial statements impairment regulatory assets company charged 1586 million second quarter 1998 earnings provide impairment regulatory assets resulting settlement companys rate proceeding virginia company accrued 28 million 283 million 73 million second third fourth quarters 1997 respectively provide impairment regulatory assets see note p consolidated financial statements restructuring company expensed 63 million 14 million 107 million second third fourth quarters 1997 respectively see note consolidated financial statements depreciation amortization company recorded adjustments 276 million second quarter 1998 decreasing yeartodate provision depreciation decommissioning expenses reflect terms companys settlement virginia rate proceedings see note p consolidated financial statements charges rate refund impairment regulatory assets offset adjustments depreciation decommissioning expenses reduced balance available common stock 2010 million second quarter 1998 charges provide impairment regulatory assets restructuring expenses reduced balance available common stock 59 million 193 million 117 million second third fourth quarters 1997 respectively item 9 item 8 financial statements supplementary data index report management companys management responsible information representations contained consolidated financial statements sections companys annual report form 10k consolidated financial statements include amounts based estimates judgments management prepared conformity generally accepted accounting principles financial information form 10k consistent consolidated financial statements management maintains system internal accounting controls designed provide reasonable assurance reasonable cost companys assets safeguarded loss unauthorized use disposition transactions executed recorded accordance established procedures management recognizes inherent limitations system internal accounting control therefore cannot provide absolute assurance objectives established internal accounting controls met system includes written policies organizational structure designed ensure appropriate segregation responsibilities careful selection training qualified personnel internal audits management believes 1999 system internal control adequate accomplish intended objective consolidated financial statements audited deloitte touche llp independent auditors engaged board directors audits conducted accordance generally accepted auditing standards included review companys accounting systems procedures internal controls performance tests auditing procedures sufficient provide reasonable assurance consolidated financial statements materially misleading contain material errors audit committee board directors dominion resources inc composed entirely directors officers employees dominion resources inc subsidiaries meets periodically independent auditors internal auditors management discuss auditing internal accounting control financial reporting matters company ensure properly discharging responsibilities independent auditors internal auditors periodically meet alone audit committee free access committee time management recognizes responsibility fostering strong ethical climate companys affairs conducted according highest standards personal corporate conduct responsibility characterized reflected companys code ethics distributed throughout company code ethics addresses among things importance ensuring open communication within company potential conflicts interest compliance domestic foreign laws including relating financial disclosure confidentiality proprietary information full disclosure public information virginia electric power company ja shaw ms bolton jr senior vice president senior vice president chief financial management officer treasurer principal accounting officer report independent auditors board directors virginia electric power company audited accompanying consolidated balance sheets virginia electric power company wholly owned subsidiary dominion resources inc subsidiaries company december 31 1999 1998 related consolidated statements income earnings reinvested business cash flows three years period ended december 31 1999 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects consolidated financial position company december 31 1999 1998 results operations cash flows three years period ended december 31 1999 conformity generally accepted accounting principles deloitte touche llp richmond virginia january 28 2000 virginia electric power company consolidated statements income company comprehensive income reportable accordance statement financial accounting standards sfas 130 reporting comprehensive income accompanying notes integral part financial statements page left intentionally blank virginia electric power company consolidated balance sheets assets accompanying notes integral part financial statements virginia electric power company consolidated balance sheets liabilities stockholders equity described note j consolidated financial statements 805 junior subordinated notes totaling 139 million principal amount constitute 100 trusts assets accompanying notes integral part financial statements virginia electric power company consolidated statements earnings reinvested business accompanying notes integral part financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part financial statements virginia electric power company notes consolidated financial statements significant accounting policies general virginia electric power company regulated public utility engaged generation transmission distribution sale electric energy within 30000 squaremile area virginia northeastern north carolina sells electricity retail customers including governmental agencies wholesale customers rural electric cooperatives municipalities power marketers utilities virginia service area comprises 65 percent virginias total land area accounts 80 percent population company engages offsystem wholesale purchases sales electricity purchases sales natural gas developing trading relationships beyond geographic limits retail service territory within document terms virginia power company shall refer entirety virginia electric power company including without limitation virginia north carolina operations subsidiaries companys accounting practices accordance generally accepted accounting principles financial statements include accounts company subsidiaries significant intercompany transactions accounts eliminated consolidation company whollyowned subsidiary dominion resources inc dominion virginia corporation preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities date financial statements revenue expenses reporting period actual results could differ estimates discussed form 8k filed march 29 1999 virginia power discontinued application sfas 71 accounting effects certain types regulation generation operations effect thereof aftertax charge 255 million see note b connection discontinuance sfas 71 generation related utility operations virginia power prospectively changed certain accounting policies used nonregulated entities policy changes primarily relate capitalization interest depreciation generationrelated property company reevaluated economic useful life estimates generationrelated property light scheduled deregulation generation business virginia addition virginia power longer provides cost removal provision depreciation generationrelated utility property prescribed regulatory accounting practices effective april 1999 costs expensed incurred also virginia power longer records retirements generation related utility property charging accumulated depreciation rather virginia power records gains losses upon retirement property based upon difference proceeds received propertys undepreciated basis retirement date overall impact changes material companys results operations financial condition revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers revenue trading activities includes realized commodity contract revenue net related cost sales amortization option premiums unrealized gains losses resulting marking market commodity contracts yet settled virginia electric power company notes consolidated financial statementscontinued fuel net fuel net represents fuel costs subject rate regulation includes cost fossil fuel nuclear fuel purchased energy used serve electric sales also includes cost purchased energy associated power marketing sales subject cost service rate regulation approximately 95 percent rate regulated fuel costs subject deferral accounting deferral accounting provides difference reasonably incurred actual expenses level expenses included current rates deferred matched future revenue fuel net includes effect deferral accounting may therefore show expenses marginally higher lower actual cost fuel consumed period property plant equipment property plant equipment recorded original cost includes labor materials services capitalized interest indirect costs cost maintenance repairs charged appropriate operating expense accounts cost additions replacements charged appropriate utility plant account except cost minor additions replacements charged maintenance expense depreciation amortization depreciation property plant equipment nuclear fuel computed straightline method based projected useful service lives cost depreciable transmission distribution property retired related cost removal less salvage charged accumulated depreciation generationrelated property cost removal charged expense incurred company records gains losses upon retirement generation related property based upon difference proceeds received propertys undepreciated basis retirement date composite weightedaverage depreciation rate excluding nuclear fuel approximately 32 1999 1998 1997 operating expenses include amortization nuclear fuel provided unit production basis sufficient fully amortize estimated service life cost fuel plus permanent storage disposal costs federal income taxes company files consolidated federal income tax return dominion deferred investment tax credits amortized service lives property giving rise credits regulatory assets companys financial statements reflect assets costs accordance sfas 71 accounting standard provides certain expenses normally reflected income deferred balance sheet regulatory assets regulatory assets represent probable future revenue associated certain costs recovered customers ratemaking process december 31 1999 companys transmission distribution operations continue satisfy requirements sfas 71 addition virginia electric power company notes consolidated financial statementscontinued december 31 1999 regulatory assets included certain generationrelated regulatory assets continue recognized accordance emerging issues task force eitf issue 974 deregulation pricing electricity issues related application fasb statements 71 accounting effects certain types regulation 101 regulated enterprisesaccounting discontinuance application fasb statement 71 eitf issue 974 see note b note h information discontinuance application sfas 71 companys generationrelated operations companys regulatory assets amortization debt issuance costs company defers amortizes expenses incurred connection issuance longterm debt including premiums discounts associated debt lives respective issues permitted appropriate regulatory jurisdictions gains losses resulting redemption debt deferred amortized remaining lives redeemed issues case refinancing company amortizes gains losses lives new issues longterm debt effective april 1999 gains losses resulting retirement refinancing debt allocable generationrelated operations recorded accordance sfas 4 reporting gains losses extinguishment debt cash equivalents current banking arrangements generally require checks funded actually presented payment december 31 1999 1998 companys accounts payable included net effect checks outstanding yet presented payment 52 million 49 million respectively purposes consolidated statements cash flows company considers cash equivalents include cash hand temporary investments purchased initial maturity three months less commodity contracts part virginia powers strategy market energy generation capacity manage risks related thereto company enters contracts purchase sale energy commodities trading activities virginia powers wholesale power group include fixedprice forward contracts purchase sale overthecounter options require physical delivery underlying commodity furthermore order manage price risk associated natural gas sales fuel requirements utility operations company uses basis swaps exchangetraded futures options swaps futures options marked market resulting gains losses reported earnings unless instruments designated hedges fuel requirements utility operation accounting purposes forward contracts initiated trading purposes also marked market resulting gains losses reported earnings swaps forward contracts options market value reflects managements best estimates considering overthecounter quotations time value volatility factors underlying commitments exchangetraded futures options marked market based closing exchange prices commodity contracts representing unrealized gain positions reported commodity contract assets commodity contracts representing unrealized losses reported commodity contract liabilities addition purchased options sold reported commodity contract assets commodity contract liabilities respectively estimated market value exercise expiration realized commodity contract revenue net related cost sales settlement futures contracts amortization option premiums unrealized gains losses resulting marking positions market included revenue cash flows trading activities reported operating activities consolidated statements cash flow virginia electric power company notes consolidated financial statementscontinued interest rate swaps net amounts paid amounts received interest rate swaps reported interest expense consolidated statements income reclassification certain amounts 1998 1997 financial statements reclassified conform 1999 presentation b extraordinary itemdiscontinuance sfas 71 1998 session virginia legislature passed law required transition retail competition january 1 2002 january 1 2004 left details would accomplished future enabling legislation march 1999 governor virginia signed law legislation establishing detailed plan restructure electric utility industry virginia major elements bill included phasein retail customer choice beginning 2002 full retail customer choice 2004 schedule determined state corporation commission virginia commission authority accelerate delay implementation certain conditions however phasein retail customer choice may delayed beyond january 1 2005 mandatory divestiture generating assets deregulation generation 2002 capped base rates january 1 2001 july 1 2007 recovery net stranded costs capped rates wires charge paid customers opting capped rates effect purchase energy competitive supplier costbased recovery fuel expenses july 2007 consumer protection safeguards establishment default service beginning january 1 2004 creation legislative transition task force oversee implementation statute legislation companys base rates remain unchanged july 2007 recovery generationrelated costs continue provided capped rates addition companion legislation enacted virginia 1999 providers electric service subject corporate income tax lieu gross receipts tax effective 2001 discussed note companys financial statements reflect regulatory assets liabilities costbased rate regulation accordance sfas 71 rateregulated companies required write regulatory assets current earnings whenever changes facts circumstances result assets longer satisfying criteria recognition defined sfas 71 legislations deregulation generation event required discontinuation sfas 71 companys generation operations first quarter 1999 companys transmission distribution operations continue meet criteria recognition regulatory assets liabilities defined sfas 71 addition fuel continues subject deferral accounting virginia electric power company notes consolidated financial statementscontinued order measure amount regulatory assets written company evaluated extent recovery regulatory assets would provided capped rates transition period eitf issue 97 4 provides guidance writing regulatory assets sfas 71 discontinued portion utilitys operations provisions virginia legislation provide opportunity recover generationrelated costs including certain regulatory assets capped rates prior july 2007 eitf issue 974 generationrelated regulatory assets continue recognized recovered capped rates generationrelated assets liabilities recovered capped rates written first quarter 1999 resulting aftertax charge earnings 255 million see note h discussion net regulatory assets december 31 1999 addition writeoff generationrelated net regulatory assets 255 million charge included writeoff approximately 18 million aftertax generationrelated assets pursuant eitf issue 974 corresponding regulatory asset 23 million representing amount expected recovered transition period related assets established extraordinary item also included writeoff approximately 38 million aftertax deferred investment tax credits also events changes circumstances cause discontinuance sfas 71 writeoff regulatory assets also require review utility plant assets longterm power purchase contracts possible impairment review based estimates possible future market prices load growth competition many assumptions company evaluated generation assets accordance provisions sfas 121 accounting impairment longlived assets longlived assets disposed evaluations included effects nuclear decommissioning currently identified environmental expenditures based analyses highly dependent underlying assumptions plant writedowns appropriate time company reviewed longterm purchased power commitments potential loss accordance sfas 5 accounting contingencies accounting research bulletin 43 chapter 4 inventory pricing based projections possible future market prices wholesale electricity results analyses companys longterm power purchase contracts indicated loss recognition appropriate time projections possible future market prices indicated possible loss 500 million absence capped rates provided legislation potential exposure related companys power purchase contracts would approximately 32 billion significant estimates required recording effect deregulation legislation including resulting impact fair value determination generating facilities estimated purchases longterm power purchase contracts projections highly dependent future customer load projections generating unit availability timing type future capacity additions virginia powers market area future market prices fuel electricity subject future reevaluation c recently issued accounting standards financial accounting standards board fasb recently issued sfas 137 accounting derivative instruments hedging activitiesdeferral effective date fasb statement 133 defers effective date sfas 133 accounting derivative instruments hedging activities sfas 133 january 1 2000 january 1 2001 sfas 133 requires derivative instruments including certain derivative instruments embedded contracts recorded balance sheet either asset liability measured fair value statement requires changes derivatives fair value recognized current earnings unless specific hedge accounting criteria met virginia electric power company notes consolidated financial statementscontinued company tentatively determined longterm purchased power contracts would subject sfas 133 companys trading portfolio commodity contracts currently marked fair value would affected statement company process assessing impact method period adoption sfas 133 estimated financial impact adoption extent contracts subject fair value accounting implementing appropriate hedging strategies could possibly mitigate potential impact earnings volatility income taxes details income tax expense follows total federal income tax expense differs amount computed applying statutory federal income tax rate pretax income following reasons virginia electric power company notes consolidated financial statementscontinued companys net accumulated deferred income taxes consist following e nuclear operations decommissioning companys nuclear units cease operations company obligated decontaminate remove radioactive contaminants property require nuclear regulatory commission nrc oversight phase nuclear power plants life cycle termed decommissioning units operating amounts currently collected ratepayers combined investment earnings used fund future obligation dollars deposited external trusts funds invested amount accrued decommissioning equal amount collected ratepayers included depreciation amortization expense decommissioning collections 36 million per year period 1997 1999 however additional 10 million expensed 1997 based expected increase decommissioning collections 1997 provided companys rate case pending virginia commission since virginia rate case settlement include increase 1998 expense provision decreased 10 million therefore expense levels 36 million 26 million 46 million 1999 1998 1997 respectively net earnings trusts investments included income companys consolidated statements income 1999 1998 1997 net earnings 17 million 18 million 21 million respectively accretion decommissioning obligation equal trusts net earnings also recorded income accumulated provision decommissioning included accumulated depreciation companys consolidated balance sheets includes accrued expense accretion described unrealized gains losses trusts investments december 31 1999 net unrealized gains 291 million increase 60 million december 31 1998 amount 231 million accumulated provision decommissioning december 31 1999 1998 818 million 705 million respectively virginia electric power company notes consolidated financial statementscontinued total estimated cost decommission companys four nuclear units 16 billion based upon sitespecific study completed 1998 cost estimate assumes method completing decommissioning activities prompt dismantlement method assumes dismantlement decommissioning activities begin shortly cessation operations current operating licenses begin 2012 detailed table nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities companys 1999 nrc minimum financial assurance amount aggregated four nuclear units 10 billion satisfied combination surety bonds funds collected external trusts fasb reviewing accounting nuclear plant decommissioning fasb tentatively determined estimated cost decommissioning reported liability rather accumulated depreciation substantial portion decommissioning obligation recognized earlier operating life nuclear unit deliberations fasb expanded scope project include similar unavoidable obligations perform closure postclosure activities longlived assets possibly including nonnuclear power plants forthcoming standard also may change regulated utility plant depreciation practices impact cannot determined time insurance priceanderson act limits public liability owner nuclear power plant 95 billion single nuclear incident priceanderson act amendment 1988 allows inflationary provision adjustment every five years company purchased 200 million coverage commercial insurance pools remainder provided mandatory industry risk sharing program event nuclear incident licensed nuclear reactor united states company could assessed 91 million four licensed reactors exceed 10 million per year per reactor limit number incidents retrospective premium assessed companys current level property insurance coverage 255 billion north anna 240 billion surry exceeds nrcs minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc companys nuclear property insurance provided nuclear electric insurance limited neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company maximum assessment current policy period 29 million based severity incident board directors companys nuclear insurer discretion lower eliminate maximum retrospective premium assessment losses exceed limits insurance proceeds available must first used stabilization decontamination company financial responsibility losses virginia electric power company notes consolidated financial statementscontinued company purchases insurance neil cover cost replacement power prolonged outage nuclear unit due direct physical damage unit program virginia power subject retrospective premium assessment policy year losses exceed funds available neil current policy periods maximum assessment 7 million part owner north anna power station coowner responsible share nuclear decommissioning obligation insurance premiums applicable station including retrospective premium assessments losses covered insurance f property plant equipment property plant equipment nuclear fuel consists following g jointly owned plants following information relates companys proportionate share jointly owned plants december 31 1999 coowners obligated pay share future construction expenditures operating costs jointly owned facilities proportion respective ownership interest companys share operating costs classified appropriate operating expense fuel operations maintenance depreciation taxes etc consolidated statements income virginia electric power company notes consolidated financial statementscontinued h regulatory assets companys regulatory assets include following incurred costs underlying regulatory assets may represent expenditures company may represent recognition liabilities ultimately settled time future see note b note q information impairment regulatory assets resulting 1999 virginia legislation settlement companys 1998 virginia rate proceedings permitted appropriate regulatory jurisdictions portion companys operations subject costbased regulation income taxes recoverable future rates represent principally tax effect depreciation differences normalized earlier years ratemaking purposes amounts amortized related temporary differences reverse amounts net related regulatory liabilities 43 million associated deferred income taxes established rates excess current federal rate subject internal revenue code normalization requirements cost decommissioning department energys doe uranium enrichment facilities represents virginia powers required contributions fund decommissioning decontaminating uranium enrichment facilities virginia power making contributions 15year period escalation inflation costs currently recovered fuel rates permitted appropriate regulatory jurisdictions portion companys operations subject costbased regulation gains losses refinanced debt deferred amortized lives new debt issues gains losses resulting redemption debt without refinancing amortized remaining lives redeemed issues deferred fuel accounting provides difference reasonably incurred actual expenses recovery costs included current rates deferred matched future revenue virginia electric power company notes consolidated financial statementscontinued longterm debt longterm debt includes following 1the first refunding mortgage bonds fixed interest rate tax exempt financings secured mortgage lien substantially companys property 2certain pollution control facilities companys generating facilities pledged conveyed secure financings 3interest rates vary based shortterm taxexempt market rates 1999 1998 weighted average daily interest rates 334 percent 349 percent respectively although bonds remarketed within one year period classified longterm debt company intends maintain debt supported longterm bank commitments following amounts debt mature next five years 2000 195 million 2001 241 million 2002 315 million 2003 240 million 2004 325 million virginia electric power company notes consolidated financial statementscontinued j company obligated mandatorily redeemable preferred securities subsidiary trust virginia power capital trust vp capital trust established subsidiary company sole purpose selling 135 million preferred securities 54 million shares 25 par 1995 company concurrently issued 139 million 1995 series 805 junior subordinated notes exchange 135 million realized sale preferred securities 4 million common securities vp capital trust preferred securities common securities represent total beneficial ownership interest assets held vp capital trust notes sole assets vp capital trust preferred securities subject mandatory redemption upon repayment notes liquidation amount 25 plus accrued unpaid distributions including interest notes due september 30 2025 however date may extended additional ten years certain conditions satisfied k preferred stock subject mandatory redemption total number authorized shares preferred stock whether subject mandatory redemption 10 million shares upon involuntary liquidation dissolution windingup company presently outstanding preferred stock entitled receive 100 per share plus accrued dividends cumulative two series preferred stock subject mandatory redemption outstanding december 31 1999 redemptions preferred stock years 1997 1999 company classified 180 million preferred stock subject mandatory redemption securities due within one year december 31 1999 virginia electric power company notes consolidated financial statementscontinued l preferred stock subject mandatory redemption shown series preferred stock subject mandatory redemption outstanding december 31 1999 money market preferred mmp dividend rates variable set every 49 days via auction process combined weighted average rates series 1999 1998 1997 including fees brokerdealer agreements 482 percent 449 percent 448 percent respectively common stock changes number authorized outstanding shares companys common stock three years ended december 31 1999 n shortterm debt companys commercial paper program maximum borrowing capacity 500 million supported two credit facilities one 300 million fiveyear credit facility expires june 2001 200 million credit facility originated june 1996 subject annual renewal total amount commercial paper outstanding december 31 1999 378 million weighted average interest rate 611 percent represents increase 157 million december 31 1998 balance 221 million weighted average interest rate 538 percent longterm incentives certain officers key employees virginia power participate stock based compensation plan sponsored dominion 1999 approximately 2 million dominion common stock options granted individuals stock options vested january 1 2000 compensation expense recognized provisions accounting principles board opinion 25 accounting stock issued employees related interpretations compensation expense measured based fair value options date grant calculated provisions sfas 123 accounting stock based compensation virginia electric power company notes consolidated financial statementscontinued companys allocated share compensation expense would reduced reported net income approximately 5 million p retirement plan postretirement benefits terms benefit plans company reserves right change modify terminate plans time past benefits changed changes reduced benefits retirement plan company participates dominion resources inc retirement plan retirement plan defined benefit pension plan benefits based years service average base compensation consecutive 60month period pay highest companys pension plan expenses 21 million 21 million 21 million 1999 1998 1997 respectively amounts funded company 21 million 21 million 27 million 1999 1998 1997 respectively postretirement benefits addition providing pension benefits company provides certain health care life insurance benefits retired employees health care benefits provided retirees complete least 10 years service attaining age 45 similar benefits active employees provided insurance companies net periodic postretirement benefit expense follows virginia electric power company notes consolidated financial statementscontinued following table sets forth funded status plan assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects funds collected postretirement benefits rates excess benefits actually paid year contributed external benefit trusts see note r discussion impact 1999 deregulation legislation recoverability potentially stranded costs virginia electric power company notes consolidated financial statementscontinued q virginia rate settlement 1998 virginia power agreed settle outstanding base rate proceedings virginia commission approved settlement order dated august 7 1998 settlement defined new regulatory framework companys transition electric competition major provisions settlement follows twophased base rate reduction 100 million per annum beginning march 1 1998 one additional 50 million per annum reduction beginning march 1 1999 base rate freeze february 28 2002 unless change necessary protect legitimate interests company shareholders ratepayers immediate onetime refund 150 million period march 1 1997 february 28 1998 discontinuation deferral accounting purchased power capacity expenses effective february 28 1998 writeoff minimum 220 million regulatory assets addition normal amortization february 28 2002 due required writeoff minimum 220 million regulatory assets addition normal amortization thereof rate freeze period company evaluated regulatory assets potential impairment sfas 71 based uncertainty companys earnings potential regulatory purposes rate freeze period management could longer conclude recovery 220 million probable ie earnings authorized rate return would available offset 220 million writeoff regulatory assets company previously identified reductions operating costs 38 million 1997 27 million 1996 used establish reserve potential impairment regulatory assets accordingly company charged 159 million second quarter 1998 earnings combined reserve accelerated cost recovery accrued 1996 1997 provided impairment regulatory assets resulting settlement r commitments contingencies company involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies regarding matters arising ordinary course business involve substantial amounts management believes final disposition proceedings material adverse effect companys operations financial position liquidity results operations utility rate regulation discussed note b governor virginia signed law legislation establishing detailed plan restructure electric utility industry virginia legislation companys base rates remain unchanged july 2007 recovery generationrelated costs continue provided capped rates legislations deregulation generation event required discontinuation sfas 71 companys generation operations first quarter 1999 company remains exposed numerous risks including among others exposure potentially stranded costs future environmental compliance requirements changes tax laws inflation increased virginia electric power company notes consolidated financial statementscontinued capital costs december 31 1999 companys exposure potentially stranded costs comprised following longterm purchased power contracts could ultimately determined marketsee purchased power contracts generating plants could possibly become uneconomic deregulated environment unfunded obligations nuclear plant decommissioning postretirement benefits yet recognized financial statements see notes e p retrospective premium assessments several companys nuclear insurance policies company subject retrospective premium assessments policy year losses exceed funds available insurance companies additional information see note e construction program company made substantial commitments connection construction program nuclear fuel expenditures estimated total approximately 856 million 2000 company presently estimates 2000 construction expenditures including nuclear fuel met cash flow operations combination sales securities shortterm borrowing purchased power contracts company entered contracts longterm purchases capacity energy utilities qualifying facilities independent power producers company 57 nonutility purchase contracts combined dependable summer capacity 3839 mw table reflects companys minimum commitments december 31 1999 power purchases utility nonutility suppliers addition minimum purchase commitments table contracts company may purchase option additional power needed purchased power expenditures subject cost service rate regulation including economy emergency limited term shortterm long term purchases years 1999 1998 1997 12 billion 11 billion 14 billion respectively virginia electric power company notes consolidated financial statementscontinued see note b evaluation companys potential exposure longterm purchased power commitments fuel purchase commitments companys estimated fuel purchase commitments next five years system generation follows 2000 334 million 2001 277 million 2002 156 million 2003 145 million 2004 143 million lease commitments total future minimum lease payments companys noncancellable capital leases operating leases initial remaining lease terms excess one year 145 million december 31 1999 expected future minimum lease payments leases next five years follows 200030 million 200121 million 200216 million 200313 million 200411 million 54 million year thereafter sales power company enters agreements utilities parties purchase sell capacity energy agreements may cover current future periods forward positions volume transactions varies day based market conditions current anticipated load factors combined amounts sales purchases range 3000 mw 15000 mw various times given year operations closely monitored risk management perspective environmental matters company subject rising costs resulting steadily increasing number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations laws regulations result increased capital operating costs result compliance remediation containment monitoring obligations company historically company recovered costs customers utility rates however extent environmental costs incurred period ending june 30 2007 excess level currently included virginia jurisdictional rates companys results operations decrease date virginia power may seek recovery customers utility rates environmental costs related transmission distribution operations 1987 environmental protection agency epa identified company several entities potentially responsible parties prps two superfund sites located kentucky pennsylvania current cost studies estimate total remediation costs sites range 106 million 156 million companys proportionate share total cost expected range 2 million 3 million based upon allocation formulas volume waste shipped sites company accrued reserve 2 million meet obligations two sites based financial assessment prps involved sites company determined probable prps fully pay costs apportioned company generally seeks recover costs associated environmental remediation third party insurers december 31 1999 pending possible claims recognized asset offset obligations company april 1999 company notified department justice alleged noncompliance epas oil spill prevention control countermeasures spcc plans facility response plan frp requirements one companys power stations legal proceeding instances noncompliance deemed occurred company may required remedy alleged deficiencies virginia electric power company notes consolidated financial statementscontinued pay civil penalties settlement matter currently negotiation expected material impact companys financial condition results operations august 1999 company identified matters certain power stations epa might view compliance spcc frp requirements company reported matters epa december 1999 submitted revised frp spcc plans presently epa assessed penalties company pending review companys disclosure information future resolution matters expected material impact companys financial condition results operations november 8 1999 september 21 1999 virginia power received notices attorney generals connecticut new york respectively intention file suit company alleged violations clean air act notices question whether modifications certain virginia power generating facilities properly permitted clean air act allege emissions facilities contributed damage public health environment northeast date suits filed management believes based newspaper reports sources one number companies fossil fuel power generating stations southeast central united states received notifications company believes obtained permits necessary connection generating facilities suits filed attorney generals would material adverse effect financial condition results operations fair value financial instruments company used available market information appropriate valuation methodologies estimate fair value class financial instrument practicable estimate fair value estimates necessarily indicative amounts company could realize market exchange addition use different market assumptions may material effect estimated fair value amounts virginia electric power company notes consolidated financial statementscontinued cash equivalents carrying amount cash equivalents approximates fair value short maturity nuclear decommissioning trust funds fair value based available market information generally average bid asked price commoditybased swaps options fair value reflects companys best estimates considering overthecounter quotations time value volatility factors underlying commitments shortterm debt carrying amount shortterm debt approximates fair value short maturity first refunding mortgage bonds fair value based market quotations mediumterm notes valued discounting remaining cash flows rate estimated issue yield curve rate estimated relate treasury bond rates specific issues corresponding maturities senior unsecured notes fair value based market quotations money market municipal taxexempt securities interest rates notes vary fair value approximates carrying value convertible fixed interest rate taxexempt bonds preferred stock subject mandatory redemption fair value based market quotations estimated discounting dividend principal payments representative issue series average remaining life series preferred securities subsidiary trust fair value based market quotations forward treasury lock contracts fair value based difference yield december 31 1998 30year treasury note rates specified contracts interest rate swap agreements fair value determined respective counterparties agreements based upon present value estimated net future cashflows negative value indicates aggregate sum respective valuations results projected net payment company business segments company manages operations along two primary lines business generation delivery generation business encompasses companys generation portfolio trading marketing activities nuclear consulting services energy services activities delivery business includes bulk power transmission distribution metering services customer service continues subject costbased regulation virginia electric power company notes consolidated financial statementscontinued majority companys revenue provided bundled rate tariffs revenue generally allocated two business lines management reporting based prior cost service studies interest allocations based internal management estimates income taxes calculated using companys effective rate amounts column include following 1 transactions events segments held accountable internal reporting purposes including 1999 extraordinary item discussed note b 1998 virginia rate settlement discussed note q 1997 reserve potential impairment regulatory assets 2 adjustments reconcile internal financial statement groupings used prepare externally reported consolidated financial statements 3 intercompany eliminations applicable 4 assets companys corporate operations allocated generation delivery businesses internal reporting purposes virginia electric power company notes consolidated financial statementscontinued u quarterly financial data unaudited following amounts reflect adjustments consisting normal recurring accruals except discussed necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors following accruals adjustments recorded 1999 1998 extraordinary unusual infrequent nature extraordinary item legislations deregulation generation event required discontinuation sfas 71 companys generation operations first quarter 1999 generationrelated assets liabilities recovered capped rates written resulting aftertax charge earnings 255 million see note b rate refund company recognized 154 million provision rate refund related interest expense 11 million taxes 4 million second quarter 1998 result settlement companys rate proceeding virginia see note q impairment regulatory assets company charged 159 million second quarter 1998 earnings provide impairment regulatory assets resulting settlement companys rate proceeding virginia see note q part iii item 10 item 8 financial statements supplementary data page intentionally left blank report independent registered public accounting firm shareholders board directors dominion energy inc opinion consolidated financial statements audited accompanying consolidated balance sheets dominion energy inc subsidiaries “dominion energy” december 31 2017 2016 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2017 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position dominion energy december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob dominion energy’s internal control financial reporting december 31 2017 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 27 2018 expressed unqualified opinion dominion energy’s internal control financial reporting basis opinion consolidated financial statements responsibility dominion energy’s management responsibility express opinion dominion energy’s consolidated financial statements based audits public accounting firm registered pcaob required independent respect dominion energy accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 27 2018 served dominion energy’s auditor since 1988 dominion energy inc consolidated statements income 1 see note 9 amounts attributable related parties accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements comprehensive income accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated balance sheets 1 see note 9 amounts attributable related parties 1 see notes 3 9 amounts attributable related parties 2 1 billion shares authorized 645 million shares 628 million shares outstanding december 31 2017 2016 respectively accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements equity 1 see note 17 information accompanying notes integral part dominion energy’s consolidated financial statements dominion energy inc consolidated statements cash flows 1 see note 3 noncash activities related acquisition four brothers three cedars 2 see note 17 noncash activities related remarketing rsns 2017 2016 accompanying notes integral part dominion energy’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors shareholder virginia electric power company opinion consolidated financial statements audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion energy inc subsidiaries “virginia power” december 31 2017 2016 related consolidated statements income comprehensive income common shareholder’s equity cash flows three years period ended december 31 2017 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position virginia power december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility virginia power’s management responsibility express opinion virginia power’s consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect virginia power accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud virginia power required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 27 2018 served virginia power’s auditor since 1988 virginia electric power company consolidated statements income 1 see note 24 amounts attributable affiliates accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 see note 24 amounts attributable affiliates 1 see note 24 amounts attributable affiliates 2 500000 shares authorized 274723 shares outstanding december 31 2017 2016 accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements page intentionally left blank report independent registered public accounting firm board directors dominion energy gas holdings llc opinion consolidated financial statements audited accompanying consolidated balance sheets dominion energy gas holdings llc whollyowned subsidiary dominion energy inc subsidiaries “dominion energy gas” december 31 2017 2016 related consolidated statements income comprehensive income equity cash flows three years period ended december 31 2017 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position dominion energy gas december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility dominion energy gas’ management responsibility express opinion dominion energy gas’ consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect dominion energy gas accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud dominion energy gas required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness dominion energy gas’ internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion deloitte touche llp richmond virginia february 27 2018 served dominion energy gas’ auditor since 2012 dominion energy gas holdings llc consolidated statements income 1 see note 24 amounts attributable related parties accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements comprehensive income accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated balance sheets 1 see note 24 amounts attributable related parties 1 see note 24 amounts attributable related parties accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements equity accompanying notes integral part dominion energy gas’ consolidated financial statements dominion energy gas holdings llc consolidated statements cash flows accompanying notes integral part dominion energy gas’ consolidated financial statements page intentionally left blank combined notes consolidated financial statements note 1 nature operations dominion energy headquartered richmond virginia one nation’s largest producers transporters energy dominion energy’s operations conducted various subsidiaries including virginia power dominion energy gas virginia power regulated public utility generates transmits distributes electricity sale virginia northeastern north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s stock owned dominion energy dominion energy gas holding company conducts business activities regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states regulated gas transportation distribution operations ohio gas gathering processing activities primarily west virginia ohio pennsylvania dominion energy gas’ membership interests held dominion energy dominion energy questar combination completed september 2016 see note 3 description operations acquired dominion energy questar combination dominion energy’s operations also include cove point lng import transport storage facility maryland equity investment atlantic coast pipeline regulated gas transportation distribution operations west virginia dominion energy’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations equity investment blue racer october 2014 dominion energy midstream launched initial public offering 20125000 common units representing limited partner interests december 31 2017 dominion energy owns general partner 506 common subordinated units 375 convertible preferred interests dominion energy midstream owns preferred equity interest general partner interest cove point decg dominion energy questar pipeline 2593 noncontrolling partnership interest iroquois public’s ownership interest dominion energy midstream reflected noncontrolling interest dominion energy’s consolidated financial statements dominion energy manages daily operations three primary operating segments power delivery power generation gas infrastructure dominion energy also reports corporate segment includes corporate service company functions including unallocated debt addition corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources virginia power manages daily operations two primary operating segments power delivery power generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources dominion energy gas manages daily operations one primary operating segment gas infrastructure also reports corporate segment primarily includes specific items attributable operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion energy gas result dominion energy’s basis net assets contributed see note 25 discussion companies’ operating segments note 2 significant accounting policies general companies make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses cash flows periods presented actual results may differ estimates companies’ consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries nonwhollyowned entities controlling financial interest certain partnership structures income allocated based liquidation value underlying contractual arrangements nrg’s ownership interest four brothers three cedars well terra nova renewable partners’ 33 interest certain dominion energy’s merchant solar projects reflected noncontrolling interest dominion energy’s consolidated financial statements see note 3 information transactions companies report certain contracts instruments investments fair value see note 6 information fair value measurements dominion energy maintains pension postretirement benefit plans virginia power dominion energy gas participate certain plans see note 21 information plans certain amounts 2016 2015 consolidated financial statements footnotes reclassified conform 2017 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities equity cash flows except reclassification debt issuance costs amounts disclosed dominion energy inclusive virginia power andor dominion energy gas applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers dominion energy virginia power collect sales consumption consumer utility taxes dominion energy gas collects sales taxes however amounts excluded revenue dominion energy’s customer receivables december 31 2017 2016 included 661 million 631 million respectively accrued unbilled combined notes consolidated financial statements continued revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2017 2016 included 400 million 349 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers dominion energy gas’ customer receivables december 31 2017 2016 included 121 million 134 million respectively accrued unbilled revenue based estimated amounts natural gas delivered yet billed customers see note 9 amounts attributable related parties primary types sales service activities reported operating revenue dominion energy follows • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity • regulated gas sales consist primarily state fercregulated natural gas sales related distribution services associated derivative activity • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity • gas transportation storage consists primarily fercregulated sales transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • revenue consists primarily sales ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations sales energyrelated products services dominion energy’s retail energy marketing operations gas processing handling revenue primary types sales service activities reported operating revenue virginia power follows • regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services • revenue consists primarily miscellaneous service revenue electric distribution operations miscellaneous revenue generation operations including sales capacity commodities primary types sales service activities reported operating revenue dominion energy gas follows • regulated gas sales consist primarily state fercregulated natural gas sales related distribution services • nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties • gas transportation storage consists primarily fercregulated sales transmission storage services also included stateregulated gas distribution charges retail distribution service customers opting alternate suppliers sales gathering services • ngl revenue consists primarily sales ngl production condensate extracted products associated derivative activity • revenue consists primarily miscellaneous service revenue gas processing handling revenue electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences dominion energy’s virginia power’s actual electric fuel purchased energy expenses dominion energy’s dominion energy gas’ purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms virtually dominion energy gas’ cove point’s questar gas’ hope’s natural gas purchases either subject deferral accounting recovered customer accounting period sale income taxes consolidated federal income tax return filed dominion energy subsidiaries including virginia power dominion energy gas’ subsidiaries addition applicable combined income tax returns dominion energy subsidiaries filed various states otherwise separate state income tax returns filed although dominion energy gas disregarded income tax purposes provision income taxes recognized reflect inclusion business activities tax returns parent dominion energy virginia power dominion energy gas participate intercompany tax sharing agreements dominion energy subsidiaries current income taxes based taxable income loss credits determined separate company basis agreements subsidiary incurs tax loss earns credit recognition current income tax benefits limited refunds prior year taxes obtained carryback net operating loss credit extent tax loss credit absorbed taxable income dominion energy consolidated group members otherwise net operating loss credit carried forward recognized deferred tax asset realized 2017 tax reform act includes broad range tax reform provisions affecting companies including changes corporate tax rates business deductions 2017 tax reform act reduces corporate income tax rate 35 21 tax years beginning december 31 2017 deferred tax assets liabilities classified noncurrent consolidated balance sheets measured enacted tax rate expected apply temporary differences realized settled thus date enactment federal deferred taxes remeasured based upon new 21 tax rate total effect tax rate changes deferred tax balances recorded component income tax provision related continuing operations period law enacted even assets liabilities relate components financial statements items accumulated comprehensive income dominion energy subsidiaries rateregulated utilities existing deferred income tax assets liabilities adjusted reduction corporate income tax rate allocated continuing operations dominion energy’s rateregulated utility subsidiaries likewise required adjust deferred income tax assets liabilities change income tax rates however probable effect change income tax rates recovered refunded future rates regulated utility recorded regulatory asset liability instead increase decrease deferred income tax expense accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes accordingly deferred taxes recognized future consequences different treatments used reporting transactions financial accounting income tax returns companies establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities companies recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities except amounts presented net amounts receivable amounts prepaid tax authorities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets companies recognize interest underpayments overpayments income taxes interest expense income respectively penalties also recognized income dominion energy virginia power recognized interest income 11 million 2017 dominion energy gas’ interest immaterial 2017 interest companies immaterial 2016 2015 dominion energy’s virginia power’s dominion energy gas’ penalties immaterial 2017 2016 2015 december 31 2017 virginia power income taxrelated affiliated payable 16 million comprised 16 million federal income taxes due dominion energy dominion energy gas also affiliated payable 25 million due dominion energy representing 21 million federal income taxes 4 million state income taxes net affiliated payables expected paid dominion energy addition virginia power’s consolidated balance sheet december 31 2017 included 1 million noncurrent federal income taxes receivable less 1 million state income taxes receivable 1 million noncurrent state income taxes receivable dominion energy gas’ consolidated balance sheet december 31 2017 included 14 million state income taxes receivable december 31 2016 virginia power income taxrelated affiliated receivable 112 million comprised 122 million federal income taxes due dominion energy net 10 million state income taxes due dominion energy dominion energy gas also affiliated receivable 11 million due dominion energy representing 10 million federal income taxes 1 million state income taxes net affiliated receivables refunded dominion energy addition virginia power’s consolidated balance sheet december 31 2016 included 2 million noncurrent federal income taxes payable 6 million state income taxes receivable 13 million noncurrent state income taxes receivable dominion energy gas’ consolidated balance sheet december 31 2016 included 1 million noncurrent federal income taxes payable 1 million state income taxes receivable 7 million noncurrent state income taxes payable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment following table illustrates checks outstanding yet presented payment recorded accounts payable companies combined notes consolidated financial statements continued companies hold restricted cash equivalent balances primarily consist amounts held customer deposits future debt payments dominion solar projects iii inc’s term loan agreement distribution reserve cove point amount restricted cash held company presented table balances presented current assets investments consolidated balance sheets purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion energy uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate foreign currency exchange rate risks business operations virginia power uses derivative instruments physical financial forwards futures swaps options ftrs manage commodity interest rate risks dominion energy gas uses derivative instruments physical financial forwards futures swaps manage commodity interest rate foreign currency exchange rate risks derivatives except exception applies required reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance companies offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion energy margin assets 92 million 82 million associated cash collateral december 31 2017 2016 respectively dominion energy’s margin liabilities associated cash collateral december 31 2017 2016 immaterial virginia power margin assets 23 million 2 million associated cash collateral december 31 2017 2016 respectively virginia power’s margin liabilities associated cash collateral immaterial december 31 2017 2016 dominion energy gas’ margin assets liabilities associated cash collateral immaterial december 31 2017 2016 see note 7 information derivatives manage price risk companies hold certain derivative instruments designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges income based nature underlying risk changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments companies designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges companies formally document relationship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges derivative instruments accounted fair value hedges cash flow hedges cash flows derivatives related hedged items classified operating cash flows cash flow hedgesa majority companies’ hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas ngls companies also use interest rate swaps hedge exposure variable interest rates longterm debt well foreign currency swaps hedge exposure interest payments denominated euros transactions companies hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable dominion energy entered interest rate derivative instruments hedge forecasted interest payments related planned debt issuances 2014 interest rate derivatives designated dominion energy cash flow hedges prior formation dominion energy gas purposes dominion energy gas financial statements derivative balances aoci balance income statement impact related interest rate derivative instruments entered dominion energy continue included dominion energy gas’ consolidated financial statements forecasted interest payments related debt issuances occur dominion energy gas fair value hedgesdominion energy also uses fair value hedges mitigate fixed price exposure inherent commodity inventory addition dominion energy designated interest rate swaps fair value hedges certain fixed rate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value hedge accounting discontinued hedged item longer qualifies hedge accounting see note 6 information fair value measurements associated valuation methods derivatives see note 7 information derivatives property plant equipment property plant equipment recorded lower original cost fair value impaired capitalized costs include labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements generally charged expense incurred 2017 2016 2015 dominion energy capitalized interest costs afudc property plant equipment 236 million 159 million 100 million respectively 2017 2016 2015 virginia power capitalized afudc property plant equipment 37 million 21 million 30 million respectively 2017 2016 2015 dominion energy gas capitalized afudc property plant equipment 25 million 8 million 1 million respectively virginia law certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2017 2016 2015 virginia power recorded 22 million 31 million 19 million afudc related projects respectively property subject costofservice rate regulation including virginia power electric distribution electric transmission generation property dominion energy gas natural gas distribution transmission property certain dominion energy natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement cost removal collections utility customers representing aros recorded regulatory liabilities property subject costofservice rate regulation abandoned significantly end useful life net carrying value reclassified plantinservice becomes probable abandoned property subject costofservice rate regulation including nonutility property cost removal asso ciated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives companies’ average composite depreciation rates utility property plant equipment follows first quarter 2017 virginia power revised depreciation rates assets reflect results new depreciation study change resulted increase annual depreciation expense 40 million 25 million aftertax 2017 additionally dominion energy revised depreciable lives merchant generation assets excluding millstone resulted decrease annual depreciation expense 26 million 16 million aftertax 2017 capitalized costs development wells leaseholds amortized fieldbyfield basis using unitofproduction method estimated proved developed total proved gas oil reserves rate 211 per mcfe 2017 dominion energy’s nonutility property plant equipment depreciated using straightline method following estimated useful lives depreciation amortization related virginia power’s dominion energy gas’ nonutility property plant equipment exploration production properties immaterial years ended december 31 2017 2016 2015 except dominion energy gas’ nonutility gas gathering processing properties depreciated using straightline method estimated useful lives 10 50 years combined notes consolidated financial statements continued nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion energy virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows longlived intangible assets companies perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives regulatory assets liabilities accounting dominion energy’s dominion energy gas’ regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator companies evaluate whether recovery regulatory assets future rates probable make various assumptions analyses expectations future recovery generally based orders issued regulatory commissions legislation historical experience well discussions applicable regulatory authorities legal counsel recovery regulatory asset determined less probable written period assessment made asset retirement obligations companies recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed legal obligation exists amounts generally capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses quarterly companies assess aros determine circumstances indicate estimates amounts timing future cash flows associated retirement activities changed aros adjusted significant changes amounts timing future cash flows identified dominion energy dominion energy gas report accretion aros depreciation asset retirement costs associated natural gas pipeline storage well assets adjustment related regulatory liabilities revenue recoverable customers aros virginia power reports accretion aros depreciation asset retirement costs associated decommissioning nuclear power stations adjustment regulatory liability certain jurisdictions additionally virginia power reports accretion aros depreciation asset retirement costs associated certain rider prospective rider projects adjustment regulatory asset certain jurisdictions accretion aros depreciation asset retirement costs reported operations maintenance expense depreciation expense respectively consolidated statements income debt issuance costs companies defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others deferred debt issuance costs recorded reduction longterm debt consolidated balance sheets amortization issuance costs reported interest expense unamortized costs associated redemptions debt securities prior stated maturity dates generally recognized recorded interest expense immediately permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation deferred amortized lives new issuances investments marketable equity debt securities dominion energy accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities • trading securities include marketable equity debt securities held dominion energy rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income • availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion energy’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci aftertax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments companies account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include • equity method investments companies ability exercise significant influence control investee dominion energy’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets companies record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method • cost method investments dominion energy virginia power ability exercise significant influence investee dominion energy’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment companies periodically review investments determine whether decline fair value considered otherthantemporary decline fair value security determined otherthantemporary security written fair value end reporting period decommissioning trust investmentsspecial considerations • recognition provisions fasb’s otherthantemporary impairment guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities • debt securitiesusing information obtained nuclear decommissioning trust fixedincome investment managers dominion energy virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss dominion energy virginia power record credit loss earnings remaining portion unrealized loss aoci credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors • equity securities investmentsdominion energy’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since dominion energy virginia power limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory valued using weightedaverage cost method except east ohio gas distribution operations valued using lifo method lifo method current stored gas inventory valued 9 million 13 million december 31 2017 december 31 2016 respectively based average price gas purchased 2017 2016 cost replacing current portion stored gas inventory exceeded amount stated lifo basis 79 million 55 million respectively gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion energy dominion energy gas value imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion energy parties reported current assets imbalances dominion energy dominion energy gas owe parties reported current liabilities consolidated balance sheets goodwill dominion energy dominion energy gas evaluate goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount new accounting standards revenue recognition may 2014 fasb issued revised accounting guidance revenue recognition contracts customers core principle revised accounting guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services amendments update also require disclosure nature amount timing uncertainty revenue cash flows arising contracts customers companies revised accounting guidance effective interim annual periods beginning january 1 2018 companies completed evaluations impact guidance expect significant impact results combined notes consolidated financial statements continued operations however companies offsetting increases operating revenues energyrelated purchases noncash consideration related ngls received consideration performing processing fractionation services offsetting decreases operating revenues purchased gas fuel retained offset costs certain transportation storage arrangements companies apply standard using modified retrospective method opposed full retrospective method financial instruments january 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure financial instruments accordance guidance effective january 2018 dominion energy virginia power longer classify equity securities trading availableforsale securities equity securities readily determinable fair value permitted estimate fair value using nav equivalent including held dominion energy’s virginia power’s nuclear decommissioning trusts dominion energy’s rabbi trusts reported fair value nuclear decommissioning trust funds investments respectively consolidated balance sheets however dominion energy virginia power may elect measurement alternative equity securities without readily determinable fair value measurement alternative equity securities reported cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer net realized unrealized gains losses equity securities held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation equity securities including held dominion energy’s merchant generation nuclear decommissioning trusts rabbi trusts net realized unrealized gains losses included income dominion energy virginia power qualitatively assess equity securities reported using measurement alternative evaluate whether investment impaired ongoing basis upon adoption guidance equity securities held january 1 2018 dominion energy virginia power recorded cumulativeeffect change accounting principle reclassify net unrealized gains aoci retained earnings recognize equity securities previously categorized cost method investments fair value nuclear decommissioning trust funds consolidated balance sheets cumulativeeffect adjustment retained earnings dominion energy virginia power reclassified approximately 11 billion 734 million aftertax 119 million 73 million aftertax respectively net unrealized gains aoci retained earnings dominion energy virginia power also recorded approximately 36 million 22 million aftertax net unrealized gains equity securities previously classified cost method investments 4 million recorded retained earnings 32 million recorded regulatory liabilities net unrealized gains subject costbased regulation potential impact consolidated statements income subject investment price risk therefore difficult reasonably estimate guidance effective january 1 2017 dominion energy virginia power would recorded net unrealized gains approximately 275 million 176 million aftertax 30 million 19 million aftertax respectively income consolidated statements income leases february 2016 fasb issued revised accounting guidance recognition measurement presentation disclosure leasing arrangements update requires liability corresponding rightofuse asset recorded balance sheet leases including leases currently classified operating leases also refining definition lease addition lessees required disclose key information amount timing uncertainty cash flows arising leasing arrangements lessor accounting remains largely unchanged guidance effective companies’ interim annual reporting periods beginning january 1 2019 although early adopted modified retrospective approach requires lessees lessors recognize measure leases beginning earliest period presented leases commenced prior date adoption companies plan elect proposed transition expedient would allow companies maintain historical presentation periods january 1 2019 companies expect elect practical expedients would require reassessment whether existing contracts contain leases reassessment lease classification existing leases companies completed preliminary assessment evaluating impact guidance anticipate adoption result significant amount offsetting rightofuse assets liabilities financial position leases effect adoption date material changes expected companies’ results operations companies beginning implementation activities primarily include accumulating contracts lease data points formats compatible new lease management system assist initial adoption ongoing compliance standard definition business january 2017 fasb issued revised accounting guidance clarify definition business revised guidance affects evaluation whether transaction accounted acquisition disposition asset business may impact goodwill related financial statement disclosures companies adopted guidance prospective basis effective october 1 2017 adoption pronouncement result additional transactions accounted asset acquisitions dispositions derecognition partial sales nonfinancial assets february 2017 fasb issued revised accounting guidance clarifying scope asset derecognition guidance accounting partial sales nonfinancial assets guidance effective companies’ interim annual reporting periods beginning january 1 2018 companies elected apply standard using modified retrospective method upon adoption standard january 1 2018 dominion energy recorded cumulativeeffect change accounting principle reclassify 127 million noncontrolling interests common stock related sale noncontrolling interest certain merchant solar projects completed december 2015 january 2016 net periodic pension postretirement benefit costs march 2017 fasb issued revised accounting guidance presentation net periodic pension postretirement benefit costs update requires service cost component net periodic pension postretirement benefit costs classified line item compensation costs arising services rendered employees components net periodic pension postretirement benefit costs would classified outside income operations addition service cost component eligible capitalization construction however changes impact accounting participants multiemployer plan standard also recognized event regulator continues require capitalization net periodic benefit costs prospectively difference would result recognition regulatory asset liability guidance effective companies’ interim annual reporting periods beginning january 1 2018 retrospective adoption income statement presentation prospective adoption capitalization costs capitalized regulators expected provide recovery regulatory asset established amounts eligible capitalization consolidated financial statements virginia power dominion energy gas subsidiary participants dominion energy’s multiemployer plans differ amounts eligible capitalization consolidated financial statements dominion energy plan administrator differences result regulatory asset liability recorded consolidated financial statements dominion energy tax reform december 2017 staff sec issued guidance clarifies accounting income taxes information yet available complete provides oneyear measurement period complete required analyses accounting guidance describes three scenarios associated company’s status accounting income tax reform 1 company complete accounting certain effects tax reform 2 company able determine reasonable estimate certain effects tax reform records estimate provisional amount 3 company able determine reasonable estimate therefore continues apply accounting income taxes based provisions tax laws effect immediately prior 2017 tax reform act enacted addition guidance provides clarification related disclosures entities utilizing measurement period companies recorded best estimate impacts 2017 tax reform act discussed note 5 amounts considered provisional may result adjustments recognized measurement period february 2018 fasb issued revised accounting guidance provide clarification application 2017 tax reform act balances recorded within aoci revised guidance provides stranded amounts within aoci impacts 2017 tax reform act reclassified retained earnings guidance effective companies’ interim annual reporting periods beginning january 1 2019 early adoption permitted may applied prospectively retrospectively upon adoption companies adopted guidance period ended december 31 2017 dominion energy would reclassified benefit 165 million aoci retained earnings dominion energy gas would reclassified benefit 26 million aoci membership interests virginia power would reclassified expense 13 million aoci retained earnings note 3 acquisitions dispositions dominion energy proposed acquisition scana terms scana merger agreement announced january 2018 dominion energy agreed issue 06690 shares dominion energy common stock share scana common stock upon closing addition dominion energy provide financial support sceg make 13 billion upfront onetime rate credit current electric service customers sceg paid within 90 days closing 575 million refund along benefit 2017 tax reform act resulting least 5 reduction sceg electric service customers’ bills eightyear period well exclusions rate recovery approximately 17 billion costs related vc summer units 2 3 new nuclear development project approximately 180 million purchase columbia energy center power station addition scana’s debt currently totals approximately 70 billion expected remain outstanding transaction requires approval scana’s shareholders ferc nrc clearance federal trade commission hartscottrodino act february 2018 federal trade commission granted early termination waiting period hartscottrodino act january 2018 scana dominion energy filed review approval required south carolina commission north carolina commission georgia public service commission nrc dominion energy required accept order south carolina commission approving dominion energy’s merger scana order contains material change terms conditions undertakings set forth cost recovery plan related vc summer units 2 3 new nuclear development project significant changes economic value cost recovery plan addition scana merger agreement provides dominion energy right refuse close merger shall occurred substantive change base load review act laws governing south carolina public utilities would reasonably expected adverse effect sceg scana merger agreement con combined notes consolidated financial statements continued tains certain termination rights dominion energy scana provides upon termination scana combination specified circumstances dominion energy would required pay termination fee 280 million scana would required pay dominion energy termination fee 240 million subject receipt scana shareholder required regulatory approvals meeting closing conditions dominion energy targets closing end 2018 acquisition dominion energy questar september 2016 dominion energy completed dominion energy questar combination dominion energy questar rockiesbased integrated natural gas company became whollyowned subsidiary dominion energy dominion energy questar included questar gas wexpro dominion energy questar pipeline closing questar gas regulated gas distribution operations utah southwestern wyoming southeastern idaho wexpro develops produces natural gas reserves supplied questar gas costofservice framework dominion energy questar pipeline provides fercregulated interstate natural gas transportation storage services utah wyoming western colorado dominion energy questar combination provides dominion energy pipeline infrastructure provides principal source gas supply western states dominion energy questar’s regulated businesses also provide balance dominion energy’s electric gas operations accordance terms dominion energy questar combination closing share issued outstanding dominion energy questar common stock converted right receive 2500 per share cash total consideration 44 billion based 1755 million shares dominion energy questar outstanding closing dominion energy financed dominion energy questar combination 1 august 2016 issuance 14 billion 2016 equity units 2 august 2016 issuance 13 billion senior notes 3 september 2016 borrowing 12 billion term loan agreement 4 500 million proceeds april 2016 issuance common stock see notes 17 19 information purchase price allocation dominion energy questar’s assets acquired liabilities assumed measured estimated fair value closing date included gas infrastructure operating segment majority operations acquired subject ratesetting authority ferc well utah commission andor wyoming commission therefore accounted pursuant asc 980 regulated operations fair values dominion energy questar’s assets liabilities subject ratesetting cost recovery provisions provide revenues derived costs including return investment assets liabilities included rate base fair values assets liabilities equal carrying values accordingly neither assets liabilities acquired pro forma financial information reflect adjustments related amounts fair value dominion energy questar’s assets acquired liabilities assumed subject ratesetting provisions discussed determined using income approach addition fair value dominion energy questar’s 50 interest white river hub accounted equity method determined using market approach income approach valuations considered level 3 fair value measurements due use significant judgmental unobservable inputs including projected timing amount future cash flows discount rates reflecting risk inherent future cash flows future market prices excess purchase price estimated fair values assets acquired liabilities assumed recognized goodwill closing date goodwill reflects value associated enhancing dominion energy’s regulated portfolio businesses including expected increase demand lowcarbon natural gasfired generation western states expected continued growth rateregulated businesses located defined service area stable regulatory environment goodwill recognized deductible income tax purposes deferred taxes recorded related goodwill table shows allocation purchase price assets acquired liabilities assumed closing reflects following adjustments preliminary valuation recognized measurement period fourth quarter 2016 certain modifications made preliminary valuation amounts acquired property plant equipment current liabilities deferred income taxes resulting 6 million net decrease goodwill related primarily sale questar fueling company december 2016 described sale questar fueling company third quarter 2017 certain modifications made valuation amounts regulatory liabilities current liabilities deferred income taxes resulting 6 million net increase goodwill recorded dominion energy’s consolidated balance sheets modifications relate primarily finalization dominion energy questar’s 2016 tax return period january 1 2016 dominion energy questar combination well certain regulatory adjustments 1 includes 40 million equity method investment white river hub fair value adjustment equity method investment white river hub considered equity method goodwill amortized 2 nonregulated property plant equipment excluding land depreciated remaining useful lives primarily ranging 9 18 years 3 includes 301 million shortterm debt amounts remain outstanding december 31 2017 well 250 million variable interest rate term loan due august 2017 paid july 2017 4 unsecured senior mediumterm notes maturities range 2017 2048 bear interest rates 298 720 regulatory matters transaction required approval dominion energy questar’s shareholders clearance federal trade commission hartscottrodino act approval utah commission wyoming commission february 2016 federal trade commission granted antitrust approval dominion energy questar combination hartscottrodino act may 2016 dominion energy questar’s shareholders voted approve dominion energy questar combination august 2016 september 2016 approvals granted utah commission wyoming commission respectively information regarding transaction also provided idaho commission acknowledged dominion energy questar combination october 2016 directed dominion energy questar notify idaho commission makes filings utah commission approval dominion energy questar combination utah wyoming dominion energy agreed following • contribution 75 million dominion energy questar’s qualified nonqualified definedbenefit pension plans postemployment benefit plans within six months closing date contribution made january 2017 • increasing dominion energy questar’s historical level corporate contributions charities 1 million per year least five years • withdrawal questar gas’ general rate case filed july 2016 utah commission agreement file general rate case utah commission adjust base distribution nongas rates prior july 2019 unless otherwise ordered utah commission addition questar gas agreed file general rate case wyoming commission requested rate effective date earlier january 2020 questar gas’ ability adjust rates various riders affected results operations pro forma information impact dominion energy questar combination dominion energy’s operating revenue net income attributable dominion energy consolidated statements income twelve months ended december 31 2016 increase 379 million 73 million respectively dominion energy incurred transaction transition costs 2017 2016 26 million 58 million recorded operations maintenance expense respectively 16 million recorded interest related charges 2016 dominion energy’s consolidated statements income costs consist amortization financing costs charitable contribution commitment described employeerelated expenses professional fees miscellaneous costs following unaudited pro forma financial information reflects consolidated results operations dominion energy assuming dominion energy questar combination taken place january 1 2015 unaudited pro forma financial information presented illustrative purposes necessarily indicative consolidated results operations would achieved future consolidated results operations combined company 1 amounts include adjustments nonrecurring costs directly related dominion energy questar combination contribution dominion energy questar pipeline dominion energy midstream october 2016 dominion energy entered contribution agreement dominion energy contributed dominion energy questar pipeline dominion energy midstream upon closing agreement december 1 2016 dominion energy midstream became owner issued outstanding membership interests dominion energy questar pipeline exchange consideration consisting dominion energy midstream common convertible preferred units combined value 467 million cash payment 823 million 300 million considered debtfinanced distribution total 13 billion addition terms contribution agreement dominion energy midstream repurchased 6656839 common units dominion energy repaid 301 million promissory note dominion energy december 2016 cash proceeds transactions utilized december 2016 repay 12 billion term loan agreement borrowed september 2016 since dominion energy consolidates dominion energy midstream financial reporting purposes transactions associated contribution agreement eliminated upon consolidation see note 5 tax impacts transactions sale questar fueling company december 2016 dominion energy completed sale questar fueling company proceeds sale 28 million net transaction costs gain loss recorded dominion energy’s consolidated statements income sale resulted measurement period adjustments net assets acquired dominion energy questar see purchase price allocation section additional details measurement period adjustments recorded combined notes consolidated financial statements continued whollyowned merchant solar projects acquisitions following table presents significant completed acquisitions whollyowned merchant solar projects dominion energy 1 purchase price primarily allocated property plant equipment 2 includes acquisition cost 3 one projects marin carport began commercial operations 2016 4 april 2017 dominion energy discontinued efforts acquisition additional 20 mw solar project solar frontier americas holding llc addition 2016 dominion energy acquired 100 equity interests seven solar projects virginia north carolina south carolina aggregate purchase price 32 million allocated property plant equipment projects cost 421 million total including initial acquisition costs generate 221 mw combined one projects commenced commercial operations 2016 remaining projects commenced commercial operations 2017 longterm power purchase interconnection operation maintenance agreements executed projects described projects included power generation operating segment dominion energy claimed claim federal investment tax credits solar projects sale interest merchant solar projects september 2015 dominion energy signed agreement sell noncontrolling interest consisting 33 equity interests thencurrently whollyowned merchant solar projects 24 solar projects totaling 425 mw sunedison including certain projects table december 2015 sale interest 15 solar projects closed 184 million sale interest remaining projects completed january 2016 117 million upon closing sunedison sold interest projects terra nova renewable partners terra nova renewable partners future option buy portion dominion energy’s remaining 67 ownership projects upon occurrence certain events none expected occur 2018 nonwhollyowned merchant solar projects acquisitions four brothers three cedars june 2015 dominion energy acquired 50 units four brothers sunedison 64 million consideration consisting 2 million cash 62 million payable dominion energy remaining obligation related payable december 31 2016 four brothers operates four solar projects located utah produce sell electricity renewable energy credits facilities began commercial operations third quarter 2016 generating 320 mw cost approximately 670 million september 2015 dominion energy acquired 50 units three cedars sunedison 43 million consideration consisting 6 million cash 37 million payable 2 million payable included current liabilities dominion energy’s consolidated balance sheets december 31 2016 dominion remaining obligation related payable december 31 2017 three cedars operates three solar projects located utah produce sell electricity renewable energy credits facilities began commercial operations third quarter 2016 generating 210 mw cost approximately 450 million four brothers three cedars facilities operate longterm power purchase interconnection operation maintenance agreements dominion energy claimed 99 federal investment tax credits projects dominion energy owns 50 voting interests four brothers three cedars controlling financial interest entities rights control operations allocation 64 million purchase price four brothers resulted 89 million property plant equipment 25 million noncontrolling interest allocation 43 million purchase price three cedars resulted 65 million property plant equipment 22 million noncontrolling interest noncontrolling interest entity measured fair value using discounted cash flow method primary components valuation future cash flows incoming outgoing discount rate dominion energy determined discount rate based cost capital utilityscale investor would expect well cost capital individual project developer could achieve via combination nonrecourse project financing outside equity partners acquired assets four brothers three cedars included power generation operating segment dominion energy assumed majority agreements provide administrative support services connection operations maintenance facilities technical management services solar facilities costs related services provided agreements immaterial years ended december 31 2017 2016 2015 november 2016 nrg acquired 50 units four brothers three cedars previously held sunedison subsequent dominion energy’s acquisition four brothers three cedars sunedison nrg made contributions four brothers three cedars 301 million aggregate december 31 2017 reflected noncontrolling interests consolidated balance sheets dominion energy midstream acquisition interest iroquois september 2015 dominion energy midstream acquired ng njnr 2593 noncontrolling partnership interest iroquois owns operates 416mile fercregulated natural gas transmission pipeline new york connecticut exchange partnership interest dominion energy midstream issued 86 million common units representing limited partnership interests dominion energy midstream 68 million common units ng 204 interest 18 million common units njnr 553 interest investment recorded 216 million based value dominion energy midstream’s common units closing common units reflected noncontrolling interest dominion energy’s consolidated financial statements dominion energy midstream’s noncontrolling partnership interest reflected gas infrastructure operating segment addition acquisition dominion energy gas currently holds 2407 noncontrolling partnership interest iroquois dominion energy midstream dominion energy gas account interest iroquois equity method investment see notes 9 15 information regarding iroquois acquisition decg january 2015 dominion energy completed acquisition 100 equity interests decg scana 497 million cash adjusted working capital decg owns operates nearly 1500 miles fercregulated interstate natural gas pipeline south carolina southeastern georgia acquisition supports dominion energy’s natural gas expansion southeastern us allocation purchase price resulted 277 million net property plant equipment 250 million goodwill approximately 225 million expected deductible income tax purposes 38 million regulatory liabilities goodwill reflects value associated enhancing dominion energy’s regulated gas position economic value attributable future expansion projects well increased opportunities synergies acquired assets decg included gas infrastructure operating segment march 24 2015 decg converted limited liability company laws south carolina changed name carolina gas transmission corporation decg april 1 2015 dominion energy contributed 100 issued outstanding membership interests decg dominion energy midstream exchange total consideration 501 million adjusted working capital total consideration dominion energy consisted issuance twoyear 301 million senior unsecured promissory note payable dominion energy midstream annual interest rate 06 5112139 common units valued 200 million representing limited partner interests dominion energy midstream number units based volume weighted average trading price dominion energy midstream’s common units ten trading days prior april 1 2015 3912 per unit since dominion energy consolidates dominion energy midstream financial reporting purposes transaction combined notes consolidated financial statements continued eliminated upon consolidation impact dominion energy’s financial position cash flows virginia power acquisition solar projects december 2015 virginia power completed acquisition 100 solar development project north carolina morgans corner 47 million allocated property plant equipment project placed service december 2015 total cost 49 million including initial acquisition cost project generates 20 mw output generated project used meet tenyear nonjurisdictional supply agreement us navy unilateral option extend additional ten years october 2015 north carolina commission granted transfer existing cpcn morgans corner virginia power acquired asset included power generation operating segment dominion energy dominion energy gas blue racer see note 9 discussion transactions related blue racer note 4 operating revenue companies’ operating revenue consists following note 5 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently companies routinely audited federal state tax author ities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material 2017 tax reform act includes broad range tax reform provisions affecting companies discussed note 2 2017 tax reform act reduces corporate income tax rate 35 21 tax years beginning december 31 2017 date enactment deferred tax assets liabilities remeasured based upon new 21 enacted tax rate expected apply temporary differences realized settled specific provisions related regulated public utilities 2017 tax reform act generally allows continued deductibility interest expense changes tax depreciation certain property acquired september 27 2017 continues certain rate normalization requirements accelerated depreciation benefits december 2015 us federal legislation enacted providing extension 50 bonus depreciation allowance qualifying expenditures incurred 2015 2016 2017 addition legislation extended 30 investment tax credit qualifying expenditures incurred 2019 provides phase credit 26 2020 22 2021 10 2022 thereafter indicated note 2 certain companies’ operations including accounting income taxes subject regulatory accounting treatment regulated operations many changes deferred taxes represent amounts probable collection refund customers recorded either increase regulatory asset liability 2017 tax reform act includes provisions stipulate excess deferred taxes may passed back customers certain accelerated tax depreciation benefits potential refunds deferred taxes may determined state federal regulators see note 13 information companies completed made reasonable estimate measurement accounting certain effects 2017 tax reform act reflected consolidated financial statements changes deferred taxes recorded either increase regulatory liability adjustment deferred tax provision items reflected provisional amounts related accelerated depreciation tax purposes certain property acquired placed service september 27 2017 impact accelerated depreciation state income taxes extent uncertainty conformity new federal tax system determination income tax effects items reflected provisional amounts represents reasonable estimate require additional analysis historical records interpretation 2017 tax reform act yet issued us department treasury regulations require time information resources currently available companies continuing operations details income tax expense continuing operations including noncontrolling interests follows accounting reduction corporate income tax rate decreased deferred income tax expense 851 million dominion energy 93 million virginia power 197 million dominion energy gas year ending december 31 2017 decrease deferred income taxes dominion energy primarily relates remeasurement deferred taxes merchant operations includes effects virginia power dominion energy gas virginia power dominion energy gas certain regulatory assets liabilities yet charged returned customers rates earn return including unrecognized pension postretirement benefits remeasurement deferred taxes regulatory balances charged continuing operations 2017 ratemaking purposes dominion energy gas’ subsidiary deti follows cash method pension contributions deferred taxes recorded pension balances required gaap included component rates therefore remeasurement deferred taxes charged continuing operations 2017 2016 dominion energy realized taxable gain resulting contribution dominion energy questar pipeline dominion energy midstream contribution related transactions resulted increases tax basis dominion energy questar pipeline’s assets number dominion energy midstream’s common convertible preferred units held noncontrolling interests direct tax effects transactions included provision current income taxes 212 million offsetting benefit deferred income taxes 96 million charged common shareholders’ equity federal tax liability reduced 129 million tax credits generated 2016 otherwise would resulted additional credit carryforwards 17 million benefit provided domestic production activities deduction benefits indirect effects contribution transaction reflected dominion energy’s 2016 current federal income tax expense 2015 dominion energy’s current federal income tax benefit includes recognition 20 million benefit related carryback filed nuclear decommissioning expenditures included 2014 net operating loss continuing operations including noncontrolling interests statutory us federal income tax rate reconciles companies’ effective income tax rate follows 2017 companies’ effective tax rates reflect net benefit remeasurement deferred taxes resulting lower corporate income tax rate promulgated 2017 tax reform act completion audits state tax authorities resulted recog combined notes consolidated financial statements continued nition previously unrecognized tax benefits december 31 2016 virginia power’s unrecognized tax benefits included state refund claims open tax years 2011 management believed settlement claims including interest thereon within next twelve months remote june 2017 virginia power received accepted cash offer settle refund claims result settlement virginia power decreased unrecognized tax benefits 8 million recognized 2 million tax benefit impacted effective tax rate also connection settlement virginia power realized interest income 11 million reflected income consolidated statements income 2016 dominion energy’s effective tax rate reflects valuation allowance state credit expected utilized dominion energy subsidiary files separate state return companies’ deferred income taxes consist following significant impact reflected 2017 tax reform act adjustment net accumulated deferred income tax liability reduction corporate income tax rate 21 addition amounts recognized deferred income tax expense impacts 2017 tax reform act decreased accumulated deferred income tax liability 31 billion dominion energy 19 billion virginia power 08 billion dominion energy gas december 31 2017 dominion energy december 31 2017 balance sheet reflects impact 2017 tax reform act regulatory liabilities increased regulatory liabilities 42 billion created corresponding deferred tax asset 11 billion virginia power regulatory liabilities increased 26 billion created deferred tax asset 07 billion dominion energy gas regulatory liabilities increased 10 billion created deferred tax asset 02 billion adjustments impact 2017 cash flows december 31 2017 dominion energy following deductible loss credit carryforwards december 31 2017 virginia power following deductible loss credit carryforwards december 31 2017 dominion energy gas following deductible loss credit carryforwards reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result remeasurement amounts expected realized settlements tax authorities expiration statutes limitations dominion energy subsidiaries unrecognized tax benefits 31 million 45 million 69 million december 31 2017 2016 2015 respectively dominion energy change unrecognized tax benefits decreased income tax expense 9 million 18 million 6 million 2017 2016 2015 respectively virginia power unrecognized tax benefits 3 million 9 million 8 million december 31 2017 2016 2015 respectively virginia power change unrecognized tax benefits decreased income tax expense 6 million 2017 increased income tax expense 1 million less 1 million 2016 2015 respectively dominion energy gas unrecognized tax benefits less 1 million 5 million 19 million december 31 2017 2016 2015 respectively dominion energy gas change unrecognized tax benefits decreased income tax expense 5 million 11 million less 1 million 2017 2016 2015 respectively dominion energy participates irs compliance assurance process provides opportunity resolve complex tax matters irs filing federal income tax returns thus achieving certainty tax return filing positions agreed irs 2016 2017 companies submitted research credit claims tax years 20122016 claims currently irs examination exception research credit claims irs completed audit tax years 2015 statute limitations yet expired tax years 2012 although dominion energy received final letter indicating changes taxable income tax year 2016 material adjustments expected irs examination tax year 2017 ongoing reasonably possible settlement negotiations expiration statutes limitations could result decrease unrecognized tax benefits 2018 13 million dominion energy 2 million virginia power less 1 million dominion energy gas changes occur revisions accrual interest tax underpayments overpayments earnings could increase 12 million dominion energy 2 million virginia power less 1 million dominion energy gas otherwise regard 2017 prior years dominion energy virginia power dominion energy gas cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2018 major states dominion energy operates earliest tax year remaining open examination follows 1 considered major state dominion energy gas’ operations 2 considered major state virginia power’s operations companies also obligated report adjustments resulting irs settlements state tax authorities addition dominion energy utilizes operating losses tax credits generated years statute limitations expired amounts generally subject examination note 6 fair value measurements fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact companies’ nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion energy applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments including held nuclear decommissioning dominion energy’s rabbi pension postretirement benefit plan trusts accordance requirements discussed virginia power applies fair value measurements certain assets liabilities including commodity interest rate derivative instruments investments including held nuclear decommissioning trust accordance requirements discussed dominion energy gas applies fair value measurements certain assets liabilities including commodity interest rate foreign currency derivative instruments investments includ combined notes consolidated financial statements continued ing held pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described inputs assumptions companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices price information sought external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services companies consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases companies must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions companies’ commodity derivative valuations prepared dominion energy’s erm department erm department creates daily marktomarket valuations companies’ derivative transactions using computerbased statistical models inputs go market valuations transactional information stored systems record market pricing information resides data warehouse databases majority forward prices automatically uploaded data warehouse databases various thirdparty sources inputs obtained thirdparty sources evaluated reliability considering reputation independence market presence methodology used thirdparty forward prices available thirdparty sources erm department models forward prices based available market data team consisting risk management risk quantitative analysts meets business day assess validity market prices marktomarket valuations meeting changes marktomarket valuations period examined qualified historical expectations discrepancies identified process marktomarket valuations market pricing information evaluated adjusted necessary options contracts optionlike characteristics observable pricing information available external sources dominion energy virginia power generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value dominion energy virginia power use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity derivative contracts • forward commodity prices • transaction prices • price volatility • price correlation • volumes • commodity location • interest rates • credit quality counterparties companies • credit enhancements • time value interest rate derivative contracts • interest rate curves • credit quality counterparties companies • notional value • credit enhancements • time value foreign currency derivative contracts • foreign currency forward exchange rates • interest rates • credit quality counterparties companies • notional value • credit enhancements • time value investments • quoted securities prices indices • securities trading information including volume restrictions • maturity • interest rates • credit quality companies regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact levels companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels • level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments certain exchangetraded derivatives exchangelisted equities us international equity securities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion energy virginia power benefit plan trust funds dominion energy dominion energy gas rabbi trust funds dominion energy • level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include commodity forwards swaps interest rate swaps foreign currency swaps cash equivalents corporate debt instruments government securities fixed income investments held nuclear decommissioning trust funds dominion energy virginia power benefit plan trust funds dominion energy dominion energy gas rabbi trust funds dominion energy • level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 companies consist longdated commodity derivatives ftrs certain natural gas power options modeled commodity derivatives fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines applicable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability alternative investments consisting investments partnerships joint ventures alternative investments held nuclear decommissioning benefit plan trust funds generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date alternative investments recorded nav classified fair value hierarchy derivative contracts companies recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change level 3 valuations fair value measurements categorized level 3 price inputs considered unobservable significant valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions generally considered liquid markets modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets companies enter certain physical financial forwards futures options swaps considered level 3 one inputs observable significant valuation discounted cash flow method used value level 3 physical financial forwards futures contracts option model used value level 3 physical financial options discounted cash flow model forwards futures calculates marktomarket valuations based forward market prices original transaction prices volumes riskfree rate return credit spreads option model calculates marktomarket valuations using variations blackscholes option model inputs models forward market prices implied price volatilities riskfree rate return option expiration dates option strike prices original sales prices volumes level 3 fair value measurements certain forward market prices implied price volatilities considered unobservable inputs developed substantiated using historical information available market data thirdparty data statistical analysis periodically inputs valuation models reviewed revised needed based historical information updated market data market liquidity relationships changes thirdparty pricing sources combined notes consolidated financial statements continued following table presents dominion energy’s quantitative information level 3 fair value measurements december 31 2017 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 includes ngls oil 4 represents market prices beyond defined terms levels 1 2 5 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows nonrecurring fair value measurements dominion energy see note 9 information regarding impairment charge recognized associated dominion energy’s equity method investment fowler ridge atlantic coast pipeline guarantee agreement october 2017 dominion energy entered guarantee agreement connection atlantic coast pipeline’s obligation 34 billion revolving credit facility see note 22 information guarantee agreement associated atlantic coast pipeline’s revolving credit facility dominion energy recorded liability 30 million fair value guarantee inception associated guarantee agreement fair value estimated using discounted cash flow method considered level 3 fair value measurement due use significant unobservable input related interest rate differential interest rate charged guaranteed revolving credit facility estimated interest rate would charged loan guaranteed recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion energy’s dominion energy gas’ pension postretirement benefit plans presented note 21 dominion energy following table presents dominion energy’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts excludes 88 million 89 million assets december 31 2017 2016 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change dominion energy’s assets liabilities measured fair value recurring basis included level 3 fair value category following table presents dominion energy’s gains losses included earnings level 3 fair value category combined notes consolidated financial statements continued virginia power following table presents virginia power’s quantitative information level 3 fair value measurements december 31 2017 range weighted average presented dollars market price inputs percentages price volatility 1 averages weighted volume 2 includes basis 3 represents market prices beyond defined terms levels 1 2 4 represents volatilities unrepresented published markets sensitivity fair value measurements changes significant unobservable inputs follows following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trusts excludes 27 million 26 million assets december 31 2017 2016 respectively measured fair value using nav equivalent practical expedient required categorized fair value hierarchy following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2017 2016 2015 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2017 2016 2015 dominion energy gas following table presents dominion energy gas’ quantitative information level 3 fair value measurements december 31 2017 range weighted average presented dollars market price inputs 1 averages weighted volume 2 represents market prices beyond defined terms levels 1 2 sensitivity fair value measurements changes significant unobservable inputs follows combined notes consolidated financial statements continued following table presents dominion energy gas’ assets liabilities commodity foreign currency derivatives measured fair value recurring basis hierarchy level including current noncurrent portions following table presents net change dominion energy gas’ derivative assets liabilities measured fair value recurring basis included level 3 fair value category gains losses included earnings level 3 fair value category classified operating revenue dominion energy gas’ consolidated statements income years ended december 31 2017 2016 2015 unrealized gains losses included earnings level 3 fair value category relating assetsliabilities still held reporting date years ended december 31 2017 2016 2015 fair value financial instruments substantially companies’ financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents restricted cash recorded current assets customer receivables affiliated receivables shortterm debt affiliated current borrowings payables affiliates accounts payable representative fair value shortterm nature instruments companies’ financial instruments recorded fair value carrying amounts estimated fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms remaining maturities fair value measurements classified level 2 carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 carrying amount includes amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments december 31 2017 2016 includes valuation certain fair value hedges associated dominion energy’s fixed rate debt 22 million 1 million respectively 3 carrying amount includes amounts represent unamortized debt issuance costs discount premium 4 carrying amount includes amounts represent unamortized debt issuance costs discount premium foreign currency remeasurement adjustments note 7 derivatives hedge accounting activities companies exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well interest rate foreign currency exchange rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 6 information fair value measurements associated valuation methods derivatives derivative assets liabilities presented gross companies’ consolidated balance sheets dominion energy’s derivative contracts include overthecounter transactions executed exchange trading platform exchange contracts centrally cleared virginia power’s dominion energy gas’ derivative contracts include overthecounter transactions overthecounter contracts bilateral contracts transacted directly third party exchange contracts utilize financial intermediary exchange clearinghouse enter execute clear transactions certain overthecounter exchange contracts contain contractual rights setoff master netting arrangements derivative clearing agreements contract default provisions addition contracts subject conditional rights setoff counterparty nonperformance insolvency conditions general overthecounter transactions exchange contracts subject collateral requirements types collateral overthecounter exchange contracts include cash letters credit cases forms security none subject restrictions cash collateral used table offset derivative assets liabilities certain accounts receivable accounts payable recognized companies’ consolidated balance sheets well letters credit forms security included tables subject offset master netting similar arrangements would reduce net exposure see note 23 information regarding creditrelated contingent features companies derivative instruments combined notes consolidated financial statements continued dominion energy balance sheet presentation tables present dominion energy’s derivative asset liability balances type financial instrument effects offsetting volumes following table presents volume dominion energy’s derivative activity december 31 2017 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 includes ngls oil 3 maturity determined based final settlement period 4 euro equivalent volumes  250000000 ineffectiveness aoci years ended december 31 2017 2016 2015 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable changes time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci dominion energy’s consolidated balance sheet december 31 2017 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates combined notes consolidated financial statements continued fair value gains losses derivative instruments following tables present fair values dominion energy’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets dominion energy’s consolidated balance sheets 2 noncurrent derivative assets presented deferred charges assets dominion energy’s consolidated balance sheets 3 current derivative liabilities presented current liabilities dominion energy’s consolidated balance sheets 4 noncurrent derivative liabilities presented deferred credits liabilities dominion energy’s consolidated balance sheets following table presents gains losses dominion energy’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion energy’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income 3 amounts recorded dominion energy’s consolidated statements income classified interest related charges 4 amounts recorded dominion energy’s consolidated statements income classified income 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion energy’s consolidated statements income 2 amounts recorded dominion energy’s consolidated statements income classified interest related charges virginia power balance sheet presentation tables present virginia power’s derivative asset liability balances type financial instrument effects offsetting combined notes consolidated financial statements continued volumes following table presents volume virginia power’s derivative activity december 31 2017 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 includes options 2 maturity determined based final settlement period ineffectiveness aoci years ended december 31 2017 2016 2015 gains losses hedging instruments determined ineffective material following table presents selected information related losses cash flow hedges included aoci virginia power’s consolidated balance sheet december 31 2017 amounts reclassified aoci earnings generally offset recognition hedged transactions eg interest payments earnings thereby achieving realization interest rates contemplated underlying risk management strategies vary expected amounts presented result changes interest rates fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative assets presented current assets virginia power’s consolidated balance sheets 2 current derivative liabilities presented current liabilities virginia power’s consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheets following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases combined notes consolidated financial statements continued dominion energy gas balance sheet presentation tables present dominion energy gas’ derivative asset liability balances type financial instrument effects offsetting volumes following table presents volume dominion energy gas’ derivative activity december 31 2017 volumes based open derivative positions represent combined absolute value long short positions except case offsetting transactions represent absolute value net volume long short positions 1 maturity determined based final settlement period euro equivalent volumes 250000000 ineffectiveness aoci years ended december 31 2017 2016 2015 gains losses hedging instruments determined ineffective material following table presents selected information related gains losses cash flow hedges included aoci dominion energy gas’ consolidated balance sheet december 31 2017 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates foreign currency exchange rates fair value gains losses derivative instruments following tables present fair values dominion energy gas’ derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion energy gas’ consolidated balance sheets 2 current derivative liabilities presented current liabilities dominion energy gas’ consolidated balance sheets 3 noncurrent derivative liabilities presented deferred credits liabilities dominion energy gas’ consolidated balance sheets combined notes consolidated financial statements continued following tables present gains losses dominion energy gas’ derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect dominion energy gas’ consolidated statements income 2 amounts recorded dominion energy gas’ consolidated statements income classified interest related charges 3 amounts recorded dominion energy gas’ consolidated statements income classified income note 8 earnings per share following table presents calculation dominion energy’s basic diluted eps 1 dilutive securities consist primarily 2013 equity units 2016 2015 see note 17 information 2014 equity units excluded calculation diluted eps years ended december 31 2016 2015 dilutive stock price threshold met 2016 equity units excluded calculation diluted eps year ended december 31 2017 2016 dilutive stock price threshold met see note 17 information dominion energy midstream convertible preferred units potentially dilutive securities effect calculation diluted eps years ended december 31 2017 2016 see note 19 information note 9 investments dominion energy equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion energy’s rabbi trusts classified trading totaled 112 million 104 million december 31 2017 2016 respectively decommissioning trust securities dominion energy holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion energy’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 5 million 9 million december 31 2017 2016 respectively 3 fair value securities unrealized loss position 565 million 576 million december 31 2017 2016 respectively fair value dominion energy’s marketable debt securities held nuclear decommissioning trust funds december 31 2017 contractual maturity follows presented selected information regarding dominion energy’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 combined notes consolidated financial statements continued dominion energy recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 5 million 13 million 9 million december 31 2017 2016 2015 respectively virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci nuclear decommissioning trust regulatory liability discussed note 2 includes pending sales securities 6 million 7 million december 31 2017 2016 respectively 3 fair value securities unrealized loss position 234 million 287 million december 31 2017 2016 respectively fair value virginia power’s marketable debt securities december 31 2017 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities held nuclear decommissioning trust funds 1 includes realized gains losses recorded nuclear decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 2 million 8 million 6 million december 31 2017 2016 2015 respectively equity method investments dominion energy dominion energy gas investments dominion energy dominion energy gas account equity method accounting follows 1 comprised dominion energy midstream’s interest 2593 dominion energy gas’ interest 2407 see note 15 information 2 liability 17 million associated nedpower recorded deferred credits liabilities consolidated balance sheets december 31 2017 see additional discussion nedpower dominion energy’s equity earnings investments totaled 14 million 111 million 56 million 2017 2016 2015 respectively included income dominion energy’s consolidated statements income dominion energy received distributions investments 419 million 104 million 83 million 2017 2016 2015 respectively december 31 2017 2016 carrying amount dominion energy’s investments exceeded share underlying equity net assets 249 million 260 million respectively differences comprised december 31 2017 2016 176 million reflecting equity method goodwill amortized december 31 2017 2016 73 million 84 million related basis differences dominion energy’s investments blue racer wind projects amortized useful lives underlying assets atlantic coast pipeline amortized term credit facility dominion energy gas’ equity earnings investment totaled 21 million 2017 2016 23 million 2015 dominion energy gas received distributions investment 24 million 22 million 28 million 2017 2016 2015 respectively december 31 2017 2016 carrying amount dominion energy gas’ investment exceeded share underlying equity net assets 8 million difference reflects equity method goodwill amortized may 2016 dominion energy gas sold 065 noncontrolling partnership interest iroquois transcanada approximately 7 million resulted 5 million 3 million aftertax gain included income dominion energy gas’ consolidated statements income dominion energy blue racer december 2012 dominion energy formed joint venture caiman provide midstream services natural gas producers operating utica shale region ohio portions pennsylvania blue racer equal partnership dominion energy caiman dominion energy contributing midstream assets caiman contributing private equity capital december 2016 dominion energy gas repurchased portion western system blue racer 10 million included property plant equipment dominion energy gas’ consolidated balance sheets atlantic coast pipeline september 2014 dominion energy along duke southern company gas announced formation atlantic coast pipeline atlantic coast pipeline partnership agreement includes provisions allow dominion energy option purchase additional ownership interest atlantic coast pipeline maintain leading ownership percentage october 2016 dominion energy purchased additional 3 membership interest atlantic coast pipeline duke 14 million december 31 2017 members hold following membership interests dominion energy 48 duke 47 southern company gas 5 atlantic coast pipeline focused constructing approximately 600mile natural gas pipeline running west virginia north carolina subsidiaries affiliates three members plan customers pipeline 20year contracts public service company north carolina inc also plans customer pipeline 20year contract atlantic coast pipeline considered equity method investment dominion energy ability exercise significant influence control investee see note 15 information deti provides services atlantic coast pipeline totaled 129 million 95 million 74 million 2017 2016 2015 respectively included operating revenue dominion energy dominion energy gas’ consolidated statements income amounts receivable related services 12 million 10 million december 31 2017 2016 respectively composed entirely accrued unbilled revenue included receivables dominion energy dominion energy gas’ consolidated balance sheets october 2017 dominion energy entered guarantee agreement support portion atlantic coast pipeline’s obligation credit facility see note 22 information dominion energy contributed 310 million 184 million 38 million 2017 2016 2015 respectively atlantic coast pipeline dominion energy received distributions 270 million 2017 atlantic coast pipeline distributions received 2016 2015 fowler ridge nedpower fourth quarter 2017 dominion energy recorded charge 126 million 76 million aftertax income consolidated statements income reflecting share longlived asset impairment property plant equipment recorded nedpower resulted losses excess dominion energy’s investment balance dominion energy recorded excess losses due commitment provide financial support nedpower resulting liability 17 million recorded deferred credits liabilities consolidated balance sheets result impairment recorded nedpower dominion energy evaluated equity method investment fowler ridge similar windpowered merchant generation facility determined fair value thantemporarily impaired recorded impairment charge 32 million 20 million aftertax income consolidated statements income fair value 81 million estimated using discounted cash flow method considered level 3 fair value measurement due use significant unobservable inputs related timing amount future equity distributions based investee’s future wind generation operating costs combined notes consolidated financial statements continued note 10 property plant equipment major classes property plant equipment respective balances companies follows dominion energy virginia power jointlyowned power stations dominion energy’s virginia power’s proportionate share jointlyowned power stations december 31 2017 follows 1 units jointly owned virginia power 2 unit jointly owned dominion energy coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion energy virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income acquisition solar projects september 2017 virginia power entered agreements acquire two solar development projects north carolina first acquisition expected close prior project commencing commercial operations expected end 2018 cost approximately 140 million constructed including initial acquisition cost second acquisition expected close prior project commencing commercial operations expected end 2019 cost approximately 140 million constructed including initial acquisition cost projects expected generate approximately 155 mw combined virginia power anticipates claiming federal investment tax credits solar projects assignment tower rental portfolio virginia power rents space certain electric transmission towers various wireless carriers communications antennas equipment march 2017 virginia power sold rental portfolio vertical bridge towers ii llc 91 million cash proceeds subject virginia power’s fercregulated tariff required return half proceeds customers virginia power recognized 11 million 2017 remaining 35 million recognized ratably 2023 dominion energy dominion energy gas assignments shale development rights december 2013 dominion energy gas closed agreements two natural gas producers convey time approximately 100000 acres marcellus shale development rights underneath several natural gas storage fields agreements provide payments dominion energy gas subject customary adjustments approximately 200 million period nine years overriding royalty interest gas produced acreage 2013 dominion energy gas received approximately 100 million cash proceeds 2014 dominion energy gas received 16 million additional cash proceeds resulting postclosing adjustments march 2015 dominion energy gas one natural gas producers closed amendment agreement included immediate conveyance approximately 9000 acres marcellus shale development rights twoyear extension term original agreement conveyance development rights resulted recognition 43 million 27 million aftertax previously deferred revenue operations maintenance expense dominion energy gas’ consolidated statements income april 2016 dominion energy gas natural gas producer closed amendment agreement included immediate conveyance 32 partial interest remaining approximately 70000 acres conveyance resulted recognition remaining 35 million 21 million aftertax previously deferred revenue operations maintenance expense dominion energy gas’ consolidated statements income august 2017 dominion energy gas natural gas producer signed amendment agreement included finalization contractual matters previous conveyances conveyance dominion energy gas’ remaining 68 interest approximately 70000 acres elimination dominion energy gas’ overriding royalty interest gas produced acreage dominion energy gas receive total consideration 130 million 65 million received 2017 65 million received end third quarter 2018 connection final conveyance result amendment 2017 dominion energy gas recognized 56 million 33 million aftertax gain included operations maintenance expense dominion energy gas’ consolidated statements income associated finalization contractual matters previous conveyances 9 million 5 million aftertax gain included operations maintenance expense dominion energy gas’ consolidated statements income associated elimination overriding royalty interest expects recognize approximately 65 million 47 million aftertax gain associated final conveyance acreage november 2014 dominion energy gas closed agreement natural gas producer convey time approximately 24000 acres marcellus shale development rights underneath one natural gas storage fields agreement provided payments dominion energy gas subject customary adjustments approximately 120 million period four years overriding royalty interest gas produced acreage november 2014 dominion energy gas closed agreement received proceeds 60 million associated initial conveyance approximately 12000 acres connection agreement 2016 dominion energy gas conveyed 50 interest approximately 4000 acres marcellus shale development rights received proceeds 10 million overriding royalty interest gas produced acreage transactions resulted 10 million 6 million aftertax gain july 2017 connection existing agreement dominion energy gas conveyed addi tional 50 interest approximately 2000 acres marcellus shale development rights received proceeds 5 million overriding royalty interest gas produced acreage transaction resulted 5 million 3 million aftertax gain gains included operations maintenance expense dominion energy gas’ consolidated statements income january 2018 dominion energy gas natural gas producer closed amendment agreement included conveyance dominion energy gas’ remaining 50 interest approximately 18000 acres elimination dominion energy gas’ overriding royalty interest gas produced acreage dominion energy gas received proceeds 28 million resulting approximately 28 million 20 million aftertax gain recorded first quarter 2018 march 2015 dominion energy gas conveyed natural gas producer approximately 11000 acres marcellus shale development rights underneath one natural gas storage fields received proceeds 27 million overriding royalty interest gas produced acreage transaction resulted 27 million 16 million aftertax gain included operations maintenance expense dominion energy gas’ consolidated statements income september 2015 dominion energy gas closed agreement natural gas producer convey approximately 16000 acres utica point pleasant shale development rights underneath one natural gas storage fields agreement provided payment dominion energy gas subject customary adjustments 52 million overriding royalty interest gas produced acreage september 2015 dominion energy gas received proceeds 52 million associated conveyance acreage resulting 52 million 29 million aftertax gain included operations maintenance expense dominion energy gas’ consolidated statements income dominion energy sale certain retail energy marketing assets october 2017 dominion energy entered agreement sell certain assets associated nonregulated retail energy marketing operations total consideration 143 million subject customary approvals certain adjustments december 2017 first phase agreement closed 79 million resulted recognition 78 million 48 million aftertax benefit included operations maintenance expense dominion energy’s consolidated statements income dominion energy expected recognize benefit approximately 65 million 48 million aftertax operations maintenance expense upon closing second phase agreement 2018 pursuant agreement dominion energy entered commission agreement buyer upon first closing december 2017 buyer pay commission connection right use dominion energy’s brand marketing materials services tenyear term combined notes consolidated financial statements continued note 11 goodwill intangible assets goodwill changes dominion energy’s dominion energy gas’ carrying amount segment allocation goodwill presented 1 goodwill recorded corporate segment allocated primary operating segments goodwill impairment testing purposes 2 goodwill amounts contain accumulated impairment losses 3 see note 3 intangible assets companies’ intangible assets subject amortization estimated useful lives dominion energy’s amortization expense intangible assets 80 million 73 million 78 million 2017 2016 2015 respectively 2017 dominion energy acquired 147 million intangible assets primarily representing software rightofuse assets estimated weightedaverage amortization period approximately 14 years amortization expense virginia power’s intangible assets 31 million 29 million 25 million 2017 2016 2015 respectively 2017 virginia power acquired 39 million intangible assets primarily representing software estimated weightedaverage amortization period 7 years dominion energy gas’ amor tization expense intangible assets 14 million 6 million 18 million 2017 2016 2015 respectively 2017 dominion energy gas acquired 25 million intangible assets primarily representing software rightofuse assets estimated weightedaverage amortization period approximately 14 years components intangible assets follows annual amortization expense intangible assets estimated follows note 12 regulatory assets liabilities regulatory assets liabilities include following 1 primarily reflects deferrals electric transmission ferc formula rate deferral costs associated certain current prospective rider projects virginia power deferrals costs associated certain current prospective rider projects dominion energy gas see note 13 information 2 legislation enacted virginia april 2014 requires virginia power defer operation maintenance costs incurred connection refueling nuclearpowered generating plant deferred costs amortized refueling cycle exceed 18 months 3 reflects unrecovered gas costs regulated gas operations recovered filings applicable regulatory authority 4 reflects deferred fuel expenses virginia north carolina jurisdictions dominion energy’s virginia power’s generation operations see note 13 information 5 represents unrecognized pension postretirement employee benefit costs expected recovered future rates generally expected remaining service period plan participants certain dominion energy’s dominion energy gas’ rateregulated subsidiaries 6 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers 7 reflects amount related pjm transmission cost allocation matter see note 13 information 8 ohio legislation house bill 95 became effective september 2011 law updates natural gas legislation enabling gas companies include uptodate cost levels filing rate cases also allows gas companies seek approval capital expenditure plans gas companies recognize carrying costs associated capital investments placed service defer carrying costs plus depreciation property tax expenses recovery ratepayers future 9 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes see discussion 2017 tax reform act combined notes consolidated financial statements continued 10 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 11 pipp eligible customers make reduced payments based ability pay difference customer’s total bill pipp plan amount deferred collected returned annually pipp rate adjustment clause according east ohio tariff provisions see note 13 information 12 current regulatory liabilities presented current liabilities consolidated balance sheets companies 13 amounts recorded pass effect reduced income tax rates 2017 tax reform act customers future periods reverse weighted average tax rate used build reserves remaining book life property net amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity 14 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aros 15 current regulatory assets presented current assets consolidated balance sheets dominion energy gas december 31 2017 390 million dominion energy’s 273 million virginia power’s 11 million dominion energy gas’ regulatory assets represented past expenditures currently earn return exception 222 million pjm transmission cost allocation matter majority expenditures expected recovered within next two years note 13 regulatory matters regulatory matters involving potential loss contingencies result issues generated ordinary course business companies involved various regulatory matters certain regulatory matters may ultimately result loss however matters initial procedural phase involve uncertainty outcome pending reviews orders andor involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate range possible loss statement effect made description matter matters may progressed sufficiently regulatory process companies able estimate range possible loss regulatory matters companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters estimated range based currently available information involves elements judgment significant uncertainties may represent companies’ maximum possible loss exposure circumstances regulatory matters change time actual results may vary significantly current estimate current matters specifically reported management anticipate outcome matters would material effect companies’ financial position liquidity results operations fercelectric federal power act ferc regulates wholesale sales transmission electricity interstate commerce public util ities dominion energy’s merchant generators sell electricity pjm miso caiso isone wholesale markets wholesale purchasers states virginia north carolina indiana connecticut tennessee georgia california south carolina utah dominion energy’s marketbased sales tariffs authorized ferc pursuant ferc authority sell qualified facility virginia power purchases ferc marketbased rate authority sells electricity wholesale market addition virginia power ferc approval tariff sell wholesale power capped rates based embedded cost generation costbased sales tariff could used sell loads within outside virginia power’s service territory sales would voluntary rates april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure march 2010 odec north carolina electric membership corporation filed complaint ferc virginia power claiming among issues incremental costs undergrounding certain transmission line projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate settlement issues raised complaint approved ferc may 2012 march 2014 ferc issued order excluding virginia power’s transmission rates wholesale transmission customers located outside virginia incremental costs undergrounding certain transmission line projects ferc found reasonable nonvirginia wholesale transmission customers allocated incremental costs undergrounding facilities projects direct result virginia legislation virginia commission pilot programs intended benefit citizens virginia order retroactively effective march 2010 cause reallocation costs charged wholesale transmission customers loads outside virginia wholesale transmission customers loads virginia ferc determined sufficient evidence record determine magnitude underground increment held hearing determine appropriate amount undergrounding cost allocated wholesale transmission customer virginia october 2017 ferc issued order determining calculation incremental costs undergrounding transmission projects affirming costs recovered wholesale transmission customers loads located virginia ferc directed virginia power rebill wholesale transmission customers retroactively march 2010 within 30 days proceeding becomes final longer subject rehearing november 2017 virginia power north carolina electric membership corporation whole sale transmission customers filed petitions rehearing virginia power cannot predict outcome matter expected material effect results operations pjm transmission rates april 2007 ferc issued order regarding transmission rate design allocation costs among pjm transmission customers including virginia power transmission service provided pjm new pjmplanned transmission facilities operate 500 kv ferc established pjm regional rate design customers pay according customer’s share region’s load recovery costs existing facilities ferc approved existing methodology whereby customer pays cost facilities located zone customer number parties appealed order us court appeals seventh circuit august 2009 court issued decision affirming ferc order regard existing facilities remanded ferc issue cost allocation associated new facilities 500 kv consideration ferc remand ferc reaffirmed earlier decision allocate costs new facilities 500 kv according customer’s share region’s load number parties filed appeals order us court appeals seventh circuit june 2014 court remanded cost allocation issue ferc december 2014 ferc issued order setting evidentiary hearing settlement proceeding regarding cost allocation issue hearing concerns costs new facilities approved pjm prior february 1 2013 transmission facilities approved february 1 2013 allocated hybrid cost allocation method approved ferc subject court review june 2016 pjm transmission owners state commissions representing substantially load pjm market submitted settlement ferc resolve outstanding issues regarding matter terms settlement virginia power would required pay approximately 200 million pjm next 10 years although settlement agreement accepted ferc settlement opposed small group parties proceeding virginia power believes probable required make payment outcome settlement accordingly december 31 2017 virginia power contingent liability 231 million deferred credits liabilities offset 222 million regulatory asset amount recovered retail rates virginia fercgas july 2017 ferc audit staff communicated deti substantially completed audit deti’s compliance accounting reporting requirements ferc’s uniform system accounts provided description matters preliminary recommendations november 2017 ferc audit staff issued audit report could potential result adjustments could material dominion energy dominion energy gas’ results operations december 2017 deti provided response audit report deti requested ferc review contested findings submitted plan compliance uncontested portions report connection one uncontested issue deti recognized charge 15 million 9 million aftertax recorded within operations maintenance expense dominion energy’s dominion energy gas’ consolidated statements income 2017 writeoff balance regulatory asset originally established 2008 longer considered probable recovery pending final resolution audit process determination ferc management unable estimate potential impact findings amounts recognized 2017 tax reform act subsequent enactment 2017 tax reform act companies’ state regulators issued orders requesting public utilities evaluate total tax impact entity’s cost service accrue regulatory liability attributable benefits reduction corporate income tax rate certain orders requested public utilities submit response state regulatory commissions detailing total tax impact utility’s cost service virginia power submitted response north carolina commission detailing impact 2017 tax reform act base nonfuel cost service virginia power’s excess deferred income taxes clarifying amounts deferred regulatory liability questar gas submitted response utah commission detailing impact 2017 tax reform act base rates infrastructure rider proposing benefits passed back customers filings pending dominion energy plans respond remaining state regulatory commissions accordance due dates issued orders companies begin reserve impacts cost service reduction regulatory liability beginning 2018 rates reset date ferc issued guidance reflect impacts 2017 tax reform act customer rates companies recorded reasonable estimate net income taxes refundable future rates jurisdictions operate actions ferc state regulators estimates may subject changes could material impact companies’ results operations financial condition andor cash flows regulatory matters electric regulation virginia regulation act enacted 2007 instituted costofservice rate model ending virginia’s planned transition retail competition electric supply service classes customers regulation act authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs underground distribution lines environmental compliance conservation energy efficiency programs renewable energy programs also contains statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission amended provides enhanced returns capital expenditures specific newlyproposed generation projects virginia commission’s future rate decisions including actions relating virginia power’s rate adjustment clause filings combined notes consolidated financial statements continued differ materially virginia power’s expectations may adversely affect results operations financial condition cash flows regulation act legislation february 2015 virginia governor signed legislation law keep virginia power’s base rates unchanged least december 1 2022 addition biennial reviews conducted virginia commission five successive 12month test periods beginning january 1 2015 ending december 31 2019 legislation states virginia power’s 2015 biennial review filed march 2015 would proceed sole purpose reviewing determining whether refunds due customers based earnings performance generation distribution services 2013 2014 test periods addition legislation requires virginia commission conduct proceedings 2017 2019 determine utility’s roe use connection rate adjustment clauses requires utilities file integrated resource plans annually rather biennially november 2015 virginia commission ordered testimony briefs separate bifurcated hearing virginia power’s thenpending rider b r w cases whether virginia commission adjust roe applicable rate adjustment clauses prior 2017 february 2016 virginia commission issued final orders cases stating could adjust roe projects separate additional bifurcated hearings virginia commission issued final orders setting base roes rider gv c1a c2a bw us2 u cases february 2016 certain industrial customers apco petitioned virginia commission issue declaratory judgment virginia legislation enacted 2015 keeping apco’s base rates unchanged least 2020 virginia power’s base rates unchanged least 2022 unconstitutional require apco make biennial review filings 2016 2018 virginia power intervened support constitutionality legislation july 2016 virginia commission held divided opinion legislation constitutional industrial customers appealed order supreme court virginia november 2016 supreme court virginia granted appeal matter right consolidated oral argument similar appeals virginia commission’s order september 2017 supreme court virginia affirmed legislation constitutional march 2017 required regulation act legislation enacted february 2015 virginia power filed application virginia commission determine general roe virginia power’s nontransmission rate adjustment clauses application supported 105 roe rate adjustment clauses november 2017 virginia commission approved general 92 roe rate adjustment clauses 2015 biennial review november 2015 virginia commission issued 2015 biennial review order deciding several contested regulatory earnings adjustments virginia commission ruled virginia power earned average roe approximately 1089 generation distribution services combined 2013 2014 test periods roe 70 basis points virginia power’s authorized roe 100 virginia commission ordered approximately 20 million excess earnings credited customer bills based usage 2013 2014 sixmonth period beginning within 60 days 2015 biennial review order virginia fuel expenses may 2017 virginia power submitted annual fuel factor virginia commission recover estimated 16 billion virginia jurisdictional projected fuel expenses rate year beginning july 1 2017 virginia power’s proposed fuel rate represented fuel revenue increase 279 million applied projected kilowatthour sales period july 1 2017 june 30 2018 june 2017 virginia commission approved virginia power’s proposed fuel rate solar facility projects february 2017 virginia power received approval virginia commission cpcn construct operate remington solar facility related distribution interconnection facilities 20 mw facility began operations october 2017 total cost 45 million excluding financing costs facility subject publicprivate partnership whereby commonwealth virginia nonjurisdictional customer compensates virginia power facility’s net electrical energy output microsoft corporation purchases environmental attributes including renewable energy certificates generated facility rate adjustment clause associated cpcn costs project recovered jurisdictional customers march 2017 virginia power received virginia commission approval cpcn construct operate oceana solar facility related distribution interconnection facilities 18 mw facility began operations december 2017 total cost 40 million excluding financing costs facility subject publicprivate partnership whereby commonwealth virginia nonjurisdictional customer compensates virginia power facility’s net electrical energy output virginia power retire renewable energy certificates commonwealth virginia’s behalf amount equal generated facility rate adjustment clause associated facility costs recovered jurisdictional customers rate adjustment clauses discussion significant riders associated various virginia power projects • virginia commission previously approved rider t1 concerning transmission rates may 2017 virginia power proposed 625 million total revenue requirement consisting 490 million transmission component virginia power’s base rates 135 million rider t1 total revenue requirement represents 55 million decrease versus revenues produced rate year current rates july 2017 virginia commission approved proposed total revenue requirement including rider t1 subject trueup rate year beginning september 1 2017 • virginia commission previously approved rider conjunction virginia city hybrid energy center february 2017 virginia commission approved 243 million revenue requirement subject trueup rate year beginning april 1 2017 also established 104 roe effective april 1 2017 february 2018 virginia commission approved 218 million revenue requirement subject trueup rate year beginning april 1 2018 also established 102 base roe effective april 1 2018 • virginia commission previously approved rider w conjunction warren county february 2017 virginia commission approved 121 million revenue requirement subject trueup rate year beginning april 1 2017 also established 104 roe effective april 1 2017 february 2018 virginia commission approved 109 million revenue requirement subject trueup rate year beginning april 1 2018 also established 102 roe rider w effective april 1 2018 • virginia commission previously approved rider r conjunction bear garden february 2017 virginia commission approved 72 million revenue requirement subject trueup rate year beginning april 1 2017 also established 104 roe effective april 1 2017 february 2018 virginia commission approved 66 million revenue requirement subject trueup rate year beginning april 1 2018 also established 102 roe rider r effective april 1 2018 • virginia commission previously approved rider b conjunction conversion three power stations biomass february 2017 virginia commission approved 27 million revenue requirement rate year beginning april 1 2017 also established 114 roe effective april 1 2017 june 2017 virginia power proposed 42 million revenue requirement rate year beginning april 1 2018 represents 15 million increase previous year case pending • virginia commission previously approved rider u conjunction cost recovery move certain electric distribution facilities underground authorized prior virginia legislation september 2017 virginia commission approved total 22 million annual revenue requirement effective october 1 2017 using 94 roe total capital investment 40 million second phase conversions • virginia commission previously approved riders c1a c2a connection cost recovery dsm programs june 2017 virginia commission approved 28 million revenue requirement subject trueup rate year beginning july 1 2017 also established 94 roe riders c1a c2a effective july 1 2017 october 2017 virginia power requested approval extend one existing energy efficiency program five years new 25 million cost cap proposed total 31 million revenue requirement rate year beginning july 1 2018 represents 3 million increase previous year case pending • virginia commission previously approved rider bw conjunction brunswick county april 2017 virginia commission established 104 roe rider bw effective september 1 2017 june 2017 approved 127 million revenue requirement subject trueup rate year beginning september 1 2017 october 2017 virginia power proposed 132 million revenue requirement rate year beginning september 1 2018 represents 5 million increase previous year case pending • virginia commission previously approved rider us2 conjunction scott solar whitehouse woodland solar facilities april 2017 virginia commission established 94 roe rider us2 effective september 1 2017 june 2017 virginia commission approved 10 million revenue requirement subject trueup rate year beginning september 1 2017 october 2017 virginia power proposed 15 million revenue requirement rate year beginning september 1 2018 represents 5 million increase previous year case pending • virginia commission previously approved rider gv conjunction greensville county february 2017 virginia commission approved 82 million revenue requirement subject trueup rate year beginning april 1 2017 also established 94 roe effective april 1 2017 february 2018 virginia commission approved 82 million revenue requirement subject trueup rate year beginning april 1 2018 also established 92 roe effective april 1 2018 electric transmission projects november 2013 virginia commission issued order granting virginia power cpcn construct approximately 7 miles new overhead 500 kv transmission line existing surry switching station surry county new skiffes creek switching station james city county approximately 20 miles new 230 kv transmission line james city county york county city newport news proposed new skiffes creek switching station virginia power’s existing whealton substation city hampton july 2017 virginia power received major required permits approvals proceeding construction project connection receipt permit us army corps engineers july 2017 virginia power required make payments totaling approximately 90 million fund improvements historical cultural resources near project accordingly july 2017 virginia power recorded increase property plant equipment corresponding liability payment obligations december 31 2017 virginia power made 90 million payments also july 2017 national parks conservation association filed lawsuit us district court dc circuit seeking set aside permit granted us army corps engineers project requested preliminary injunction permit august 2017 national trust historic preservation virginia filed similar lawsuit us district court dc circuit october 2017 preliminary injunction requests denied lawsuits pending november 2015 virginia power filed application virginia commission cpcn convert existing transmission line 230 kv prince william county virginia loudoun county virginia construct operate new combined notes consolidated financial statements continued approximately five mile overhead 230 kv double circuit transmission line tap point near gainesville substation new tobeconstructed haymarket substation total estimated cost project approximately 55 million april 2017 virginia commission issued interim order instructing virginia power construct operate project along approved route virginia power could obtain necessary rightsofway otherwise virginia commission ruled virginia power construct operate project along approved alternative route june 2017 virginia commission issued final order approving alternative route project granted necessary cpcn july 2017 virginia commission retained jurisdiction case evaluate two requests reconsider decisions also july 2017 virginia power requested virginia commission stay proceeding virginia power discusses proposed route leaders prince william county december 2017 virginia commission granted part two motions reconsideration retained jurisdiction proceedings case stayed effectiveness final order matter pending november 2015 virginia power filed application virginia commission cpcn construct operate multiple virginia counties approximately 38 mile overhead 230 kv transmission line remington gordonsville substations along associated facilities august 2017 virginia commission granted cpcn project total estimated cost project approximately 105 million march 2016 virginia power filed application virginia commission cpcn rebuild operate multiple virginia counties approximately 33 miles existing 500 kv transmission line cunningham switching station dooms substation along associated station work may 2017 virginia commission granted cpcn construct operate project total estimated cost project approximately 60 million august 2016 virginia power filed application virginia commission cpcn rebuild operate multiple virginia counties approximately 28 miles existing 500 kv transmission line carson switching station terminus located near rogers road switching station construction greensville county virginia along associated work carson switching station march 2017 virginia commission granted cpcn construct operate project total estimated cost project approximately 55 million january 2017 virginia power filed application virginia commission cpcn rebuild rearrange idylwood substation fairfax county virginia september 2017 virginia commission granted cpcn project total estimated cost project approximately 110 million june 2017 virginia power filed application virginia commission cpcn rebuild operate prince william county virginia approximately 9 miles existing 115 kv transmission lines possum point switching station novec’s smoketown delivery point utilizing 230 kv design majority route total estimated cost approximately 20 million february 2018 virginia commission granted cpcn project september 2017 virginia power filed application virginia commission cpcn rebuild operate augusta county virginia approximately 18 miles existing 500 kv transmission line dooms substation valley substation along associated substation work total estimated cost approximately 65 million case pending november 2017 virginia power filed application virginia commission cpcn build operate fairfax county virginia approximately 4 miles 230 kv transmission line idylwood tysons substations along associated substation work total estimated cost project approximately 125 million case pending february 2016 virginia power filed application virginia commission cpcn rebuild operate lancaster county virginia middlesex county virginia across rappahannock river approximately 2 miles existing 115 kv transmission lines harmony village substation white stone substation december 2017 virginia commission granted cpcn project constructed rappahannock river total estimated cost project approximately 85 million north anna virginia power considering construction third nuclear unit site located north anna nuclear power station virginia power decides build new unit would require col nrc approval virginia commission certain environmental permits approvals june 2017 nrc issued col virginia power yet committed building new nuclear unit north anna nuclear power station requests bredl contested nrc hearing virginia power’s col application dismissed september 2016 us court appeals dc circuit dismissed prejudice petitions judicial review bredl organizations filed challenging nrc’s reliance rule generically assessing environmental impacts continued onsite storage spent nuclear fuel various licensing proceedings including virginia power’s col proceeding dismissal followed court’s june 2016 decision new york v nrc upholding nrc’s continued storage rule august 2016 denial requests rehearing en banc therefore contested portion col proceeding closed nrc required conduct hearing col proceedings mandatory nrc hearing held march 2017 uncontested resulting nrc decision authorized issuance col august 2016 virginia power received 60day notice intent sue sierra club alleging endangered species act violations notice alleges us army corps engineers failed conduct adequate environmental consultation reviews related potential third nuclear unit located north anna prior issuing cwa section 404 permit virginia power september 2011 lawsuit filed november 2016 army corps engineers suspended section 404 permit gathered additional information section 404 permit reinstated april 2017 north carolina regulation august 2017 virginia power submitted annual filing north carolina commission adjust fuel component electric rates virginia power proposed total 15 million increase fuel component electric rates rate year beginning january 1 2018 january 2018 north carolina commission approved virginia power’s proposed fuel charge adjustment ohio regulation pir program 2008 east ohio began pir aimed replacing approximately 25 pipeline system march 2015 east ohio filed application ohio commission requesting approval extend pir program additional five years increase annual capital investment corresponding increases annual rateincrease caps september 2016 ohio commission approved stipulation filed jointly east ohio staff ohio commission settle east ohio’s pending application requested pir program associated cost recovery continue another fiveyear term calendar years 2017 2021 east ohio permitted increase annual capital expenditures 200 million 2018 3 per year thereafter subject cost recovery rate increase caps proposed east ohio april 2017 ohio commission approved east ohio’s application adjust pir cost recovery rates 2016 costs filing reflects gross plant investment 2016 188 million cumulative gross plant investment 12 billion revenue requirement 157 million amr program 2007 east ohio began installing automated meter reading technology 12 million customers ohio amr program approved ohio commission completed 2012 although capital investment added east ohio approved recover depreciation property taxes carrying charges return east ohio another rate case april 2017 ohio commission approved east ohio’s application adjust amr cost recovery rate 2016 costs filing reflects revenue requirement approximately 6 million pipp plus program ohio pipp plus program eligible customers make reduced payments based ability pay bill difference customer’s total bill pipp amount deferred collected pipp rider accordance rules ohio commission july 2017 east ohio’s annual update pipp rider automatically approved ohio commission 45day waiting period date filing revised rider rate reflects recovery twelvemonth period july 2017 june 2018 projected deferred program costs approximately 19 million april 2017 june 2018 net refund overrecovery accumulated arrearages approximately 20 million march 31 2017 uex rider east ohio approval uex rider recovers bad debt expense customers participating pipp plus program uex rider adjusted annually achieve dollar recovery east ohio’s actual writeoffs uncollectible amounts september 2017 ohio commission approved east ohio’s application requesting approval uex rider reflect refund overrecovered accumulated bad debt expense approximately 12 million march 31 2017 recovery prospective net bad debt expense projected total approximately 22 million twelvemonth period april 2017 march 2018 ohio legislation march 2017 governor ohio signed legislation law allows utilities file application recover infrastructure development costs associated economic development projects new cost recovery provision allows projects totaling 22 million east ohio subject ohio commission approval dsm rider east ohio approval dsm rider recovers expenditures related dsm programs december 2017 east ohio filed application ohio commission seeking approval adjustment dsm rider recover total 5 million includes underrecovery costs preceding 12month period application pending west virginia regulation october 2017 west virginia commission approved hope’s application new prep customer rates year beginning november 1 2017 provide projected revenue 4 million related capital investments 21 million 27 million 31 million 2016 2017 2018 respectively utah wyoming regulation october 2017 questar gas submitted filings utah commission wyoming commission approximately 25 million gas cost increase reflecting forecasted increases commodity transportation costs utah commission wyoming commission approved filings october 2017 rates effective november 2017 fercgas cove point november 2016 pursuant terms previous settlement cove point filed general rate case fercjurisdictional services 23 proposed rates effective january 1 2017 cove point proposed annual costofservice approximately 140 million december 2016 ferc accepted january 1 2017 effective date proposed rates five suspended effective june 1 2017 terms settlement agreement filed cove point august 2017 approved ferc november 2017 cove point’s rates effective october 2017 result decreases annual revenues depreciation expense approximately 18 million 3 million respectively compared rates effect december 2016 deti september 2017 deti submitted annual transportation cost rate adjustment ferc requesting approval recover 39 million also september 2017 deti submitted annual electric power cost adjustment ferc requesting approval recover 6 million october 2017 ferc approved adjustments combined notes consolidated financial statements continued note 14 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain companies’ longlived assets dominion energy’s virginia power’s aros primarily associated decommissioning nuclear generation facilities ash pond landfill closures dominion energy gas’ aros primarily include plugging abandonment gas oil wells interim retirement natural gas gathering transmission distribution storage pipeline components companies also identified recognized aros related retirement dominion energy’s lng facility dominion energy’s dominion energy gas’ storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed dominion energy’s virginia power’s generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments identify sufficient information exists reasonably estimate retirement date assets changes aros 2016 2017 follows 1 primarily reflects aros assumed dominion energy questar combination see note 3 information 2 primarily reflects future ash pond landfill closure costs certain utility generation facilities see note 22 information 3 includes 249 million 263 million reported current liabilities december 31 2016 2017 respectively 4 includes 147 million 146 million reported deferred credits liabilities remainder recorded current liabilities december 31 2016 2017 respectively dominion energy virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2017 2016 aggregate fair value dominion energy’s trusts consisting primarily equity debt securities totaled 51 billion 45 billion respectively december 31 2017 2016 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 24 billion 21 billion respectively note 15 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie dominion energy december 31 2017 dominion energy owns general partner 506 common subordinated units 375 convertible preferred interests dominion energy midstream owns preferred equity interest general partner interest cove point additionally dominion energy owns manager 67 membership interest certain merchant solar facilities discussed note 2 dominion energy concluded entities vies due limited partners members lacking characteristics controlling financial interest addition 2016 dominion energy created wholly owned subsidiary sbl holdco holding company interest vie merchant solar facilities accordingly sbl holdco vie dominion energy primary beneficiary dominion energy midstream sbl holdco merchant solar facilities dominion energy midstream primary beneficiary cove point power direct activities significantly impact economic performance well obligation absorb losses benefits could significant dominion energy’s securities due within one year longterm debt include 30 million 332 million respectively debt issued 2016 sbl holdco net issuance costs nonrecourse dominion energy secured sbl holdco’s interest merchant solar facilities dominion energy owns 48 membership interest atlantic coast pipeline see note 9 details regarding nature entity dominion energy concluded atlantic coast pipeline vie insufficient equity finance activities without additional subordinated financial support dominion energy concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance power direct shared among multiple unrelated parties dominion energy obligated provide capital contributions based ownership percentage dominion energy’s maximum exposure loss limited current future investment well obligations guarantee provided see note 22 information dominion energy virginia power dominion energy’s virginia power’s nuclear decommissioning trust funds dominion energy’s rabbi trusts hold investments limited partnerships similar type entities see note 9 details dominion energy virginia power concluded partnership investments vies due limited partners lacking characteristics controlling financial interest dominion energy virginia power concluded neither primary beneficiary power direct activities significantly impact vies’ economic performance dominion energy virginia power obligated provide capital contributions partnerships required partnership agreement based ownership percentages dominion energy virginia power’s maximum exposure loss limited current future investments dominion energy dominion energy gas dominion energy previously concluded iroquois vie nonaffiliated iroquois equity holder ability limited period time transfer ownership interests another iroquois equity holder affiliate end first quarter 2016 right longer existed result dominion energy concluded iroquois longer vie virginia power virginia power longterm power capacity contracts five nonutility generators contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests contracts two nonutility generators expired 2015 two additional contracts expired 2017 leaving remaining aggregate summer generation capacity approximately 218 mw evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance remaining entity remaining terms virginia power’s contract years entity expected operate contractual relationship expires remaining contract expires 2021 virginia power subject risk loss potential vie remaining purchase commitments totaled 200 million december 31 2017 virginia power paid 86 million 144 million 200 million electric capacity 24 million 31 million 83 million electric energy entities years ended december 31 2017 2016 2015 respectively dominion energy gas deti engaged oversee construction subsequently operate maintain projects undertaken atlantic coast pipeline based overall direction oversight atlantic coast pipeline’s members affiliate deti holds membership interest atlantic coast pipeline therefore deti considered variable interest atlantic coast pipeline members atlantic coast pipeline hold power direct construction operations maintenance activities entity deti concluded primary beneficiary atlantic coast pipeline power direct activities atlantic coast pipeline significantly impact economic performance deti obligation absorb losses vie see note 24 information associated related party receivable balances virginia power dominion energy gas virginia power dominion energy gas purchased shared services des affiliated vie 340 million 126 million 346 million 123 million 318 million 115 million years ended december 31 2017 2016 2015 respectively virginia power dominion energy gas determined neither primary beneficiary des neither power direct activities significantly impact economic performance well obligation absorb losses benefits could significant des provides accounting legal finance certain administrative technical services dominion energy subsidiaries including virginia power dominion energy gas virginia power dominion energy gas obligation absorb allocated shares des costs note 16 shortterm debt credit agreements companies use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion energy utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion energy’s credit ratings credit quality counterparties dominion energy commercial paper letters credit outstanding well capacity available credit facilities follows combined notes consolidated financial statements continued 1 credit facilities mature april 2020 used support bank borrowings issuance commercial paper well support combined 20 billion letters credit 2 weightedaverage interest rates outstanding commercial paper supported dominion energy’s credit facilities 161 105 december 31 2017 2016 respectively questar gas’ shortterm financing supported access coborrower two joint revolving credit facilities discussed dominion energy virginia power dominion energy gas december 31 2017 aggregate sublimit questar gas 250 million december 2016 questar gas entered commercial paper program pursuant began accessing commercial paper markets dominion energy indicated intention replace existing two joint revolving credit facilities 60 billion joint revolving credit facility first quarter 2018 terms covenants new credit facility expected similar existing credit facilities including virginia power dominion energy gas questar gas remain coborrowers except maturity five years maximum allowed total debt total capital ratio respect dominion energy increased 65 675 february 2018 virginia power coborrower filed virginia commission approval addition credit facilities mentioned sbl holdco 30 million credit facilities original stated maturity date december 2017 automatic oneyear renewals maturity sbl holdco term loan agreement 2023 dominion solar projects iii inc 25 million credit facilities original stated maturity date may 2018 automatic oneyear renewals maturity dominion solar projects iii inc term loan agreement 2024 december 31 2017 amounts outstanding either facilities february 2018 dominion energy borrowed 950 million 364day term loan agreement bears interest variable rate addition agreement contains maximum allowed total debt total capital ratio 675 virginia power virginia power’s shortterm financing supported access coborrower two joint revolving credit facilities credit facilities used working capital support combined commercial paper programs companies general corporate purposes virginia power’s share commercial paper letters credit outstanding joint credit facilities dominion energy dominion energy gas questar gas follows 1 full amount facilities available virginia power less amounts outstanding coborrowers dominion energy dominion energy gas questar gas sublimits virginia power set within facility limit changed option companies multiple times per year december 31 2017 sublimit virginia power aggregate 15 billion virginia power liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion energy facilities mature april 2020 used support bank borrowings issuance commercial paper well support 20 billion sublimit whichever less letters credit 2 weightedaverage interest rates outstanding commercial paper supported credit facilities 165 097 december 31 2017 2016 respectively addition credit facility commitments mentioned virginia power also 100 million credit facility maturity date april 2020 december 31 2017 facility supports 100 million certain variable rate taxexempt financings virginia power february 2018 virginia power provided notice redeem 100 million outstanding variable rate taxexempt financings supported credit facility dominion energy gas dominion energy gas’ shortterm financing supported access coborrower two joint revolving credit facilities credit facilities used working capital support combined commercial paper programs companies general corporate purposes dominion energy gas’ share commercial paper letters credit outstanding joint credit facilities dominion energy virginia power questar gas follows 1 maximum combined 15 billion facilities available dominion energy gas assuming adequate capacity available giving effect uses coborrowers dominion energy virginia power questar gas sublimits dominion energy gas set within facility limit changed option companies multiple times per year december 31 2017 sublimit dominion energy gas aggregate 750 million dominion energy gas liquidity needs excess sublimit may changed needs may satisfied shortterm intercompany borrowings dominion energy credit facilities mature april 2020 used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit 2 weightedaverage interest rate outstanding commercial paper supported credit facilities 157 100 december 31 2017 2016 respectively note 17 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2017 2 amount includes foreign currency remeasurement adjustments 3 financings relate certain pollution control equipment virginia power’s generating facilities december 31 2017 certain variable rate taxexempt financings supported 100 million credit facility terminates april 2020 february 2018 virginia power provided notice redeem three series variable rate taxexempt financings aggregate outstanding principal 100 million financings would otherwise mature 2024 2026 2027 4 represents variable rate massachusetts development finance agency solid waste disposal revenue bonds due 2041 repaid august 2017 combined notes consolidated financial statements continued 5 represents debt assumed dominion energy merger former cng subsidiary 6 represents debt obligations dominion energy questar gas see note 3 information 7 represents debt associated sbl holdco dominion solar projects iii inc debt nonrecourse dominion energy secured sbl holdco’s dominion solar projects iii inc’s interest certain merchant solar facilities 8 represents debt obligations dgi subsidiary 9 represents debt obligations dominion energy questar pipeline see note 3 information 10 represents valuation certain fair value hedges associated dominion energy’s fixed rate debt 11 excludes 250 million dominion energy questar pipeline’s senior notes matured february 2018 repaid using proceeds january 2018 issuance private placement 100 million 353 senior notes 150 million 391 senior notes mature 2028 2038 respectively 12 includes 20 million estimated mandatory prepayments due within one year based estimated cash flows excess debt service sbl holdco dominion solar projects iii inc based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2017 follows 1 excludes mandatory prepayments associated sbl holdco dominion solar projects iii inc based cash flows excess debt service december 31 2017 20 million estimated mandatory prepayments due within one year included securities due within one year dominion energy’s consolidated balance sheets 2 february 2018 250 million dominion energy questar pipeline’s senior notes repaid using proceeds january 2018 issuance private placements 100 million 353 senior notes 150 million 391 senior notes mature 2028 2038 respectively result december 31 2017 250 million included longterm debt consolidated balance sheets companies shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2017 events default covenants enhanced junior subordinated notes june 2006 september 2006 dominion energy issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively beginning june 30 2016 june 2006 hybrids bear interest threemonth libor plus 2825 reset quarterly previously interest fixed 75 per year september 2006 hybrids bear interest threemonth libor plus 23 reset quarterly october 2014 dominion energy issued 685 million october 2014 hybrids bear interest 575 per year october 1 2024 thereafter bear interest threemonth libor plus 3057 reset quarterly dominion energy may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion energy may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments deferral period also deferral period dominion energy may make payments redeem repurchase debt securities equal right payment subordinated hybrids dominion energy executed rccs connection issuance june 2006 hybrids september 2006 hybrids terms rccs dominion energy covenants benefit designated covered debtholders may designated time dominion energy shall redeem repurchase defease part hybrids shall cause majority owned subsidiaries purchase part hybrids applicable rcc termination date unless subject certain limitations 180 days prior activity dominion energy received specified amount proceeds set forth rccs sale qualifying securities equitylike characteristics equitylike applicable characteristics hybrids time fully described rccs september 2011 dominion energy amended rccs june 2006 hybrids september 2006 hybrids expand measurement period consideration proceeds sale common stock issuances 180 days 365 days pro ceeds dominion energy receives replacement offering adjusted predetermined factor must equal exceed redemption repurchase price 2015 dominion energy purchased cancelled 14 million 3 million june 2006 hybrids september 2006 hybrids respectively first quarter 2016 dominion energy purchased cancelled 38 million 4 million june 2006 hybrids september 2006 hybrids respectively july 2016 dominion energy launched tender offer purchase 200 million aggregate additional june 2006 hybrids september 2006 hybrids expired august 1 2016 connection tender offer dominion energy purchased cancelled 125 million 74 million june 2006 hybrids september 2006 hybrids respectively purchases conducted compliance applicable rcc also july 2016 dominion energy issued 800 million 525 july 2016 hybrids proceeds used general corporate purposes including finance tender offer july 2016 hybrids listed nyse symbol drua remarketable subordinated notes june 2013 dominion energy issued 550 million 2013 series 6125 equity units 550 million 2013 series b 60 equity units initially form corporate units july 2014 dominion energy issued 10 billion 2014 series 6375 equity units initially form corporate units corporate units listed nyse symbols dcua dcub dcuc respectively corporate unit consisted stock purchase contract 120 interest rsn issued dominion energy stock purchase contracts obligated holders purchase shares dominion energy common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion energy common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts may 2017 dominion energy successfully remarketed 10 billion 2014 series 150 rsns due 2020 pursuant terms related 2014 equity units connection remarketing interest rate junior subordinated notes reset 2579 payable semiannual basis dominion energy ceased ability redeem notes option defer interest payments march 2016 may 2016 dominion energy successfully remarketed 550 million 2013 series 107 rsns due 2021 550 million 2013 series b 118 rsns due 2019 respectively pursuant terms related 2013 equity units connection remarketings interest rate series b junior subordinated notes reset 4104 2962 respectively payable semiannual basis dominion energy ceased ability redeem notes option defer interest payments december 31 2017 securities included junior subordinated notes dominion energy’s consolidated balance sheets dominion energy receive proceeds remarketings remarketing proceeds belonged investors holding related equity units temporarily used purchase portfolio treasury securities upon maturity portfolio proceeds applied behalf investors related stock purchase contract settlement date pay purchase price dominion energy issuance 125 million shares common stock july 2017 85 million shares common stock april 2016 july 2016 see issuance common stock description common stock issued dominion energy stock purchase contracts august 2016 dominion energy issued 14 billion 2016 series 675 equity units initially form corporate units corporate units listed nyse symbol dcud net proceeds 2016 equity units used finance dominion energy questar combination see note 3 information 2016 series corporate unit consists stock purchase contract 140 interest 2016 series a1 rsn issued dominion energy 140 interest 2016 series a2 rsn issued dominion energy stock purchase contracts obligate holders purchase shares dominion energy common stock future settlement date prior relevant rsn maturity date purchase price paid stock purchase contracts 50 per corporate unit number shares purchased determined formula based upon average closing price dominion energy common stock near settlement date rsns pledged collateral secure purchase common stock related stock purchase contracts dominion energy makes quarterly interest payments rsns quarterly contract adjustment payments stock purchase contracts rates described dominion energy may defer payments stock purchase contracts rsns one consecutive periods generally beyond purchase contract settlement date payments deferred dominion energy may make cash distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion energy may make payments redeem repurchase debt securities equal right payment subordinated rsns dominion energy recorded present value stock purchase contract payments liability offset charge equity interest payments rsns recorded interest expense stock purchase contract payments charged liability accretion stock purchase contract liability recorded imputed interest expense calculating diluted eps dominion energy applies treasury stock method equity units pursuant terms 2016 equity units dominion energy expects remarket 2016 series a1 2016 series a2 rsns third quarter 2019 following successful remarketing interest rate rsns reset interest payable semiannual basis dominion energy cease ability redeem rsns option defer interest payments proceeds remarketing belong investors related equity units held applied behalf settlement date related stock purchase contracts pay purchase price dominion energy issuance common stock combined notes consolidated financial statements continued terms stock purchase contracts assuming antidilution adjustments dominion energy issue 150 million 188 million shares august 2019 total 231 million shares dominion energy’s common stock reserved issuance connection stock purchase contracts selected information dominion energy’s equity units presented 1 payments 101 million 94 million made 2017 2016 respectively including payments remarketed 2013 series b notes remarketed 2014 series notes stock purchase contract liability 111 million 212 million december 31 2017 2016 respectively 2 maturity dates 700 million series a1 rsns 700 million series a2 rsns august 15 2021 august 15 2024 respectively 3 annual interest rate applies series a1 rsns series a2 rsns note 18 preferred stock dominion energy authorized issue 20 million shares preferred stock however none issued outstanding december 31 2017 2016 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference however none issued outstanding december 31 2017 2016 note 19 equity issuance common stock dominion energy dominion energy maintains dominion energy direct® number employee savings plans contributions may invested dominion energy’s common stock shares may either newly issued purchased open market proceeds contributed plans january 2014 dominion energy began purchasing common stock open market plans april 2014 dominion energy began issuing new common shares direct stock purchase plans 2017 dominion energy received cash proceeds net fees commissions 13 billion issuance approximately 17 million shares common stock various programs resulting approximately 645 million shares common stock outstanding december 31 2017 proceeds include cash 302 million received issuance 38 million shares dominion energy direct® employee savings plans july 2017 dominion energy issued 125 million shares related stock purchase contracts entered part dominion energy’s 2014 equity units received proceeds 10 billion april 2016 july 2016 dominion energy issued 85 million shares related stock purchase contracts entered part dominion energy’s 2013 equity units received 11 billion total proceeds additionally dominion energy completed market issuance equity april 2016 102 million shares received proceeds 756 million registered underwritten public offering portion net proceeds used finance dominion energy questar combination see note 3 information june 2017 dominion energy filed sec shelf registration sale debt equity securities including ability sell common stock atthemarket program also june 2017 dominion energy entered three separate sales agency agreements effect sales program pursuant may offer time 500 million aggregate amount common stock sales common stock made means privately negotiated transactions nyse market prices transactions agreed upon dominion energy sales agents conformance applicable securities laws january 2018 dominion energy provided sales instructions one sales agents issued 66 million shares atthemarket issuances received cash proceeds 495 million net fees commissions paid 5 million following issuances dominion energy remaining ability issue stock 2017 sales agency agreements completed program virginia power 2017 2016 2015 virginia power issue shares common stock dominion energy shares reserved issuance december 31 2017 dominion energy approximately 67 million shares reserved available issuance dominion energy direct® employee stock awards employee savings plans director stock compensation plans issuance connection stock purchase contracts see note 17 information repurchase common stock dominion energy repurchase shares 2017 2016 plan repurchase shares 2018 except shares tendered employees satisfy tax withholding obligations vested restricted stock count stock repurchase authorization purchase dominion energy midstream units september 2015 dominion energy initiated program purchase market 50 million common units representing limited partner interests dominion energy midstream expired september 2016 dominion energy purchased approximately 658000 common units 17 million 887000 common units 25 million years ended december 31 2016 2015 respectively issuance dominion energy midstream units 2017 dominion energy midstream received 18 million proceeds issuance common units atthemarket program 2016 dominion energy midstream received 482 million proceeds issuance common units 490 million proceeds issuance convertible preferred units net proceeds primarily used finance portion acquisition dominion energy questar pipeline dominion energy see note 3 information holders convertible preferred units entitled receive cumulative quarterly distributions payable cash additional convertible preferred units subject certain conditions units convertible dominion energy midstream common units oneforone basis subject certain adjustments whole part option unitholders time december 1 2018 ii whole part dominion energy midstream’s option subject certain conditions time december 1 2019 conversion units would result potential increase dominion energy’s net income attributable noncontrolling interests combined notes consolidated financial statements continued accumulated comprehensive income loss presented table summary aoci component dominion energy following table presents dominion energy’s changes aoci component net tax 1 see table details reclassifications following table presents dominion energy’s reclassifications aoci component virginia power following table presents virginia power’s changes aoci component net tax 1 see table details reclassifications combined notes consolidated financial statements continued following table presents virginia power’s reclassifications aoci component dominion energy gas following table presents dominion energy gas’ changes aoci component net tax 1 see table details reclassifications following table presents dominion energy gas’ reclassifications aoci component stockbased awards 2005 2014 incentive compensation plans permit stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors compensation plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2017 approximately 23 million shares available future grants plans goalbased stock awards granted lieu cashbased performance grants certain officers achieved certain targeted level share ownership december 31 2017 unrecognized compensation cost related nonvested goalbased stock awards immaterial dominion energy measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion energy’s results years ended december 31 2017 2016 2015 include 45 million 33 million 39 million respectively compensation costs 16 million 11 million 14 million respectively income tax benefits related dominion energy’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion energy’s consolidated statements income excess tax benefits classified financing cash flow restricted stock restricted stock grants made officers dominion energy’s ltip may also granted certain key nonofficer employees time fair value dominion energy’s restricted stock awards equal closing price dominion energy’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2017 2016 2015 december 31 2017 unrecognized compensation cost related nonvested restricted stock awards totaled 42 million expected recognized weightedaverage period 20 years fair value restricted stock awards vested 21 million 21 million 37 million 2017 2016 2015 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion energy stock applicable federal state local tax withholding rates cashbased performance grants cashbased performance grants made dominion energy’s officers dominion energy’s ltip actual payout cashbased performance grants vary zero 200 combined notes consolidated financial statements continued targeted amount based level performance metrics achieved february 2015 cashbased performance grant made officers payout performance grant occurred january 2017 based achievement two performance metrics 2015 2016 tsr relative companies listed members philadelphia utility index end performance period roic total payout grant 10 million february 2016 cashbased performance grant made officers payout performance grant occurred january 2018 based achievement two performance metrics 2016 2017 tsr relative companies listed members philadelphia utility index end performance period roic total payout grant 12 million february 2017 two cashbased performance grants made officers company transitioned twoyear performance period threeyear performance period payout twoyear grant expected occur march 15 2019 based achievement two performance metrics 2017 2018 tsr relative companies members company’s compensation peer group roic december 31 2017 targeted amount twoyear grant 15 million liability 7 million accrued award payout threeyear cashbased performance grant expected occur march 15 2020 based achievement two performance metrics 2017 2018 2019 tsr relative companies members company’s compensation peer group roic december 31 2017 targeted amount threeyear grant 15 million liability 5 million accrued award note 20 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2017 virginia commission restricted payment dividends virginia power ohio commission may prohibit public service company including east ohio declaring paying dividend affiliate found detrimental public interest december 31 2017 ohio commission restricted payment dividends east ohio utah commission may prohibit public service company including questar gas declaring paying dividend affiliate found detrimental public interest december 31 2017 utah commission restricted payment dividends questar gas certain agreements associated companies’ credit facilities contain restrictions ratio debt total capitalization limitations restrict companies’ ability pay dividends receive dividends subsidiaries december 31 2017 part scana merger agreement dominion energy shall declare set aside pay dividends make distributions whether cash stock property respect capital stock regular quarterly cash dividends see note 17 description potential restrictions dividend payments dominion energy connection deferral interest payments certain junior subordinated notes equity units initially form corporate units note 21 employee benefit plans dominion energy dominion energy gasdefined benefit plans dominion energy provides certain retirement benefits eligible active employees retirees qualifying dependents dominion energy gas participates number dominion energysponsored retirement plans terms benefit plans dominion energy reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion energy maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion energy’s funding policy contribute annually amount accordance provisions erisa pension programs also provide benefits certain retired executives companysponsored nonqualified employee benefit plans nonqualified plans funded contributions grantor trusts dominion energy also provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service pension benefits dominion energy gas employees represented collective bargaining units covered dominion energy pension plan defined benefit pension plan sponsored dominion energy provides benefits multiple dominion energy subsidiaries pension benefits dominion energy gas employees represented collective bargaining units covered separate pension plans east ohio deti plan provides benefits employees deti hope employee compensation basis allocating pension costs obligations deti hope determining east ohio’s share total pension costs retiree healthcare life insurance benefits dominion energy gas employees represented collective bargaining units covered dominion retiree health welfare plan sponsored dominion energy provides certain retiree healthcare life insurance benefits multiple dominion energy subsidiaries retiree healthcare life insurance benefits dominion energy gas employees represented collective bargaining units covered separate postretirement benefit plans east ohio deti plan provides benefits deti hope employee headcount basis allocating postretirement benefit costs obligations deti hope determining east ohio’s share total postretirement benefit costs pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates mortality rates rate compensation increases dominion energy uses december 31 measurement date employee benefit plans including dominion energy gas participates dominion energy uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost pension plans including dominion energy gas participates marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion energy’s pension postretirement benefit plans hold investments trusts fund employee benefit payments dominion energy’s pension postretirement plan assets experienced aggregate actual returns 16 billion 534 million 2017 2016 respectively versus expected returns 767 million 691 million respectively dominion energy gas’ pension postretirement plan assets employees represented collective bargaining units experienced aggregate actual returns 335 million 130 million 2017 2016 respectively versus expected returns 165 million 157 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans october 2014 society actuaries published new mortality tables mortality improvement scales tables scales used develop mortality assumptions use determining pension postretirement benefit liabilities expense following evaluation new tables dominion energy changed assumption mortality rates reflect generational improvement scale change assumption increased net periodic benefit cost dominion energy dominion energy gas employees represented collective bargaining units 25 million 3 million respectively 2015 2016 dominion energy dominion energy gas employees represented collective bargaining units engaged actuary conduct experience study employees demographics fiveyear period compared significant assumptions used determine pension postretirement benefit obligations periodic costs assumptions primarily included mortality retirement rates termination rates salary increase rates changes assumptions implemented result experience study resulted increases 290 million 38 million pension postretirement benefits obligations respectively december 31 2016 dominion energy 24 million 9 million pension postretirement benefits obligations respectively december 31 2016 dominion energy gas addition changes increased net periodic benefit costs 42 million dominion energy 2017 increase net periodic benefit costs dominion energy gas 2017 immaterial plan amendments remeasurements fourth quarter 2017 dominion energy remeasured pension postretirement benefit plans result voluntary involuntary separation programs dominion energy questar settlement related remeasurement resulted reduction pension benefit obligation approximately 75 million increase accumulated postretirement benefit obligation approximately 2 million discount rates used 2017 pension cost related settlement 446 december 31 2016 451 january 31 2017 405 june 30 september 30 2017 assumptions used consistent measurement december 31 2016 first quarter 2017 dominion energy dominion energy gas remeasured postretirement benefit plan result amendment changed post65 retiree medical coverage certain current future local 69 retirees effective july 1 2017 remeasurement resulted decrease dominion energy’s dominion energy gas’ accumulated postretirement benefit obligation 73 million 61 million respectively result regulatory accounting remeasurement immaterial impact net income dominion energy dominion energy gas discount rate used remeasurement 430 assumptions used consistent measurement december 31 2016 also first quarter 2017 dominion energy recorded 7 million 4 million aftertax charge including 6 million 4 million aftertax dominion energy gas result additional payments associated new collective bargaining agreement reflected operations maintenance expense consolidated statements income third quarter 2016 dominion energy remeasured postretirement benefit plan result amendment changed post65 retiree medical coverage certain current future local 50 retirees effective april 1 2017 remeasurement resulted decrease dominion energy’s accumulated postretirement benefit obligation 37 million impact remeasurement net periodic benefit credit recognized prospectively remeasurement date increased net periodic benefit credit 2016 9 million discount rate used remeasurement 371 demographic mortality assumptions updated using planspecific studies mortality improvement scales expected longterm rate return used consistent measurement december 31 2015 combined notes consolidated financial statements continued funded status following table summarizes changes pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status dominion energy dominion energy gas employees represented collective bargaining units 1 2017 amounts relate primarily plan amendment changed post65 retiree medical coverage certain current future local 69 retirees effective july 1 2017 2016 amount relates primarily plan amendment changed post65 retiree medical coverage certain current future local 50 retirees effective april 1 2017 2 2017 amount relates primarily settlement curtailment result voluntary involuntary separation programs dominion energy questar 2016 amount relates primarily settlement certain executives 3 reflected deferred credits liabilities dominion energy gas’ consolidated balance sheets abo dominion energy’s defined benefit pension plans 82 billion 73 billion december 31 2017 2016 respectively abo defined benefit pension plans covering dominion energy gas employees represented collective bargaining units 724 million 640 million december 31 2017 2016 respectively funding policies dominion energy evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion energy determines amount contributions current year time 2017 dominion energy dominion energy gas made contributions qualified defined benefit pension plans 75 million contribution dominion energy’s qualified pension plan satisfy regulatory condition closing dominion energy questar combination contributions currently expected 2018 july 2012 map 21 act signed law act includes increase interest rates used determine plan sponsors’ pension contributions required funding purposes 2014 hatfa 2014 signed law similar map 21 act hatfa 2014 adjusts rules calculating interest rates used determining funding obligations estimated new interest rates reduce required pension contributions 2019 dominion energy believes required pension contributions rise subsequent 2019 resulting estimated 200 million reduction net cumulative required contributions 10year period certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion energy’s subsidiaries including dominion energy gas fund postretirement benefit costs vebas dominion energy’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion energy’s contributions vebas pertained dominion energy gas employees totaled 12 million 2017 2016 dominion energy expects contribute approximately 12 million dominion energy vebas 2018 pertains dominion energy gas employees dominion energy dominion energy gas expect pension postretirement plan assets returned 2018 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets dominion energy dominion energy gas employees represented collective bargaining units following table provides information abo fair value plan assets dominion energy’s pension plans abo excess plan assets following benefit payments reflect expected future service appropriate expected paid dominion energy’s dominion energy gas’ employees represented collective bargaining units plans plan assets dominion energy’s overall objective investing pension postretirement plan assets achieve appropriate longterm rates return commensurate prudent levels risk participating employer various pension plans sponsored dominion energy dominion energy gas subject dominion energy’s investment policies plans minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations dominion energy’s pension funds 28 us equity 18 nonus equity 35 fixed income 3 real estate 16 alternative investments us equity includes investments largecap midcap smallcap companies located us nonus equity includes investments largecap smallcap companies located outside us including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity real estate investment trusts investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies dominion energy also utilizes commoncollective trust funds investment vehicle defined benefit plans commoncollective trust fund pooled fund operated bank trust company investment assets various organizations combined notes consolidated financial statements continued individuals welldiversified portfolio commoncollective trust funds grouped assets follow various investment strategies strategic investment policies established dominion energy’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion energy’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target future assetliability studies focus strategies reduce pension postretirement plan risk still achieving attractive levels returns financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 6 fair values dominion energy’s dominion energy gas’ employees represented collective bargaining units pension plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 excludes net assets related pending sales securities 11 million net accrued income 19 million includes net assets related pending purchases securities 15 million december 31 2017 excludes net assets related pending sales securities 46 million net accrued income 19 million includes net assets related pending purchases securities 47 million december 31 2016 3 excludes net assets related pending sales securities 3 million net accrued income 4 million includes net assets related pending purchases securities 3 million december 31 2017 excludes net assets related pending sales securities 10 million net accrued income 4 million includes net assets related pending purchases securities 10 million december 31 2016 combined notes consolidated financial statements continued fair values dominion energy’s dominion energy gas’ employees represented collective bargaining units postretirement plan assets asset category follows 1 investments measured fair value using nav per share equivalent practical expedient required categorized fair value hierarchy 2 excludes net assets related pending sales securities 1 million net accrued income 2 million includes net assets related pending purchases securities 1 million december 31 2017 excludes net assets related pending sales securities 5 million net accrued income 2 million includes net assets related pending purchases securities 5 million december 31 2016 plan’s investments determined based fair values investments underlying investments determined follows • cash equivalentsinvestments held primarily shortterm notes treasury bills valued cost plus accrued interest • common preferred stocksinvestments valued closing price reported active market individual securities traded • insurance contractsinvestments group annuity contracts john hancock entered 1992 stated fair value based fair value underlying securities provided managers include investments us government securities corporate debt instruments state municipal debt securities • corporate debt instrumentsinvestments valued using pricing models maximizing use observable inputs similar securities includes basing value yields currently available comparable securities issuers similar credit ratings quoted prices available identical similar instruments instrument valued discounted cash flows approach maximizes observable inputs current yields similar instruments includes adjustments certain risks may observable credit liquidity risks broker quote available • government securitiesinvestments valued using pricing models maximizing use observable inputs similar securities • commoncollective trust fundscommoncollective trust funds invest debt equity securities instruments characteristics similar funds’ benchmarks primary objectives funds seek investment returns approximate overall performance benchmark indexes benchmarks major equity indices fixed income indices money market indices focus growth income liquidity strategies applicable investments commoncollective trust funds stated nav determined issuer commoncollective trust funds based fair value underlying investments held fund less liabilities nav used practical expedient estimate fair value commoncollective trust funds unfunded commitments applicable liquidation periods defined termsperiods held majority commoncollective trust funds limited withdrawal redemption rights term investment • alternative investmentsinvestments real estate funds private equity funds debt funds hedge funds stated fair value based nav plan’s proportionate share partnership joint venture alternative investment’s fair value determined reference audited financial statements nav statements provided investment manager nav used practical expedient estimate fair value combined notes consolidated financial statements continued net periodic benefit credit cost net periodic benefit credit cost reflected operations maintenance expense consolidated statements income components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities dominion energy’s dominion energy gas’ employees represented collective bargaining units plans follows 1 assumptions used determine net periodic cost following year 2 society actuaries model used determine healthcare cost trend rates updated 2014 new model converges ultimate trend rate much quickly previous models components aoci regulatory assets liabilities dominion energy’s dominion energy gas’ employees represented collective bargaining units plans recognized components net periodic benefit credit cost follows 1 december 31 2017 32 billion 157 million related pension benefits postretirement benefits 19 billion 87 million respectively included aoci remainder included regulatory assets liabilities december 31 2016 32 billion 136 million related pension benefits postretirement benefits 19 billion 103 million respectively included aoci remainder included regulatory assets liabilities 2 december 31 2017 367 million related pension benefits 134 million included aoci remainder included regulatory assets liabilities 24 million related postretirement benefits included entirely regulatory assets liabilities december 31 2016 458 million related pension benefits 167 million included aoci remainder included regulatory assets liabilities 67 million related postretirement benefits included entirely regulatory assets liabilities following table provides components aoci regulatory assets liabilities dominion energy’s dominion energy gas’ employees represented collective bargaining units plans december 31 2017 expected amortized components net periodic benefit credit cost 2018 expected longterm rates return plan assets discount rates healthcare cost trend rates mortality critical assumptions determining net periodic benefit credit cost dominion energy develops noninvestment related assumptions compared forecasts independent investment advisor ensure reasonableness internal committee selects final assumptions used dominion energy’s pension postretirement plans including dominion energy gas participates including discount rates expected longterm rates return healthcare cost trend rates mortality rates dominion energy determines expected longterm rates return plan assets pension plans postretirement benefit plans including dominion energy gas participates using combination • expected inflation riskfree interest rate assumptions • historical return analysis determine long term historic returns well historic risk premiums various asset classes • expected future risk premiums asset volatilities correlations • forwardlooking return expectations derived yield longterm bonds expected longterm returns major stock market indices • investment allocation plan assets dominion energy determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans including dominion energy gas participates mortality rates developed actual projected plan experience postretirement benefit plans dominion energy’s actuary conducts experience study periodically part process select best estimate mortality dominion energy considers standard mortality tables improvement factors well plans’ actual experience selecting best estimate 2016 dominion energy conducted new experience study scheduled result updated mortality assumptions plans including dominion energy gas participates assumed healthcare cost trend rates significant effect amounts reported dominion energy’s retiree healthcare plans including dominion energy gas participates one percentage point change assumed healthcare cost trend rates would following effects dominion energy’s dominion energy gas’ employees represented collective bargaining units postretirement benefit plans dominion energy gas employees represented collective bargaining units virginia powerparticipation defined benefit plans virginia power employees dominion energy gas employees represented collective bargaining units covered dominion energy pension plan described participating employers virginia power dominion energy gas subject dominion energy’s funding policy contribute annually amount accordance erisa 2017 virginia power dominion energy gas made con combined notes consolidated financial statements continued tributions dominion energy pension plan contributions plan currently expected 2018 virginia power’s net periodic pension cost related plan 110 million 79 million 97 million 2017 2016 2015 respectively dominion energy gas’ net periodic pension credit related plan 37 million 45 million 38 million 2017 2016 2015 respectively net periodic pension credit cost reflected operations maintenance expense respective consolidated statements income funded status various dominion energy subsidiary groups employee compensation basis determining share total pension costs participating dominion energy subsidiaries see note 24 virginia power dominion energy gas amounts due tofrom dominion energy related plan retiree healthcare life insurance benefits virginia power employees dominion energy gas employees represented collective bargaining units covered dominion energy retiree health welfare plan described virginia power’s net periodic benefit credit cost related plan 42 million 29 million 16 million 2017 2016 2015 respectively dominion energy gas’ net periodic benefit credit cost related plan 5 million 4 million 5 million 2017 2016 2015 respectively net periodic benefit credit cost reflected operations maintenance expenses respective consolidated statements income employee headcount basis determining share total postretirement benefit costs participating dominion energy subsidiaries see note 24 virginia power dominion energy gas amounts due tofrom dominion energy related plan dominion energy holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power dominion energy gas’ employees participate investmentrelated declines trusts result future increases net periodic cost recognized employee benefit plans included determination amount cash virginia power dominion energy gas provide dominion energy shares employee benefit plan contributions certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power dominion energy gas fund postretirement benefit costs vebas 2017 2016 virginia power made contributions veba expect contribute veba 2018 dominion energy gas made contributions vebas employees represented collective bargaining units 2017 2016 expect contribute 2018 defined contribution plans dominion energy also sponsors defined contribution employee savings plans cover substantially employees 2017 2016 2015 dominion energy recognized 45 million 44 million 43 million respectively employer matching contributions plans dominion energy gas participates employee savings plans specific dominion energy gas cover multiple dominion energy sub sidiaries 2017 2016 2015 dominion energy gas recognized 7 million employer matching contributions plans virginia power also participates employee savings plans 2017 2016 2015 virginia power recognized 19 million 19 million 18 million respectively employer matching contributions plans organizational design initiative first quarter 2016 companies announced organizational design initiative reduced total workforces 2016 goal organizational design initiative streamline leadership structure push decision making lower also improving efficiency year ended december 31 2016 dominion energy recorded 65 million 40 million aftertax charge including 33 million 20 million aftertax virginia power 8 million 5 million aftertax dominion energy gas primarily reflected operations maintenance expense consolidated statements income due severance pay costs related organizational design initiative terms severance organizational design initiative consistent companies’ existing severance plans note 22 commitments contingencies result issues generated ordinary course business companies involved legal proceedings various courts periodically subject governmental examinations including regulatory authorities inquiries investigations certain legal proceedings governmental examinations involve demands unspecified amounts damages initial procedural phase involve uncertainty outcome pending appeals motions involve significant factual issues need resolved possible companies estimate range possible loss matters companies cannot estimate range possible loss statement effect made description matter matters may progressed sufficiently litigation investigative processes companies able estimate range possible loss legal proceedings governmental examinations companies able reasonably estimate range possible losses estimated range possible loss provided excess accrued liability matters accrued liability recorded gross basis receivable also recorded probable insurance recoveries estimated ranges loss inclusive legal fees net anticipated insurance recoveries estimated range based currently available information involves elements judgment significant uncertainties estimated range possible loss may represent companies’ maximum possible loss exposure circumstances legal proceedings governmental examinations change time actual results may vary significantly current estimate current proceedings specifically reported management anticipate liabilities arising proceedings would material effect financial position liquidity results operations companies environmental matters companies subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa amended comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many companies’ facilities subject caa’s permitting requirements mats rule requires coal oilfired electric utility steam generating units meet strict emission limits mercury particulate matter surrogate toxic metals hydrogen chloride surrogate acid gases following oneyear compliance extension granted vdeq additional oneyear extension epa administrative order virginia power ceased operating coal units yorktown power station april 2017 comply rule june 2017 doe issued order pjm direct virginia power operate yorktown power station’s units 1 2 needed avoid reliability issues virginia peninsula order effective 90 days reissued upon pjm’s request necessary required electricity transmission upgrades completed approximately 23 months following receipt july 2017 final permits approvals construction beginning august 2017 pjm filed requests 90day renewals doe order doe granted current renewal effective march 2018 sierra club challenged doe order certain renewal requests denied doe although litigation mats rule still pending regulation remains effect virginia power complying applicable requirements rule expect adverse impacts operations time ozone standards october 2015 epa issued final rule tightening ozone standard 75ppb 70ppb comply standard april 2016 virginia power submitted nox reasonable available control technology analysis unit 5 possum point power station december 2016 vdeq determined nox reductions required unit 5 october 2017 virginia power proposed install nox controls mid2019 expected cost range 25 million 35 million statutory deadline epa complete attainment designations new standard october 2017 states three years final designations certain issued epa november 2017 develop plans address new standard states developed implementation plans standard companies unable predict whether extent new rules ultimately require additional controls expenditures required implement additional controls could material impact companies’ results operations cash flows nox voc emissions april 2016 pennsylvania department environmental protection issued final regulations effective date january 2017 reduce nox voc emissions combustion sources comply regulations dominion energy gas installing emission control systems existing engines several compressor stations pennsylvania compliance costs associated engineering installation controls compliance demonstration regulation expected approximately 35 million oil gas nsps august 2012 epa issued nsps impacting new modified facilities natural gas production gathering sectors made revisions nsps natural gas processing transmission facilities rules establish equipment performance specifications emissions standards control voc emissions natural gas production wells tanks pneumatic controllers compressors upstream sector june 2016 epa issued new nsps regulation oil natural gas sector regulate methane voc emissions new modified facilities transmission storage gathering boosting production processing facilities projects commenced construction september 2015 required comply regulation april 2017 epa issued notice reviewing rule appropriate issue rulemaking suspend revise rescind june 2016 final nsps certain oil gas facilities june 2017 epa published notice reconsideration partial stay rule 90 days proposed extending stay two years july 2017 us court appeals dc circuit vacated 90day stay november 2017 epa solicited comments proposed twoyear stay june 2016 nsps rules dominion energy dominion energy gas implementing 2016 regulation dominion energy dominion energy gas still evaluating whether potential impacts results operations financial condition andor cash flows related matter material ghg regulation carbon regulations august 2016 epa issued draft rule proposing reaffirm source’s obligation obtain psd title v permit ghgs triggered permitting requirements first triggered nonghg conventional pollutants regulated new source review program set significant emissions rate 75000 tons per year co2 equivalent emissions source would required apply bact ghg emissions epa ultimately takes final action rulemaking companies cannot predict impact financial statements addition epa continues evaluate policy regarding consideration co2 emissions biomass projects determining whether stationary source meets psd title v applicability thresholds including application combined notes consolidated financial statements continued bact unclear final policy affect virginia power’s altavista hopewell southampton power stations converted coal biomass prior biomass deferral policy however expenditures comply new requirements could material dominion energy’s virginia power’s financial statements methane emissions july 2015 epa announced next generation voluntary natural gas star program natural gas star methane challenge program covers entire natural gas sector production distribution emphasis transparency increased reporting annual emissions reductions achieved implementation measures march 2016 east ohio hope deti questar gas joined epa founding partners new methane challenge program submitted implementation plans september 2016 decg joined epa’s voluntary natural gas star program july 2016 submitted implementation plan september 2016 dominion energy dominion energy gas expect costs related programs material impact results operations financial condition andor cash flows water cwa amended comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms companies must comply applicable aspects cwa programs operating facilities october 2014 final regulations section 316b cwa govern existing facilities new units existing facilities employ cooling water intake structure flow levels exceeding minimum threshold became effective rule establishes national standard impingement based seven compliance options forgoes creation single technology standard entrainment instead epa delegated entrainment technology decisions state regulators state regulators make casebycase entrainment technology determinations examination five mandatory facilityspecific factors including social costbenefit test six optional facilityspecific factors rule governs electric generating stations water withdrawals two mgd heightened entrainment analysis facilities 125 mgd dominion energy virginia power 13 11 facilities respectively may subject final regulations dominion energy anticipates install impingement control technologies many stations oncethrough cooling systems dominion energy virginia power currently evaluating need potential entrainment controls final rule decisions made casebycase basis thorough review detailed biological technology cost benefit studies impacts rule could material dominion energy’s virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts virginia power september 2015 epa released final rule revise effluent limitations guidelines steam electric power generating category final rule establishes updated standards wastewater discharges apply primarily coal oil steam generating stations affected facilities required convert wet dry closed cycle coal ash management improve existing wastewater treatment systems andor install new wastewater treatment technologies order meet new discharge limits virginia power eight facilities subject final rule april 2017 epa granted two separate petitions reconsideration effluent limitations guidelines final rule stayed future compliance dates rule also april 2017 us court appeals fifth circuit granted us’s request stay pending consolidated litigation challenging rule epa addresses petitions reconsideration september 2017 epa signed rule postpone earliest compliance dates certain waste streams regulations effluent limitations guidelines final rule november 2018 november 2020 however latest date compliance regulations remains december 2023 epa proposing complete new rulemaking waste streams impacts rule could material dominion energy’s virginia power’s results operations financial condition andor cash flows existing regulatory framework virginia provides rate recovery mechanisms could substantially mitigate impacts virginia power waste management remediation cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites jointly severally strictly liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion energy virginia power dominion energy gas may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties also bring contribution actions seek reimbursement insurance companies result dominion energy virginia power dominion energy gas may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste companies believe matters material effect results operations financial condition andor cash flows dominion energy determined associated 19 former manufactured gas plant sites three pertain virginia power 12 pertain dominion energy gas studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none former sites companies associated investigation state federal environmental agency one former sites dominion energy conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program virginia power currently evaluating nature extent contamination site well potential remedial options preliminary costs options evaluation site range 1 million 22 million due uncertainty surrounding sites companies unable make estimate potential financial statement impacts see discussion ash pond landfill closure costs legal matters companies defendants number lawsuits claims involving unrelated incidents property damage personal injury due uncertainty surrounding matters companies unable make estimate potential financial statement impacts however could material impact results operations financial condition andor cash flows appalachian gateway pipeline contractor litigation following completion appalachian gateway project 2012 deti received multiple change order requests claims additional payments pipeline contractor project july 2015 contractor filed complaint deti us district court western district pennsylvania march 2016 pennsylvania court granted deti’s motion transfer case us district court eastern district virginia july 2016 deti filed motion dismiss march 2017 court dismissed three eight counts complaint may 2017 contractor withdrew one counts complaint november 2017 deti contractor entered partial settlement agreement release certain claims case pending december 31 2017 deti accrued liability 2 million matter dominion energy gas cannot currently estimate additional financial statement impacts could material impact financial condition andor cash flows gas producers litigation connection appalachian gateway project dominion energy field services inc entered contracts firm purchase rights group small gas producers june 2016 gas producers filed complaint circuit court marshall county west virginia dominion energy deti dominion energy field services inc among defendants claiming contracts unenforceable seeking compensatory punitive damages third quarter 2016 dominion energy deti dominion energy field services inc served complaint also third quarter 2016 dominion energy deti consent defendants removed case us district court northern district west virginia october 2016 defendants filed motion dismiss plaintiffs filed motion remand february 2017 us district court entered order remanding matter circuit court marshall county west virginia march 2017 dominion energy voluntarily dismissed case however deti dominion energy field services inc remain parties matter april 2017 case transferred business court division west virginia january 2018 court granted motion dismiss filed defendants two counts claims pending business court division west virginia dominion energy dominion energy gas cannot currently estimate financial statement impacts could material impact financial condition andor cash flows ash pond landfill closure costs march 2015 sierra club filed lawsuit alleging cwa violations chesapeake power station march 2017 us district court eastern district virginia ruled impacted groundwater associated onsite coal ash storage units migrating adjacent surface water constituted unpermitted point source discharge violation cwa court however rejected sierra club’s claims virginia power violated specific conditions water discharge permit finding harm environment court declined impose civil penalties require excavation ash site sierra club sought july 2017 court issued final order requiring virginia power perform additional specific sediment water aquatic life monitoring around chesapeake power station period least two years court directed virginia power apply solid waste permit vdeq includes corrective measures address onsite groundwater impacts july 2017 virginia power appealed court’s july 2017 final order us court appeals fourth circuit august 2017 sierra club filed cross appeal case pending april 2015 epa enacted final rule regulating ccr landfills existing ash ponds still receive manage ccrs inactive ash ponds receive still store ccrs virginia power currently operates inactive ash ponds existing ash ponds ccr landfills subject final rule eight different facilities rule created legal obligation virginia power retrofit close inactive existing ash ponds certain period time well perform required monitoring corrective action postclosure care activities necessary 2015 virginia power recorded 386 million aro related future ash pond landfill closure costs resulted 99 million incremental charge recorded operations maintenance expense consolidated statement income 166 million increase property plant equipment associated asset retirement costs 121 million reduction noncurrent liabilities reversal previously recorded contingent liability since aro obligation created final ccr rule represents similar combined notes consolidated financial statements continued activities 2016 virginia power recorded increase aro 238 million resulted 197 million incremental charge recorded operations maintenance expense consolidated statement income 17 million increase property plant equipment 24 million increase regulatory assets december 2016 legislation enacted creates framework epa approved state ccr permit programs august 2017 epa issued interim guidance outlining framework state ccr program approval epa enforcement authority state programs approved epa states approved programs authority enforce ccr requirements respective rules programs september 2017 epa agreed reconsider portions ccr rule response two petitions reconsideration litigation concerning ccr rule pending epa submitted court list ccr rule provisions epa intends reevaluate virginia power cannot forecast potential incremental impacts costs related existing coal ash sites connection future implementation 2016 ccr legislation reconsideration ccr rule april 2017 virginia governor signed legislation law places moratorium vdeq issuing solid waste permits closure ash ponds virginia power’s bremo chesapeake chesterfield possum point power stations may 2018 law also required virginia power conduct assessment closure alternatives ash ponds four stations include evaluation excavation recycling offsite disposal surface groundwater conditions safety virginia power completed assessments provided report december 1 2017 actual aros related ccr rule may vary substantially estimates used record obligation cove point dominion energy constructed liquefaction project cove point facility commercially operational would enable facility liquefy domesticallyproduced natural gas export lng september 2014 ferc issued order granting authorization cove point construct modify operate liquefaction project two parties separately filed petitions review ferc order us court appeals dc circuit petitions consolidated separately one party requested stay ferc order judicial proceedings complete court denied june 2015 july 2016 court denied one party’s petition review ferc order authorizing liquefaction project court also issued decision remanding party’s petition review ferc order ferc explanation ferc’s decision previous transaction existing import shipper unduly discriminatory september 2017 ferc issued order remand us court appeals dc circuit reaffirmed ruling prior orders cove point violate prohibition undue discrimination agreeing capacity reduction early contract termination existing import shipper october 2017 party filed request rehearing ferc order remand case pending september 2013 doe granted nonfta authorization approval export 077 bcfeday natural gas countries fta trade natural gas june 2016 party filed petition review approval us court appeals dc circuit november 2017 us court appeals dc circuit issued order denying petition review july 2017 cove point submitted application temporary operating permit maryland department environment required prior date first production lng commercial purposes exporting lng permit received december 2017 february 2018 public service commission maryland issued order approving cove point’s august 2017 application amend cpcn issued public service commission maryland may 2014 make necessary updates ferc staff office enforcement division investigations conducting nonpublic investigation virginia power’s offers combustion turbines generators pjm dayahead markets april 2010 september 2014 ferc staff notified virginia power preliminary findings relating virginia power’s alleged violation ferc’s rules connection activities virginia power provided response ferc staff’s preliminary findings letter explaining virginia power’s conduct lawful refuting allegation wrongdoing virginia power cooperating fully investigation however cannot currently predict whether extent may incur material liability greensville county virginia power constructing greensville county related transmission interconnection facilities august 2016 sierra club filed administrative appeal circuit court city richmond challenging certain provisions greensville county’s psd air permit issued vdeq june 2016 august 2017 circuit court upheld air permit appeals filed nuclear matters march 2011 magnitude 90 earthquake subsequent tsunami caused significant damage fukushima daiichi nuclear power station northeast japan events resulted significant nuclear safety reviews required nrc industry groups institute nuclear power operations like us nuclear operators dominion energy gathering supporting data participating industry initiatives focused ability respond mitigate consequences designbasis beyonddesignbasis events stations july 2011 nrc task force provided initial recommendations based review fukushima daiichi accident october 2011 nrc staff prioritized recommendations tiers 1 2 3 tier 1 recommendations consisting actions staff determined started without unnecessary delay december 2011 nrc commissioners approved agency staff’s prioritization recommendations month appropria tions act directed nrc require reevaluation external hazards limited seismic flooding hazards soon possible based prioritized recommendations march 2012 nrc issued orders information requests requiring specific reviews actions operating reactors construction permit holders combined license holders based lessons learned fukushima daiichi event orders applicable dominion energy requiring implementation safety enhancements related mitigation strategies respond extreme natural events resulting loss power plants enhancing spent fuel pool instrumentation implemented information requests issued nrc request reactor reevaluate seismic external flooding hazards site using presentday methods information conduct walkdowns facilities ensure protection hazards current design basis reevaluate emergency communications systems staffing levels walkdowns unit completed audited nrc found adequate reevaluation emergency communications systems staffing levels completed part effort comply orders reevaluation seismic external flooding hazards expected continue 2018 dominion energy virginia power currently expect compliance nrc’s information requests materially impact financial position results operations cash flows implementation period nrc staff evaluating implementation longer term tier 2 tier 3 recommendations dominion energy virginia power expect material financial impacts related compliance tier 2 tier 3 recommendations nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities decommissioning involves decontamination removal radioactive contaminants nuclear power station operations ceased accordance standards established nrc 2017 calculation nrc minimum financial assurance amount aggregated dominion energy’s virginia power’s nuclear units excluding joint owners’ assurance amounts millstone unit 1 kewaunee units decommissioning state 27 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2017 nrc minimum financial assurance amounts calculated using preliminary december 31 2017 us bureau labor statistics indices dominion energy believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient cover decommissioning costs particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns decommissioning units complete decades dominion energy virginia power continue monitor trusts ensure meet nrc minimum financial assurance requirement may include needed use parent company guarantees surety bonding financial instruments recognized nrc see note 9 additional information nuclear decommissioning trust investments nuclear insurance priceanderson amendments act 1988 provides public 1344 billion liability protection per nuclear incident via obligations required owners nuclear power plants allows inflationary provision adjustment every five years dominion energy virginia power purchased 450 million coverage commercial insurance pools reactor site remainder provided mandatory industry retrospective rating plan event nuclear incident licensed nuclear reactor us companies could assessed 127 million licensed reactors exceed 19 million per year per reactor limit number incidents retrospective premium assessed however nrc granted exemption march 2015 remove kewaunee secondary financial protection program current levels nuclear property insurance coverage dominion energy’s virginia power’s nuclear units follows 1 surry north anna share blanket property limit 200 million dominion energy’s virginia power’s nuclear property insurance coverage millstone surry north anna exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site kewaunee meets nrc minimum requirement 106 billion includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion energy’s virginia power’s maximum retrospective premium assessment current policy period 86 million 50 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion energy virginia power combined notes consolidated financial statements continued financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination millstone virginia power also purchase accidental outage insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program dominion energy virginia power subject retrospective premium assessment policy year losses exceed funds available neil dominion energy’s virginia power’s maximum retrospective premium assessment current policy period 22 million 10 million respectively odec part owner north anna massachusetts municipal green mountain part owners millstone’s unit 3 responsible dominion energy virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel dominion energy virginia power entered contracts doe disposal spent nuclear fuel provisions nuclear waste policy act 1982 doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act dominion energy’s virginia power’s contracts doe dominion energy virginia power previously received damages award payments settlement payments related contracts mutual agreement parties settlement agreements extendable provide resolution damages incurred 2013 settlement agreements surry north anna millstone plants extended provide periodic payments damages incurred december 31 2016 extended provide periodic payment damages december 31 2019 pursuit possible settlement kewaunee claims damages incurred december 31 2013 evaluated 2017 virginia power dominion energy received payments 22 million resolution claims incurred north anna surry period january 1 2015 december 31 2015 14 million resolution claims incurred millstone period july 1 2015 june 30 2016 virginia power dominion energy received payments 30 million resolution claims incurred north anna surry period january 1 2014 december 31 2014 22 million resolution claims incurred millstone period july 1 2014 june 30 2015 virginia power dominion energy received payments 8 million resolution claims incurred north anna surry period january 1 2013 december 31 2013 17 million resolution claims incurred millstone period july 1 2013 june 30 2014 dominion energy virginia power continue recognize receivables certain spent nuclear fuelrelated costs believe probable recovery doe dominion energy’s receivables spent nuclear fuelrelated costs totaled 46 million 56 million december 31 2017 2016 respectively virginia power’s receivables spent nuclear fuelrelated costs totaled 30 million 37 million december 31 2017 2016 respectively dominion energy virginia power continue manage spent fuel accepted doe longterm purchase agreements december 31 2017 virginia power following longterm commitments noncancelable cancelable certain conditions third party used secure financing facility provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contract qualifying facility independent power producer ends 2021 capacity payments contract generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2017 present value virginia power’s total commitment capacity payments 221 million capacity payments totaled 114 million 248 million 305 million energy payments totaled 72 million 126 million 198 million years ended 2017 2016 2015 respectively lease commitments companies lease real estate vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2017 follows 1 amounts include lease agreement dominion energy questar corporate office accounted capital lease december 31 2017 2016 consolidated balance sheets include 27 million 30 million respectively property plant equipment 33 million 35 million respectively deferred credits liabilities consolidated statements income include 3 million less 1 million recorded depreciation depletion amortization years ended december 31 2017 2016 rental expense dominion energy totaled 113 million 104 million 99 million 2017 2016 2015 respectively rental expense virginia power totaled 57 million 52 million 51 million 2017 2016 2015 respectively rental expense dominion energy gas totaled 34 million 37 million 37 million 2017 2016 2015 respectively majority rental expense reflected operations maintenance expense consolidated statements income july 2016 dominion energy signed agreement lessor construct lease new corporate office property richmond virginia lessor providing equity obtained financing commitments debt investors totaling 365 million fund estimated project costs project expected completed mid2019 dominion energy appointed act construction agent lessor time dominion energy request cash draws lessor debt investors fund project costs totaled 139 million december 31 2017 project terminated certain events default dominion energy could required pay 899 funded amount specific full recourse events dominion energy could required pay 100 funded amount fiveyear lease term commence construction substantially complete facility able occupied end initial lease term dominion energy extend term lease additional five years subject approval participants current market terms ii purchase property amount equal project costs iii subject certain terms conditions sell property behalf lessor third party using commercially reasonable efforts obtain highest cash purchase price property project sold proceeds sale insufficient repay investors project costs dominion energy may required make payment lessor 87 project costs difference project costs sale proceeds guarantees surety bonds letters credit october 2017 dominion energy entered guarantee agreement support portion atlantic coast pipeline’s obligation 34 billion revolving credit facility also entered october 2017 stated maturity date october 2021 dominion energy’s maximum potential loss exposure terms guarantee limited 48 outstanding borrowings revolving credit facility equal percentage dominion energy’s ownership atlantic coast pipeline december 31 2017 atlantic coast pipeline borrowed 664 million revolving credit facility dominion energy’s consolidated balance sheet includes liability 28 million associated guarantee agreement december 31 2017 addition december 31 2017 dominion energy issued additional 48 million guarantees primarily support equity method investees amounts related guarantees recorded dominion energy also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties subsidiaries fail perform pay contracts counterparties seek performance payment dominion energy would obligated satisfy obligation extent liability subject guarantee incurred one dominion energy’s consolidated subsidiaries liability included consolidated financial statements dominion energy required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion energy currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2017 dominion energy issued following subsidiary guarantees 1 guarantees related commodity commitments certain subsidiaries guarantees provided counterparties order facilitate physical financial transaction related commodities services 2 guarantees related certain dgi subsidiaries’ regarding aspects running nuclear facility 3 guarantees related cove point support terminal services transportation construction cove point two guarantees maximum limit therefore included amount 4 includes guarantees facilitate development solar projects also includes guarantees entered dgi behalf certain subsidiaries facilitate acquisition development solar projects 5 guarantees related miscellaneous contractual obligations leases environmental obligations construction projects insurance programs due uncertainty worker’s compensation claims parental guarantee stated limit also included guarantees related certain dgi subsidiaries’ obligations equity capital contributions energy generation associated fowler ridge nedpower december 31 2017 dominion energy’s maximum remaining cumulative exposure equity funding agreements 17 million 2019 maximum annual future contributions could range approximately 4 million 14 million 6 excludes dominion energy’s guarantee construction new corporate office property discussed within lease commitments additionally december 31 2017 dominion energy purchased 153 million surety bonds including 63 million virginia power 24 million dominion energy gas authorized issuance letters credit financial institutions 76 million facilitate commercial transactions subsidiaries third parties terms surety bonds companies obligated indemnify respective surety bond company amounts paid december 31 2017 virginia power issued 14 million guarantees primarily support taxexempt debt issued conduits related debt matures 2031 included longterm debt virginia power’s consolidated balance sheets event default conduit virginia power would obligated repay amounts limited principal interest outstanding indemnifications part commercial contract negotiations normal course business companies may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law companies unable develop estimate maximum potential amount combined notes consolidated financial statements continued future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2017 companies believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position note 23 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction companies maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2017 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion energy diversified energy company dominion energy transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest rocky mountain regions us dominion energy believe geographic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion energy exposed significant concentration credit risk receivables arising electric gas utility operations dominion energy’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion energy transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2017 dominion energy’s credit exposure totaled 95 million amount investment grade counterparties including internally rated represented 26 single counterparty whether investment grade noninvestment grade exceeded 13 million exposure virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2017 virginia power’s credit exposure totaled 60 million amount investment grade counterparties including internally rated represented 9 single counterparty whether investment grade noninvestment grade exceeded 13 million exposure dominion energy gas dominion energy gas transacts mainly major companies energy industry residential commercial energy consumers transactions principally occur northeast midatlantic midwest regions us dominion energy gas believe geographic concentration contributes overall exposure credit risk addition result large diverse customer base dominion energy gas exposed significant concentration credit risk receivables arising gas utility operations dominion energy gas’ gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2017 dominion energy gas’ credit exposure totaled 15 million amount investment grade counterparties including internally rated represented 22 single counterparty whether investment grade noninvestment grade exceeded 4 million exposure 2017 deti provided service 289 customers approximately 96 storage transportation revenue provided firm services ten largest customers provided approximately 38 total storage transportation revenue thirty largest provided approximately 68 total storage transportation revenue east ohio distributes natural gas residential commercial industrial customers ohio using rates established ohio commission approximately 98 east ohio revenues derived regulated gas distribution services east ohio’s bad debt risk mitigated regulatory framework established ohio commission see note 13 information ohio’s pipp uex riders mitigate east ohio’s overall credit risk creditrelated contingent provisions majority dominion energy’s derivative instruments contain creditrelated contingent provisions require dominion energy provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2017 2016 dominion energy would required post additional 62 million 3 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion energy posted collateral december 31 2017 2016 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2017 2016 65 million 9 million respectively include impact offsetting asset positions credit related contingent provisions virginia power dominion energy gas material december 31 2017 2016 see note 7 information derivative instruments note 24 relatedparty transactions virginia power dominion energy gas engage related party transactions primarily dominion energy subsidiaries affiliates virginia power’s dominion energy gas’ receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power dominion energy gas included dominion energy’s consolidated federal income tax return applicable combined income tax returns dominion energy filed various states see note 2 information dominion energy’s transactions equity method investments described note 9 discussion significant related party transactions follows virginia power transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps manage commodity price risks associated purchases natural gas see notes 7 19 information december 31 2017 virginia power’s derivative assets liabilities affiliates 11 million 5 million respectively december 31 2016 virginia power’s derivative assets liabilities affiliates 41 million 8 million respectively virginia power participates certain dominion energy benefit plans described note 21 december 31 2017 2016 virginia power’s amounts due dominion energy asso ciated dominion energy pension plan reflected noncurrent pension postretirement benefit liabilities consolidated balance sheets 505 million 396 million respectively december 31 2017 2016 virginia power’s amounts due dominion energy associated dominion energy retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 199 million 130 million respectively des affiliates provide accounting legal finance certain administrative technical services virginia power addition virginia power provides certain services affiliates including charges facilities equipment usage financial statements years presented include costs certain general administrative corporate expenses assigned des virginia power basis direct allocated methods accordance virginia power’s services agreements des costs incurred cannot determined specific identification costs allocated based proportional level effort devoted des resources attributable entity determined reference number employees salaries wages similar measures relevant des service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable presented significant transactions des affiliates 1 includes capitalized expenditures 144 million 144 million 143 million year ended december 31 2017 2016 2015 respectively virginia power borrowed funds dominion energy shortterm borrowing arrangements 33 million 262 million shortterm demand note borrowings dominion energy december 31 2017 2016 respectively weightedaverage interest rate borrowings 165 097 december 31 2017 2016 respectively virginia power outstanding borrowings net repayments dominion energy money pool nonregulated subsidiaries december 31 2017 2016 interest charges related virginia power’s borrowings dominion energy immaterial years ended december 31 2017 2016 2015 issuances virginia power’s common stock dominion energy 2017 2016 2015 dominion energy gas transactions related parties dominion energy gas transacts affiliates certain quantities natural gas commodities market prices ordinary course business additionally dominion energy gas provides transportation storage services affiliates dominion energy gas also enters certain contracts affiliates presented separately contracts involving combined notes consolidated financial statements continued commodities services december 31 2017 2016 dominion energy gas’ commodity derivatives affiliates see notes 7 19 information see note 9 information regarding transactions affiliate dominion energy gas participates certain dominion energy benefit plans described note 21 december 31 2017 2016 dominion energy gas’ amounts due dominion energy associated dominion energy pension plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 734 million 697 million respectively dominion energy gas’ amounts due dominion energy associated dominion energy retiree health welfare plan reflected noncurrent pension postretirement benefit assets consolidated balance sheets 7 million 2 million december 31 2017 2016 respectively des affiliates provide accounting legal finance certain administrative technical services dominion energy gas dominion energy gas provides certain services related parties including technical services financial statements years presented include costs certain general administrative corporate expenses assigned des dominion energy gas basis direct allocated methods accordance dominion energy gas’ services agreements des costs incurred cannot determined specific identification costs allocated based proportional level effort devoted des resources attributable entity determined reference number employees salaries wages similar measures relevant des service management believes assumptions methodologies underlying allocation general corporate overhead expenses reasonable costs services follow 1 includes capitalized expenditures 45 million 49 million 57 million year ended december 31 2017 2016 2015 respectively 2 amounts primarily attributable atlantic coast pipeline following table presents affiliated related party balances reflected dominion energy gas’ consolidated balance sheets 1 represents amounts due atlantic coast pipeline related party vie 2 amounts presented current liabilities dominion energy gas’ consolidated balance sheets 3 amounts presented deferred charges assets dominion energy gas’ consolidated balance sheets dominion energy gas’ borrowings irca dominion energy totaled 18 million 118 million december 31 2017 2016 respectively weightedaverage interest rate borrowings 160 108 december 31 2017 2016 respectively interest charges related dominion energy gas’ total borrowings dominion energy immaterial 2017 2016 2015 note 25 operating segments companies organized primarily basis products services sold us description operations included companies’ primary operating segments follows 1 includes remaining producer services activities addition operating segments companies also report corporate segment dominion energy corporate segment dominion energy includes corporate service company functions including unallocated debt addition corporate includes specific items attributable dominion energy’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources 2017 dominion energy reported aftertax net benefit 389 million corporate segment 861 million net benefit attributable specific items related operating segments net benefit specific items 2017 primarily related impact following items • 979 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act primarily attributable • gas infrastructure 324 million • power generation 655 million partially offset • 158 million 96 million aftertax charges associated equity method investments windpowered generation facilities attributable power generation 2016 dominion energy reported aftertax net expenses 484 million corporate segment 180 million net expenses attributable specific items related operating segments net expenses specific items 2016 primarily related impact following items • 197 million 122 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable power generation • 59 million 36 million aftertax charge related organizational design initiative attributable • power delivery 5 million aftertax • gas infrastructure 12 million aftertax • power generation 19 million aftertax 2015 dominion energy reported aftertax net expenses 391 million corporate segment 136 million net expenses attributable specific items related operating segments net expenses specific items 2015 primarily related impact following items • 99 million 60 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable power generation • 85 million 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 attributable power generation combined notes consolidated financial statements continued following table presents segment information pertaining dominion energy’s operations intersegment sales transfers dominion energy based contractual arrangements may result intersegment profit loss eliminated consolidation virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s power delivery power generation segments corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources 2017 virginia power reported aftertax net benefit 74 million specific items attributable operating segments corporate segment net benefit specific items 2017 primarily related impact following item • 93 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act attributable power generation 2016 virginia power reported aftertax net expenses 173 million specific items attributable operating segments corporate segment net expenses specific items 2016 primarily related impact following item • 197 million 121 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable power generation 2015 virginia power reported aftertax net expenses 153 million specific items attributable operating segments corporate segment net expenses specific items 2015 primarily related impact following items • 99 million 60 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities attributable power generation • 85 million 52 million aftertax writeoff deferred fuel costs associated virginia legislation enacted february 2015 attributable power generation following table presents segment information pertaining virginia power’s operations dominion energy gas corporate segment dominion energy gas primarily includes specific items attributable dominion energy gas’ operating segment included profit measures evaluated executive management assessing segment’s performance allocating resources effect certain items recorded dominion energy gas result dominion energy’s basis net assets contributed 2017 dominion energy gas reported aftertax net expenses 179 million corporate segment 174 million net expenses attributable operating segment net benefit specific items 2017 primarily related impact following item • 185 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act 2016 dominion energy gas reported aftertax net expenses 3 million corporate segment 7 million net expenses attributable operating segment net expense specific items 2016 primarily related impact following item • 8 million 5 million aftertax charge related organizational design initiative 2015 dominion energy gas reported aftertax net expenses 21 million corporate segment 13 million net expenses attributable specific items related operating segment net expenses specific items 2015 primarily related impact following item • 16 million 10 million aftertax ceiling test impairment charge combined notes consolidated financial statements continued following table presents segment information pertaining dominion energy gas’ operations note 26 quarterly financial common stock data unaudited summary companies’ quarterly results operations years ended december 31 2017 2016 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion energy dominion energy’s 2017 results include impact following significant item • fourth quarter results include 851 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act partially offset 96 million aftertax charges associated equity method investments windpowered generation facilities dominion energy’s 2016 results include impact following significant item • fourth quarter results include 122 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities virginia power virginia power’s quarterly results operations follows virginia power’s 2017 results include impact following significant item • fourth quarter results include 93 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act virginia power’s 2016 results include impact following significant item • fourth quarter results include 121 million aftertax charge related future ash pond landfill closure costs certain utility generation facilities dominion energy gas dominion energy gas’ quarterly results operations follows dominion energy gas’s 2017 results include impact following significant item • fourth quarter results include 197 million tax benefit resulting remeasurement deferred income taxes result 2017 tax reform act significant items impacting dominion energy gas’ 2016 quarterly results item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders dominion resources inc richmond virginia audited accompanying consolidated balance sheets dominion resources inc subsidiaries “dominion” december 31 2010 2009 related consolidated statements income common shareholders’ equity comprehensive income cash flows three years period ended december 31 2010 financial statements responsibility dominion’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position dominion resources inc subsidiaries december 31 2010 2009 results operations cash flows three years period ended december 31 2010 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements 2009 dominion changed methods accounting adopt new accounting standard impairment framework oil gas properties also audited accordance standards public company accounting oversight board united states dominion’s internal control financial reporting december 31 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 25 2011 expressed unqualified opinion dominion’s internal control financial reporting deloitte touche llp richmond virginia february 25 2011 dominion resources inc consolidated statements income 1 recast reflect peoples discontinued operations described note 4 consolidated financial statements eps amounts reflect per share impact recast 2 includes income tax expense benefit 21 million 16 million 76 million 2010 2009 2008 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated balance sheets 1 billion shares authorized 581 million shares 599 million shares outstanding december 31 2010 2009 respectively accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements common shareholders’ equity 1 see note 3 additional information 2 includes subsidiary preferred dividends related noncontrolling interests 17 million 17 million 16 million 2010 2009 2008 respectively 3 includes 256 million accrued dividends due early declaration first quarter 2009 common dividend december 2008 4 includes atthemarket issuances debtforcommon stock exchange accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements comprehensive income 1 comprehensive income year ended december 31 2009 excludes 20 million 12 million aftertax adjustment aoci representing cumulative effect change accounting principle related recognition presentation otherthantemporary impairments accompanying notes integral part dominion’s consolidated financial statements dominion resources inc consolidated statements cash flows 1 2009 2008 amounts include 2 million 5 million respectively cash classified held sale dominion’s consolidated balance sheets accompanying notes integral part dominion’s consolidated financial statements report independent registered public accounting firm board directors shareholder virginia electric power company richmond virginia audited accompanying consolidated balance sheets virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries “virginia power” december 31 2010 2009 related consolidated statements income common shareholder’s equity comprehensive income cash flows three years period ended december 31 2010 financial statements responsibility virginia power’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement virginia power required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness virginia power’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position virginia electric power company subsidiaries december 31 2010 2009 results operations cash flows three years period ended december 31 2010 conformity accounting principles generally accepted united states america deloitte touche llp richmond virginia february 25 2011 page intentionally left blank virginia electric power company consolidated statements income accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated balance sheets 1 300000 shares authorized 274723 shares 241710 shares outstanding december 31 2010 2009 respectively accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements common shareholder’s equity 1 see note 3 additional information accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements comprehensive income 1 comprehensive income year ended december 31 2009 excludes 3 million 2 million aftertax adjustment aoci representing cumulative effect change accounting principle related recognition presentation otherthantemporary impairments accompanying notes integral part virginia power’s consolidated financial statements virginia electric power company consolidated statements cash flows accompanying notes integral part virginia power’s consolidated financial statements combined notes consolidated financial statements note 1 nature operations dominion headquartered richmond virginia one nation’s largest producers transporters energy dominion’s operations conducted various subsidiaries including virginia power regulated public utility generates transmits distributes electricity sale virginia north carolina virginia power member pjm rto electric transmission facilities integrated pjm wholesale electricity markets virginia power’s common stock owned dominion’s operations also include regulated interstate natural gas transmission pipeline underground storage system northeast midatlantic midwest states lng import storage facility maryland regulated gas transportation distribution operations ohio west virginia discussed note 4 dominion completed sale substantially appalachian ep operations april 2010 addition dominion completed sale pennsylvania gas distribution operations february 2010 reported discontinued operations certain 2009 2008 amounts recast reflect peoples discontinued operations dominion’s nonregulated operations include merchant generation energy marketing price risk management activities retail energy marketing operations dominion manages daily operations three primary operating segments dvp dominion generation dominion energy dominion also reports corporate segment includes corporate service company functions including unallocated debt net impact peoples certain dci operations discussed notes 4 25 respectively addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments virginia power manages daily operations two primary operating segments dvp dominion generation also reports corporate segment primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments see note 27 discussion dominion’s virginia power’s operating segments note 2 significant accounting policies general dominion virginia power make certain estimates assumptions preparing consolidated financial statements accordance gaap estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses periods presented actual results may differ estimates dominion’s virginia power’s consolidated financial statements include eliminating intercompany transactions balances accounts respective majorityowned subsidiaries dominion virginia power report certain contracts instruments investments fair value see note 7 information fair value measurements dominion maintains pension postretirement benefit plans virginia power participates certain plans see note 22 information plans certain amounts 2009 2008 consolidated financial statements footnotes reclassified conform 2010 presentation comparative purposes reclassifications affect companies’ net income total assets liabilities shareholders’ equity cash flows amounts disclosed dominion inclusive virginia power applicable operating revenue operating revenue recorded basis services rendered commodities delivered contracts settled includes amounts yet billed customers companies collect sales consumption consumer utility taxes however amounts excluded revenue dominion’s customer receivables december 31 2010 2009 included 466 million 409 million respectively accrued unbilled revenue based estimated amounts electricity natural gas delivered yet billed utility customers virginia power’s customer receivables december 31 2010 2009 included 397 million 355 million respectively accrued unbilled revenue based estimated amounts electricity delivered yet billed customers primary types sales service activities reported operating revenue dominion follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  nonregulated electric sales consist primarily sales electricity marketbased rates contracted fixed rates associated derivative activity  regulated gas sales consist primarily stateregulated retail natural gas sales related distribution services  nonregulated gas sales consist primarily sales natural gas production marketbased rates contracted fixed prices sales gas purchased third parties gas trading marketing revenue associated derivative activity revenue sales gas production recognized based actual volumes gas sold purchasers reported net royalties revenue sales gas production includes sale gas produced dominion recognition revenue vpp transactions described note 11  gas transportation storage consists primarily regulated sales gathering transmission distribution storage services associated derivative activity also included regulated gas distribution charges retail distribution service customers opting alternate suppliers  revenue consists primarily sales oil ngl production condensate extracted products associated derivative activity revenue also includes miscellaneous service revenue electric gas distribution operations gas processing handling revenue combined notes consolidated financial statements continued primary types sales service activities reported operating revenue virginia power follows  regulated electric sales consist primarily stateregulated retail electric sales federallyregulated wholesale electric sales electric transmission services  revenue consists primarily excess generation sold marketbased rates miscellaneous service revenue electric distribution operations miscellaneous revenue electric fuel purchased energy purchased gasdeferred costs permitted regulatory authorities differences virginia power’s actual electric fuel purchased energy expenses dominion’s purchased gas expenses related levels recovery expenses current rates deferred matched recoveries future periods deferral costs excess current period fuel rate recovery recognized regulatory asset rate recovery excess current period fuel expenses recognized regulatory liability cost fuel used electric generation energy purchases serve utility customers approximately 84 currently subject deferred fuel accounting substantially remaining amount subject recovery similar mechanisms income taxes consolidated federal income tax return filed dominion subsidiaries including virginia power addition applicable combined income tax returns dominion subsidiaries filed various states otherwise separate state income tax returns filed virginia power participates intercompany tax sharing agreement dominion subsidiaries current income taxes based taxable income loss determined separate company basis accounting income taxes involves asset liability approach deferred income tax assets liabilities provided representing future effects income taxes temporary differences bases assets liabilities financial reporting tax purposes dominion virginia power establish valuation allowance morelikelythannot portion deferred tax asset realized treatment temporary differences different rateregulated operations regulatory asset recognized probable future revenues provided payment deferred tax liabilities dominion virginia power recognize positions taken expected taken income tax returns morelikelythannot realized assuming position examined tax authorities full knowledge relevant information morelikelythannot tax position portion thereof sustained related tax benefits recognized financial statements substantial amount dominion’s virginia power’s unrecognized tax benefits ultimate deductibility highly certain however uncertainty timing deductibility unrecognized tax benefits may also include amounts uncertainty exists whether amounts deductible ordinary deductions capital losses unrecognized tax benefits may result increase income taxes payable reduction income tax refunds receivable changes deferred taxes also uncertainty deductibility amount limited timing deductibility increase income taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities noncurrent income taxes payable related unrecognized tax benefits classified deferred credits liabilities consolidated balance sheets current payables included accrued interest payroll taxes consolidated balance sheets except amounts presented net amounts receivable amounts prepaid tax authorities dominion virginia power recognize changes estimated interest payable net underpayments overpayments income taxes interest expense estimated penalties may result settlement uncertain tax positions income consolidated statements income 2010 2009 2008 dominion recognized reduction interest expense 18 million reduction penalties less 1 million reduction interest expense 19 million reduction penalties 2 million less 1 million interest expense penalties respectively dominion accrued interest receivable 27 million interest penalties payable less 1 million december 31 2010 interest receivable 26 million interest penalties payable 4 million december 31 2009 virginia power’s interest penalties immaterial 2010 2009 2008 december 31 2010 virginia power’s consolidated balance sheet included 46 million prepaid federal state income taxes 102 million noncurrent federal state income taxes payable december 31 2009 virginia power’s consolidated balance sheet included 21 million prepaid federal income taxes 3 million current state income taxes payable 45 million noncurrent federal state income taxes payable investment tax credits recognized nonregulated operations year qualifying property placed service regulated operations investment tax credits deferred amortized service lives properties giving rise credits production tax credits recognized energy generated sold cash equivalents current banking arrangements generally require checks funded presented payment december 31 2010 2009 dominion’s accounts payable included 56 million 55 million respectively checks outstanding yet presented payment december 31 2010 2009 virginia power’s accounts payable included 28 million 22 million respectively checks outstanding yet presented payment purposes consolidated statements cash flows cash equivalents include cash hand cash banks temporary investments purchased original maturity three months less derivative instruments dominion virginia power use derivative instruments futures swaps forwards options ftrs manage commodity currency exchange financial market risks business operations derivatives exception applies reported consolidated balance sheets fair value derivative contracts representing unrealized gain positions purchased options reported derivative assets derivative contracts representing unrealized losses options sold reported derivative liabilities one exceptions fair value accounting normal purchases normal sales may elected contract satisfies certain criteria including requirement physical delivery underlying commodity probable expenses revenues resulting deliveries normal purchase contracts normal sales contracts respectively included earnings time contract performance dominion virginia power offset amounts recognized right reclaim cash collateral obligation return cash collateral amounts recognized derivative instruments executed counterparty master netting arrangement dominion margin assets 244 million 149 million associated cash collateral december 31 2010 2009 respectively dominion margin liabilities 62 million 114 million associated cash collateral december 31 2010 2009 respectively virginia power’s margin assets liabilities associated cash collateral material december 31 2010 2009 manage price risk dominion virginia power hold certain derivative instruments held trading purposes designated hedges accounting purposes however extent companies hold offsetting positions derivatives believe instruments represent economic hedges mitigate exposure fluctuations commodity prices interest rates foreign exchange rates part dominion’s strategy market energy manage related risks also manages portfolio commoditybased financial derivative instruments held trading purposes dominion uses established policies procedures manage risks associated price fluctuations energy commodities uses various derivative instruments reduce risk creating offsetting market positions statement income presentation  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue net basis  derivatives held trading purposes income statement activity including amounts realized upon settlement presented operating revenue operating expenses interest related charges based nature underlying risk virginia power’s generation operations changes fair value derivative instruments result recognition regulatory assets regulatory liabilities jurisdictions subject costbased rate regulation realized gains losses derivative instruments generally recognized related transactions impact earnings derivative instruments designated hedging instruments dominion virginia power designate portion derivative instruments either cash flow fair value hedges accounting purposes derivatives designated hedges dominion virginia power formally document relation ship hedging instrument hedged item well risk management objective strategy using hedging instrument companies assess whether hedging relationship derivative hedged item highly effective offsetting changes cash flows fair values inception hedging relationship ongoing basis change fair value derivative effective offsetting changes cash flows fair values hedged item recognized currently earnings also companies may elect exclude certain gains losses hedging instruments assessment hedge effectiveness gains losses attributable changes time value options changes difference spot prices forward prices thus requiring changes recorded currently earnings hedge accounting discontinued prospectively derivatives cease highly effective hedges cash flow hedgesa majority dominion’s virginia power’s hedge strategies represents cash flow hedges variable price risk associated purchase sale electricity natural gas energyrelated products companies also use foreign currency contracts hedge variability foreign exchange rates interest rate swaps hedge exposure variable interest rates longterm debt transactions dominion virginia power hedging variability cash flows changes fair value derivatives reported aoci extent effective offsetting changes hedged item derivative gains losses reported aoci reclassified earnings forecasted item included earnings earlier becomes probable forecasted transaction occur cash flow hedge transactions hedge accounting discontinued occurrence forecasted transaction longer probable fair value hedgesdominion virginia power also use fair value hedges mitigate fixed price exposure inherent certain firm commodity commitments commodity inventory addition designated interest rate swaps fair value hedges certain fixedrate longterm debt manage interest rate exposure fair value hedge transactions changes fair value derivative generally offset currently earnings recognition changes hedged item’s fair value derivative gains losses hedged item reclassified earnings hedged item included earnings earlier hedged item longer qualifies hedge accounting hedge accounting discontinued hedged item longer qualifies hedge accounting see note 7 information fair value measurements associated valuation methods derivatives see note 8 information derivatives property plant equipment property plant equipment including additions replacements recorded original cost consisting labor materials direct indirect costs asset retirement costs capitalized interest certain operations subject costofservice rate regulation afudc overhead costs cost repairs maintenance including minor additions replacements charged expense incurred 2010 2009 2008 dominion capitalized interest costs afudc property plant equipment 102 million 76 million 88 million respectively 2010 2009 combined notes consolidated financial statements continued 2008 virginia power capitalized interest costs afudc property plant equipment 61 million 47 million 21 million respectively current virginia legislation certain virginia jurisdictional projects qualify current recovery afudc rate adjustment clauses afudc projects calculated recorded regulatory asset capitalized property plant equipment 2010 2009 2008 virginia power recorded 13 million 34 million 18 million afudc related projects respectively virginia power property subject costofservice rate regulation including electric distribution electric transmission generation property certain dominion natural gas property undepreciated cost property less salvage value generally charged accumulated depreciation retirement gains losses recorded sales property cost removal collections utility customers representing aros recorded regulatory liabilities dominion virginia power property subject costofservice rate regulation including nonutility property cost removal associated aros charged expense incurred companies also record gains losses upon retirement based upon difference proceeds received property’s net book value retirement date depreciation property plant equipment computed straightline method based projected service lives dominion’s virginia power’s depreciation rates utility property plant equipment follows dominion’s nonutility property plant equipment excluding ep properties depreciated using straightline method following estimated useful lives nuclear fuel used electric generation amortized estimated service life unitsofproduction basis dominion virginia power report amortization nuclear fuel electric fuel energyrelated purchases expense consolidated statements income depreciation amortization consolidated statements cash flows dominion follows full cost method accounting gas oil ep activities subjects capitalized costs quarterly ceiling test using hedgeadjusted prices due april 2010 sale substantially appalachian ep operations december 31 2010 dominion longer significant gas oil properties subject ceiling test calculation march 31 2010 dominion recorded ceiling test impairment charge 21 million 13 million aftertax operations maintenance expense consolidated statement income primarily due decline hedgeadjusted prices reflecting discontinuance hedge accounting certain cash flow hedges discussed note 4 2009 dominion recorded ceiling test impairment charge 455 million 281 million aftertax operations maintenance expense consolidated statement income excluding effects hedgeadjusted prices calculating ceiling limitation impairment would 631 million 387 million aftertax 2010 dominion recognized gain sale substantially appalachian ep operations discussed note 4 emissions allowances emissions allowances permit holder allowance emit certain gaseous byproducts fossil fuel combustion including so2 nox co2 so2 nox emissions allowances issued dominion virginia power epa may also purchased sold via third party contracts co2 emissions allowances available purchase dominion quarterly auctions held participating rggi states first rggi auctions co2 allowances conducted 2008 used compliance period beginning 2009 extending 2011 compliance rggi requirements applies certain dominion’s merchant power stations located northeast allowances held may transacted third parties consumed emissions generated allowances allocated acquired companies’ generation operations held primarily consumption allowances held consumption classified intangible assets consolidated balance sheets carrying amounts based cost acquire allowances case business combination fair values assigned allocation purchase price acquired business portion dominion’s virginia power’s so2 nox allowances issued epa zero cost allowances amortized periods emissions generated amortization reflected dda consolidated statements income purchases sales allowances reported investing activities consolidated statements cash flows gains losses resulting sales reported operations maintenance expense consolidated statements income longlived intangible assets dominion virginia power perform evaluation impairment whenever events changes circumstances indicate carrying amount longlived assets intangible assets finite lives may recoverable longlived intangible asset written fair value sum expected future undiscounted cash flows less carrying amount intangible assets finite lives amortized estimated useful lives see note 7 discussion impairments related certain longlived assets regulatory assets liabilities accounting dominion’s regulated gas virginia power’s regulated electric operations differs accounting nonregulated operations required reflect effect rate regulation consolidated financial statements regulated businesses subject federal state costofservice rate regulation regulatory practices assign costs accounting periods may differ accounting methods generally applied nonregulated companies probable regulators permit recovery current costs future rates charged customers costs otherwise would expensed nonregulated companies deferred regulatory assets likewise regulatory liabilities recognized probable regulators require customer refunds future rates revenue collected customers expenditures yet incurred generally regulatory assets liabilities amortized income period authorized regulator asset retirement obligations dominion virginia power recognize aros fair value incurred sufficient information becomes available determine reasonable estimate fair value future retirement activities performed amounts capitalized costs related tangible longlived assets since relevant market information available fair value estimated using discounted cash flow analyses virginia power reports accretion aros associated nuclear decommissioning nuclear power stations due passage time adjustment related regulatory liability certain jurisdictions consistent practice costofservice rate regulated operations dominion virginia power report accretion aros operations maintenance expense consolidated statements income amortization debt issuance costs dominion virginia power defer amortize debt issuance costs debt premiums discounts expected lives respective debt issues considering maturity dates applicable redemption rights held others permitted regulatory authorities gains losses resulting refinancing debt allocable utility operations subject costbased rate regulation also deferred amortized lives new issuances investments marketable equity debt securities dominion accounts classifies investments marketable equity debt securities trading availableforsale securities virginia power classifies investments marketable equity debt securities availableforsale securities  trading securities include marketable equity debt securities held dominion rabbi trusts associated certain deferred compensation plans securities reported investments consolidated balance sheets fair value net realized unrealized gains losses included income consolidated statements income  availableforsale securities include marketable equity debt securities primarily comprised securities held nuclear decommissioning trusts investments reported fair value nuclear decommissioning trust funds consolidated balance sheets net realized unrealized gains losses including otherthantemporary impairments investments held virginia power’s nuclear decommissioning trusts recorded regulatory liability certain jurisdictions subject costbased regulation availableforsale securities including held dominion’s merchant generation nuclear decommissioning trusts net realized gains losses including otherthantemporary impairments included income unrealized gains losses reported component aoci net tax determining realized gains losses marketable equity debt securities cost basis security based specific identification method nonmarketable investments dominion virginia power account illiquid privately held securities market prices quotations readily available either equity cost method nonmarketable investments include  equity method investments dominion virginia power ability exercise significant influence control investee dominion’s investments included investments equity method affiliates virginia power’s investments included investments consolidated balance sheets dominion virginia power record equity method adjustments income consolidated statements income including proportionate share investee income loss gains losses resulting investee capital transactions amortization certain differences carrying value equity net assets investee date investment adjustments required equity method  cost method investments dominion virginia power ability exercise significant influence investee dominion’s virginia power’s investments included investments nuclear decommissioning trust funds otherthantemporary impairment dominion virginia power periodically review investments determine whether decline fair value considered temporary decline fair value security determined temporary security written fair value end reporting period decommissioning trust investmentsspecial considerations  debt securitiesthe fasb amended guidance recognition presentation otherthantemporary impairments dominion virginia power adopted effective april 1 2009 recognition provisions combined notes consolidated financial statements continued guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities prior adoption guidance dominion virginia power considered debt securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired ability ensure investments held anticipated recovery period effective adoption guidance using information obtained nuclear decommissioning trust fixedincome investment managers dominion virginia power record earnings unrealized loss debt security manager intends sell debt security morelikelythannot manager sell debt security recovery fair value cost basis case debt security deemed experienced credit loss companies record credit loss earnings remaining portion unrealized loss comprehensive income credit losses evaluated primarily considering credit ratings issuer prior instances nonperformance issuer factors  equity securities investmentsdominion’s virginia power’s method assessing otherthantemporary declines requires demonstrating ability hold individual securities period time sufficient allow anticipated recovery market value prior consideration criteria mentioned since companies limited ability oversee daytoday management nuclear decommissioning trust fund investments ability ensure investments held anticipated recovery period accordingly consider equity securities well nonmarketable investments held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired inventories materials supplies fossil fuel inventories valued primarily using weightedaverage cost method stored gas inventory used dominion’s ohio gas distribution operations valued using lifo method lifo method stored gas inventory valued 48 million 30 million december 31 2010 2009 respectively based average price gas purchased 2010 2009 cost replacing current portion stored gas inventory exceeded amount stated lifo basis approximately 107 million 172 million respectively stored gas inventory held certain nonregulated gas operations valued using weightedaverage cost method gas imbalances natural gas imbalances occur physical amount natural gas delivered received pipeline system storage facility differs contractual amount natural gas delivered received dominion values imbalances due shippers operators appropriate index price period end subject terms tariff regulated entities imbalances primarily settled inkind imbalances due dominion parties reported current assets imbalances dominion owes parties reported current liabilities consolidated balance sheets goodwill dominion evaluates goodwill impairment annually april 1 whenever event occurs circumstances change interim would morelikelythannot reduce fair value reporting unit carrying amount note 3 newly adopted accounting standards noncontrolling interests consolidated financial statements effective january 1 2009 dominion adopted new accounting guidance noncontrolling interests requires retrospective application presentation disclosure changes including noncontrolling interests reported component equity net income attributable parent noncontrolling interests separately identified income statement discussed note 25 dominion previously consolidated investment subordinated notes thirdparty cdo entity held dci deconsolidated march 31 2008 noncontrolling interest income cdo entity previously reported minority interest dominion’s consolidated statements income operating activities consolidated statements cash flows dominion’s subsidiary preferred dividends previously included interest related charges consolidated statements income operating activities consolidated statements cash flows due application new accounting guidance noncontrolling interests dominion reflects interest previously held cdo entity’s income subsidiary preferred dividends adjustment noncontrolling interests arrive net income attributable dominion consolidated statements income reflects subsidiary preferred dividends financing activities consolidated statements cash flows since dominion’s subsidiary preferred stock qualify permanent equity dominion continues report amounts mezzanine equity consolidated balance sheets recognition presentation otherthantemporary impairments fasb amended guidance recognition presentation otherthantemporary impairments dominion virginia power adopted effective april 1 2009 recognition provisions guidance apply debt securities classified availableforsale heldtomaturity presentation disclosure requirements apply debt equity securities prior adoption guidance described note 2 companies considered debt securities held nuclear decommissioning trusts market values cost bases otherthantemporarily impaired ability ensure investments held anticipated recovery period upon adoption guidance debt investments held april 1 2009 dominion recorded 20 million 12 million aftertax virginia power recorded 3 million 2 million aftertax cumulative effect change accounting principle reclassify noncredit related portion previously recognized otherthantemporary impairments retained earnings aoci reflecting fixedincome investment managers’ intent ability hold debt securities recovery fair values cost bases sec final rule modernization oil gas reporting effective december 31 2009 dominion adopted sec final rule modernization oil gas reporting revised existing regulation sk regulation sx reporting requirements new requirements ceiling test calculated using average price based prior 12month period rather periodend prices due april 2010 sale substantially appalachian ep operations december 31 2010 dominion longer significant gas oil properties subject ceiling test calculation fair value measurements dominion virginia power adopted new fasb guidance effective january 1 2008 defines fair value establishes framework measuring fair value expands disclosures related fair value measurements guidance applies broadly financial nonfinancial assets liabilities measured fair value authoritative accounting pronouncements expand application fair value accounting new circumstances generally provisions guidance applied prospectively certain situations however required retrospective application beginning year adoption recognition cumulative effect accounting change retrospective application required financial instruments including derivatives certain hybrid instruments limitations initial gains losses retrospective application resulted immaterial amount recognized cumulative effect accounting change adjustment retained earnings january 1 2008 dominion adjustment virginia power see note 7 information fair value measurements endorsement splitdollar life insurance arrangements effective january 1 2008 dominion adopted new accounting guidance deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements guidance specifies employer provides benefit employee endorsement splitdollar life insurance arrangement extends postretirement periods recognize liability future benefits based substantive agreement employee dominion’s adoption guid ance resulted immaterial amount recognized cumulative effect accounting change adjustment retained earnings january 1 2008 note 4 dispositions sale appalachian ep operations april 2010 dominion completed sale substantially appalachian ep operations newlyformed subsidiary consol approximately 35 billion transaction includes mineral rights approximately 491000 acres marcellus shale formation dominion retained certain oil natural gas wells located near natural gas storage fields transaction generated aftertax proceeds approximately 22 billion resulted aftertax gain approximately 14 billion includes 134 million writeoff goodwill proceeds sale used pay taxes gain offset dominion’s equity needs 2010 expected market equity issuance needs 2011 repurchase common stock fund contributions dominion’s pension plans dominion foundation reduce debt offset majority impact virginia power’s 2009 base rate case settlement results operations dominion’s appalachian ep business reported discontinued operations consolidated statements income since dominion sell entire us cost pool due sale hedge accounting discontinued certain cash flow hedges since became probable forecasted sales gas would occur connection discontinuance hedge accounting contracts dominion recognized 42 million 25 million aftertax benefit recorded operating revenue consolidated statement income reflecting reclassification gains aoci earnings contracts march 2010 sale peoples february 2010 dominion completed sale peoples png companies llc netted aftertax proceeds approximately 542 million sale resulted aftertax loss approximately 140 million including postclosing adjustments 79 million writeoff goodwill sale also resulted aftertax expenses approximately 27 million including transaction benefitrelated costs prior sale peoples income operations 12 million aftertax 2010 prior march 31 2010 dominion report peoples discontinued operations since expected significant continuing cash flows related primarily sale natural gas production appalachian ep operations peoples due sale appalachian ep operations dominion significant continuing cash flows peoples therefore results peoples reclassified discontinued operations consolidated statements income periods presented certain 2009 2008 amounts recast reflect peoples discontinued operations combined notes consolidated financial statements continued carrying amounts major classes assets liabilities classified held sale dominion’s consolidated balance sheets follows following table presents selected information regarding results operations peoples reported discontinued operations dominion’s consolidated statements income 1 year ended december 31 2008 includes 47 million benefit related reestablishment certain regulatory assets expected recovered future rates terms sale agreement year ended december 31 2009 includes impact 22 million charge due reduction previously established regulatory asset 2 includes loss charges related sale peoples note 5 operating revenue dominion’s virginia power’s operating revenue consists following note 6 income taxes judgment use estimates required developing provision income taxes reporting taxrelated assets liabilities interpretation tax laws involves uncertainty since tax authorities may interpret laws differently dominion virginia power routinely audited federal state tax authorities ultimate resolution income tax matters may result favorable unfavorable impacts net income cash flows adjustments taxrelated assets liabilities could material 2010 us federal legislation enacted allows taxpayers fully deduct qualifying capital expenditures incurred september 8 2010 end 2011 placed service 2013 otherwise provides extension fifty percent bonus depreciation allowance qualifying capital expenditures 2012 however uncertainty earliest date construction property taxpayer could begun order qualify full deduction qualifying capital expenditures clarifying guidance expected us treasury department 2011 dominion virginia power income taxes payable reduced deferred tax liabilities increased 2010 result claiming benefits continuing operations details income tax expense continuing operations including noncontrolling interests follows continuing operations including noncontrolling interests statutory us federal income tax rate reconciles dominion’s virginia power’s effective income tax rate follows dominion’s virginia power’s effective tax rates 2010 reflect reductions deferred tax assets 57 million 17 million respectively resulting enactment patient protection affordable care act health care education affordability reconciliation act 2010 eliminated employer’s deduction beginning 2013 portion retiree prescription drug coverage cost reimbursed medicare part subsidy addition dominion’s effective tax rate 2010 includes higher state income taxes impact goodwill written deductible tax purposes associated sale appalachian ep operations dominion’s virginia power’s effective tax rates 2009 reflect reduction uncertainties regarding calculation domestic production activities deduction result working irs prefiling program objective prefiling program provide taxpayers greater certainty regarding specific issue earlier point time attained normal postfiling examination process deferred income taxes reflect net tax effects temporary differences carrying amounts assets liabilities financial reporting purposes amounts used income tax purposes companies’ deferred income taxes consist following december 31 2010 dominion following loss credit carryforwards  federal loss carryforwards 38 million expire unutilized period 2014 2021  state loss carryforwards 840 million expire unutilized period 2011 2030 valuation allowance 701 million carryforwards established  state minimum tax credits 94 million expire loss credit carryforwards virginia power december 31 2010 positions taken entity income tax returns recognized financial statements must satisfy morelikelythannot recognition threshold assuming position examined tax authorities full knowledge relevant information amount tax return positions recognized financial statements disclosed unrecognized tax benefits unrecognized tax benefits may impact combined notes consolidated financial statements continued financial statements increasing income taxes payable reducing tax refunds receivable changing deferred taxes also uncertainty deductibility amount limited timing deductibility increase taxes payable reduction tax refunds receivable accompanied decrease deferred tax liabilities reconciliation changes companies’ unrecognized tax benefits follows certain unrecognized tax benefits portions thereof recognized would affect effective tax rate changes unrecognized tax benefits may result claims tax benefits portions thereof may realized remeasurement amounts expected realized settlements tax authorities expiration statutes limitation dominion subsidiaries unrecognized tax benefits 133 million 95 million 121 million december 31 2010 2009 2008 respectively dominion change unrecognized tax benefits increased income tax expense 38 million 2010 decreased income tax expense 26 million 2009 increased tax expense 25 million 2008 virginia power unrecognized tax benefits 14 million 14 million 21 million december 31 2010 2009 2008 respectively virginia power change unrecognized tax benefits increased income tax expense less 1 million 2010 decreased income tax expense 7 million 2009 increased income tax expense 13 million 2008 substantial amount dominion’s virginia power’s unrecognized tax benefits balances december 31 2010 represents tax positions ultimate deductibility highly certain however uncertainty timing deductibility uncertainty deductibility amounts limited timing deductibility tax liabilities recognized prior periods would subject offset availability refundable amounts later periods deductions could otherwise taken prior year unrecognized tax benefits involved uncertainty whether amounts deductible ordinary deductions capital losses pending resolution uncertainties interest accrued period amounts would become deductible dominion subsidiaries us federal statute limitations expired years prior 2004 except right pursue refunds related certain deductions reserved years 1995 2003 2010 irs began examination dominion’s consolidated tax returns tax years 2006 2007 dominion began settlement negotiations appellate division irs regarding adjustments proposed examination consolidated tax returns 2004 2005 two tax positions dominion reserve right litigate pursue claims refunds dominion irs agreed resolution issues 2004 2005 settlement subject review joint committee september 2010 appellate division irs informed dominion joint committee approved settlement tax years 2002 2003 dominion consolidated subsidiaries dominion received refund 54 million november 2010 settlement excludes two issues dominion reserved right litigate pursue claims refunds 2009 joint committee completed review dominion’s settlement appellate division irs tax years 1999 2001 dominion entitled 60 million refund 20 million applied estimated payment 2009 taxes 40 million paid dominion october 2009 addition dominion received 5 million refund 1998 due loss carryback adjustments virginia power entitled 39 million refund 20 million applied estimated payment 2009 taxes 19 million paid virginia power october 2009 refunds impact earnings examinations tax authorities 2011 reasonably possible dominion tax authorities could agree apply procedures used previously resolve similar tax return filing positions reducing dominion’s unrecognized tax benefits 50 million 70 million virginia power’s unrecognized tax benefits 30 million 35 million dominion’s unrecognized tax benefits could also reduced 15 million including 5 million virginia power recognize prior period amounts becoming otherwise deductible 2011 changes occur revisions accrual interest tax underpayments overpayments dominion’s earnings could increase 25 million material impact virginia power’s earnings otherwise regard 2010 prior years dominion virginia power cannot estimate range reasonably possible changes unrecognized tax benefits may occur 2011 major states dominion operates earliest tax year remaining open examination follows 1 virginia state considered major virginia power’s operations dominion virginia power also obligated report adjustments resulting irs settlements state tax authorities addition dominion utilizes state net operating losses tax credits generated years statute limitations expired amounts subject examination discontinued operations income tax expense 2010 dominion’s discontinued operations primarily reflects impact goodwill written sale peoples deductible tax purposes reversal deferred taxes benefit offset reversal income taxrelated regulatory assets income tax expense 2008 dominion’s discontinued operations reflects reversal 120 million deferred tax liabilities recognized 2006 associated excess financial reporting basis tax basis stock peoples 2006 based terms previous agreement sell peoples dominion recognized deferred tax liabilities since difference financial reporting basis tax basis stock subsidiaries expected reverse upon closing sale january 2008 dominion agreed terminate agreement sale peoples hope time based expectation form future disposal subsidiaries would structured taxable gain would instead determined reference basis subsidiaries’ underlying assets dominion reversed related deferred tax liabilities recognized 2006 dominion executed new agreement july 2008 sell peoples hope decided december 2009 sell peoples dominion determined taxable gain reference basis subsidiary’s underlying assets note 7 fair value measurements described note 3 dominion virginia power adopted new fasb guidance fair value measurements effective january 1 2008 fair value defined price would received sell asset paid transfer liability exit price orderly transaction market participants measurement date however use midmarket pricing convention midpoint bid ask prices permitted fair values based assumptions market participants would use pricing asset liability including assumptions risk risks inherent valuation techniques inputs valuations includes credit standing counterparties involved impact credit enhancements also impact dominion’s virginia power’s nonperformance risk liabilities fair value measurements assume transaction occurs principal market asset liability market volume activity asset liability perspective reporting entity absence principal market advantageous market asset liability market reporting entity would able maximize amount received minimize amount paid dominion virginia power apply fair value measurements certain assets liabilities including commodity interest rate derivative instruments nuclear decommissioning trust investments including held dominion’s rabbi pension postretirement benefit plan trusts accordance requirements described companies apply credit adjustments derivative fair values accordance requirements described credit adjustments currently material derivative fair values companies maximize use observable inputs minimize use unobservable inputs measuring fair value fair value based activelyquoted market prices available absence activelyquoted market prices seek price information external sources including broker quotes industry publications evaluating pricing information provided brokers pricing services consider whether broker willing able trade quoted price broker quotes based active market inactive market extent brokers utilizing particular model pricing readily available pricing information external sources available companies believe observable pricing indicative fair value judgment required develop estimates fair value cases must estimate prices based available historical nearterm future price information certain statistical methods including regression analysis reflect market assumptions options contracts optionlike characteristics observable pricing information available external sources companies generally use modified blackscholes model considers time value volatility underlying commodities relevant assumptions estimating fair value companies use option models special circumstances including spread approximation model contracts include different commodities commodity locations swing option model contracts allow either buyer seller ability exercise within range quantities contracts unique characteristics companies may estimate fair value using discounted cash flow approach deemed appropriate circumstances applied consistently period individual contracts use different valuation models assumptions could significant effect contract’s estimated fair value inputs assumptions used measuring fair value include following commodity foreign currency derivative contracts  forward commodity prices  forward foreign currency prices  price volatility  volumes  commodity location  interest rates  credit quality counterparties dominion virginia power  credit enhancements  time value interest rate derivative contracts  interest rate curves  credit quality counterparties dominion virginia power  credit enhancements  time value combined notes consolidated financial statements continued investments  quoted securities prices  securities trading information including volume restrictions  maturity  interest rates  credit quality  nav alternative investments dominion virginia power regularly evaluate validate inputs used estimate fair value number methods including review verification models well various market price verification procedures use pricing services multiple broker quotes support market price various commodities investments companies transact companies also utilize following fair value hierarchy prioritizes inputs valuation techniques used measure fair value three broad levels  level 1quoted prices unadjusted active markets identical assets liabilities ability access measurement date instruments categorized level 1 primarily consist financial instruments majority exchangetraded derivatives exchangelisted equities mutual funds certain treasury securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 2inputs quoted prices included within level 1 either directly indirectly observable asset liability including quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities inactive markets inputs quoted prices observable asset liability inputs derived observable market data correlation means instruments categorized level 2 primarily include nonexchange traded derivatives overthecounter commodity forwards swaps interest rate swaps foreign currency forwards options certain treasury securities money market funds corporate state municipal debt securities held nuclear decommissioning trust funds dominion virginia power rabbi benefit plan trust funds dominion  level 3unobservable inputs asset liability including situations little market activity asset liability instruments categorized level 3 dominion virginia power consist longdated commodity derivatives ftrs modeled commodity derivatives additional instruments categorized level 3 dominion include ngls natural gas peaking options alternative investments consisting investments partnerships joint ventures alternative investments held benefit plan trust funds fair value hierarchy gives highest priority quoted prices active markets level 1 lowest priority unobservable data level 3 cases inputs used measure fair value might fall different levels fair value hierarchy cases lowest level input significant fair value measurement entirety determines appli cable level fair value hierarchy assessing significance particular input fair value measurement entirety requires judgment considering factors specific asset liability fair value measurements categorized level 3 significant amount price inputs considered unobservable used valuations longdated commodity derivatives generally based unobservable inputs due length time settlement absence market activity therefore categorized level 3 ngl derivatives market illiquidity requires valuation based proxy markets always correlate actual instrument therefore categorized level 3 ftrs categorized level 3 fair value measurements relevant pricing available comes iso auctions accurate dayone valuation generally considered representative ultimate settlement values modeled commodity derivatives unobservable inputs valuation mostly due nontransparent illiquid markets alternative investments categorized level 3 due absence quoted market prices illiquidity longterm nature assets investments generally valued using nav based proportionate share fair value determined reference recent audited fair value financial statements fair value statements provided investment manager adjusted significant events occurring investment manager’s companies’ measurement date derivative contracts dominion virginia power recognize transfers among level 1 level 2 level 3 based fair values first day month transfer occurs transfers level 3 represent assets liabilities previously classified level 3 inputs became observable classification either level 1 level 2 activity liquidity commodity markets vary substantially regions time periods availability observable inputs substantially full term value companies’ overthecounter derivative contracts subject change december 31 2010 dominion’s virginia power’s net balance commodity derivatives categorized level 3 fair value measurements net liability 50 million net asset 14 million respectively hypothetical 10 increase commodity prices would increase dominion’s net liability 69 million decrease virginia power’s net asset 2 million hypothetical 10 decrease commodity prices would decrease dominion’s net liability 66 million increase virginia power’s net asset 2 million nonrecurring fair value measurements partnership investments held virginia power’s nuclear decommissioning trust funds dominion’s rabbi trust funds accounted cost method investments subject fair value measurement nonrecurring basis experienced impairment categorized level 3 fair value measurements 2009 substantially partnership investments experienced impairments 2010 partnership investments experience material impairments therefore nonrecurring fair value measurements occurred connection partnership investments dominion virginia power limited partner make capital commitments called time general partner makes investments investment strategies companies’ partnership investments primarily real estate private equitybased typical term partnership investments 1015 years companies limited withdrawal redemption rights term partnership general rule limited partner’s interest sold secondary markets subject approval general partner secondary market tends illiquid especially periods market stress funds returned dominion virginia power income profits capital distributed term partnership presented fair values unfunded commitments estimated liquidation periods partnership investments held virginia power’s decommissioning trust funds dominion’s rabbi trust funds december 31 2009 dominion evaluated equity method investment impairment recorded 30 million impairment income consolidated statement income resulting fair value 4 million estimated using discounted cash flow model considered level 3 fair value measurement due use significant unobservable inputs related timing amount future equity distributions based investee’s future financing structure contractual marketbased revenues operating costs 2010 dominion evaluated state line coalfired merchant power station minimal environmental controls impairment due station’s relatively low level profitability combined epa’s issuance june 2010 new stringent 1hour primary naaqs so2 likely require significant environmental capital expenditures future result evaluation dominion recorded impairment charge 163 million 107 million aftertax operations maintenance expense consolidated statement income write state line’s longlived assets estimated fair value 59 million management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion relied income approach discounted cash flows estimate fair value state line’s longlived assets considered level 3 fair value measurement due use significant unobservable inputs including estimates future power commodity prices december 2010 dominion recorded impairment charge 31 million 20 million aftertax operations maintenance expense consolidated statement income write longlived assets salem harbor estimated fair value less 1 million result profitability issues management aware recent market transactions comparable assets sufficient transparency develop market approach fair value dominion relied income approach estimate fair value salem harbor’s longlived assets considered level 3 fair value measurement due use significant unobservable inputs including estimates future power commodity prices recurring fair value measurements fair value measurements separately disclosed level within fair value hierarchy separate reconciliation fair value measurements categorized level 3 fair value disclosures assets held dominion’s pension postretirement benefit plans presented note 22 combined notes consolidated financial statements continued dominion following table presents dominion’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning rabbi trusts following table presents net change dominion’s assets liabilities measured fair value recurring basis included level 3 fair value category 1 represents derivative assets liabilities presented net basis following table presents dominion’s gains losses included earnings level 3 fair value category virginia power following table presents virginia power’s assets liabilities measured fair value recurring basis hierarchy level including current noncurrent portions 1 includes investments held nuclear decommissioning trusts following table presents net change virginia power’s assets liabilities measured fair value recurring basis included level 3 fair value category 1 represents derivative assets liabilities presented net basis gains losses included earnings level 3 fair value category including attributable change unrealized gains losses relating assets still held reporting date classified electric fuel energyrelated purchases expense virginia power’s consolidated statements income years ended december 31 2010 2009 2008 fair value financial instruments substantially dominion’s virginia power’s financial instruments recorded fair value exception instruments described reported historical cost estimated fair values determined using available market information valuation methodologies considered appropriate management carrying amount cash equivalents customer receivables shortterm debt accounts payable representative fair value shortterm nature instruments dominion’s virginia power’s financial instruments recorded fair value carrying amounts fair values follows 1 fair value estimated using market prices available interest rates currently available issuance debt similar terms combined notes consolidated financial statements continued remaining maturities carrying amount debt issues shortterm maturities variable rates refinanced current market rates reasonable estimate fair value 2 includes amounts represent unamortized discount premium december 31 2010 2009 includes valuation certain fair value hedges associated dominion’s fixed rate debt approximately 49 million 23 million respectively 3 includes issuance expenses 2 million december 31 2010 2009 note 8 derivatives hedge accounting activities dominion virginia power exposed impact market fluctuations price electricity natural gas energyrelated products market purchase well currency exchange interest rate risks business operations companies use derivative instruments manage exposure risks designate certain derivative instruments fair value cash flow hedges accounting purposes discussed note 2 jurisdictions subject costbased rate regulation changes fair value derivatives deferred regulatory assets regulatory liabilities related transactions impact earnings see note 7 information fair value measurements associated valuation methods derivatives dominion following table presents volume dominion’s derivative activity december 31 2010 volumes based open derivative positions represent combined absolute value long short positions except case offsetting deals represent absolute value net volume long short positions 1 includes options 2 includes ngls oil selected information dominion’s hedge accounting activities follows 1 year ended december 31 2010 includes 1 million recorded purchased gas 4 million recorded operating revenue dominion’s consolidated statement income year ended december 31 2009 includes 5 million recorded purchased gas 1 million recorded operating revenue dominion’s consolidated statement income 2 year ended december 31 2010 includes 3 million recorded purchased gas 2 million recorded operating revenue dominion’s consolidated statement income 3 amounts excluded measurement ineffectiveness related cash flow hedges years ended december 31 2010 2009 2008 material 4 year ended december 31 2009 includes 22 million recorded operating revenue 1 million recorded electric fuel energyrelated purchases dominion’s consolidated statement income following table presents selected information related gains losses cash flow hedges included aoci dominion’s consolidated balance sheet december 31 2010 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated sales earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates sale majority dominion’s remaining ep operations resulted discontinuance hedge accounting certain cash flow hedges discussed note 4 addition changes dominion’s financing needs first second quarters 2010 resulted discontinuance hedge accounting certain cash flow hedges since determined forecasted interest payments would occur connection discontinuance hedge accounting contracts dominion recognized benefit recorded interest related charges reflecting reclassification gains aoci earnings 110 million 67 million aftertax 2010 reclassification gains aoci earnings partially offset subsequent changes fair value contracts 37 million 23 million aftertax 2010 fair value gains losses derivative instruments following tables present fair values dominion’s derivatives presented consolidated balance sheets 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheet 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheet 1 noncurrent derivative assets presented deferred charges assets dominion’s consolidated balance sheet 2 noncurrent derivative liabilities presented deferred credits liabilities dominion’s consolidated balance sheet following tables present gains losses dominion’s derivatives well associated activity presented consolidated balance sheets statements income combined notes consolidated financial statements continued 1 amounts deferred aoci associated effect dominion’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 3 amounts recorded dominion’s consolidated statements income classified interest related charges 4 amounts recorded dominion’s consolidated statements income classified electric fuel energyrelated purchases 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect dominion’s consolidated statements income 2 amounts recorded dominion’s consolidated statements income classified interest related charges virginia power following table presents volume virginia power’s derivative activity december 31 2010 volumes based open derivative positions represent combined absolute value long short positions except case offsetting deals represent absolute value net volume long short positions years ended december 31 2010 2009 2008 gains losses hedging instruments determined ineffective amounts excluded assessment effectiveness material amounts excluded assessment effectiveness include gains losses attributable time value options changes differences spot prices forward prices following table presents selected information related gains losses cash flow hedges included aoci virginia power’s consolidated balance sheet december 31 2010 amounts reclassified aoci earnings generally offset recognition hedged transactions eg anticipated interest payments earnings thereby achieving realization prices contemplated underlying risk management strategies vary expected amounts presented result changes market prices interest rates fair value gains losses derivative instruments following tables present fair values virginia power’s derivatives presented consolidated balance sheets 1 current derivative liabilities presented current liabilities virginia power’s consolidated balance sheet 2 noncurrent derivative liabilities presented deferred credits liabilities virginia power’s consolidated balance sheet 3 noncurrent derivative assets presented deferred charges assets virginia power’s consolidated balance sheet combined notes consolidated financial statements continued following tables present gains losses virginia power’s derivatives well associated activity presented consolidated balance sheets statements income 1 amounts deferred aoci associated effect virginia power’s consolidated statements income 2 represents net derivative activity deferred amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges 4 amounts recorded virginia power’s consolidated statements income classified electric fuel energyrelated purchases 1 includes derivative activity amortized regulatory assetsliabilities amounts deferred regulatory assetsliabilities associated effect virginia power’s consolidated statements income 2 amounts recorded electric fuel energyrelated purchases virginia power’s consolidated statements income 3 amounts recorded virginia power’s consolidated statements income classified interest related charges note 9 earnings per share following table presents calculation dominion’s basic diluted eps 1 potentially dilutive securities consist options goalbased stock contingently convertible senior notes potentially dilutive securities right acquire approximately 12 million common shares year ended december 31 2009 included calculation diluted eps exercise purchase prices instruments greater average market price dominion’s common shares potentially dilutive securities excluded calculation diluted eps years ended december 31 2010 2008 note 10 investments dominion equity debt securities rabbi trust securities marketable equity debt securities cash equivalents held dominion’s rabbi trusts classified trading totaled 93 million 96 million december 31 2010 2009 respectively net unrealized gains trading securities totaled 5 million 11 million 2010 2009 respectively net unrealized losses trading securities totaled 26 million 2008 costmethod investments held dominion’s rabbi trusts totaled 18 million 17 million december 31 2010 2009 respectively decommissioning trust securities dominion holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants dominion’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes pending purchases securities 43 million december 31 2010 includes pending sales securities 11 million december 31 2009 3 fair value securities unrealized loss position 252 million 169 million december 31 2010 2009 respectively fair value dominion’s marketable debt securities held nuclear decommissioning trust funds december 31 2010 contractual maturity follows presented selected information regarding dominion’s marketable equity debt securities held nuclear decommissioning trust funds 1 increase proceeds primarily reflects replacement commingled funds actively managed portfolios include 1 billion pro combined notes consolidated financial statements continued ceeds reflected dominion’s consolidated statement cash flows sale temporary investments consisting time deposits treasury bills purchased following sale substantially dominion’s appalachian ep operations 2 increase proceeds primarily reflects changes asset allocation liquidation positions connection changes fund managers 3 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 dominion recorded otherthantemporary impairment losses investments held nuclear decommissioning trust funds follows 1 amounts include otherthantemporary impairment losses debt securities 10 million 13 million 28 million december 31 2010 2009 2008 respectively equity method investments dominion accounts equity method accounting follows 1 september 2009 dominion received 123 million distribution fowler ridge based proceeds received connection nonrecourse permanent financing first phase project dominion’s equity earnings investments totaled 42 million 2010 2009 52 million 2008 excluding 2009 distribution fowler ridge dominion received distributions investments 60 million 63 million 12 million 2010 2009 2008 respectively december 31 2010 2009 carrying amount dominion’s investments exceeded dominion’s share underlying equity net assets approximately 7 million 19 million respectively excluding impairment losses discussed differences relate dominion’s investments wind projects primarily reflect capitalized interest construction excess cash contributions book value development assets contributed dominion’s partners projects differences generally amortized useful lives underlying assets 2009 dominion recognized total impairment losses 30 million connection decline estimated fair value one equity method investments discussed note 7 2008 dominion recognized 7 million gain sale one equity method investments virginia power virginia power holds marketable equity debt securities classified availableforsale cash equivalents cost method investments nuclear decommissioning trust funds fund future decommissioning costs nuclear plants virginia power’s decommissioning trust funds summarized 1 included aoci decommissioning trust regulatory liability discussed note 2 includes pending purchases securities 35 million december 31 2010 includes pending sales securities 6 million december 31 2009 3 fair value securities unrealized loss position 159 million 88 million december 31 2010 2009 respectively fair value virginia power’s debt securities december 31 2010 contractual maturity follows presented selected information regarding virginia power’s marketable equity debt securities 1 increase proceeds primarily reflects replacement commingled funds actively managed portfolios 2 increase proceeds primarily reflects changes asset allocation liquidation positions connection changes fund managers 3 includes realized gains losses recorded decommissioning trust regulatory liability discussed note 2 virginia power recorded otherthantemporary impairment losses investments follows 1 amounts include otherthantemporary impairment losses debt securities 6 million 7 million 5 million december 31 2010 2009 2008 respectively investments dominion virginia power hold restricted cash equivalent balances primarily consist money market fund investments held trust purpose funding certain qualifying construction projects december 31 2010 2009 dominion 415 million 18 million respectively virginia power 169 million 4 million respectively restricted cash equivalents balances presented current assets investments consolidated balance sheets note 11 property plant equipment major classes property plant equipment respective balances companies follows costs unproved properties capitalized full cost method accounting excluded amortization december 31 2010 2009 material significant ep properties development defined sec excluded amortization december 31 2010 2009 combined notes consolidated financial statements continued volumetric production payment transactions 2007 conjunction sale dominion’s nonappalachian ep operations dominion paid 250 million terminate existing vpp agreements retained vpp royalty interests formerly associated agreements production vpp royalty interests declined significantly 2009 reflecting expiration interests february 2009 assignment marcellus acreage 2008 dominion completed transaction antero assign drilling rights approximately 117000 acres marcellus shale formation located west virginia pennsylvania dominion received proceeds approximately 347 million net proceeds credited dominion’s full cost pool reducing property plant equipment consolidated balance sheet transaction significantly alter relationship capitalized costs proved reserves natural gas oil agreement dominion received 75 overriding royalty interest future natural gas production assigned acreage retained drilling rights traditional formations marcellus shale however result sale substantially dominion’s appalachian ep operations overriding royalty interest transferred consol jointlyowned power stations dominion’s virginia power’s proportionate share jointlyowned power stations december 31 2010 follows 1 station jointly owned virginia power 2 unit jointly owned dominion coowners obligated pay share future construction expenditures operating costs jointlyowned facilities proportion respective ownership interest dominion virginia power report share operating costs appropriate operating expense electric fuel energyrelated purchases operations maintenance depreciation depletion amortization taxes etc consolidated statements income note 12 goodwill intangible assets goodwill february 2010 dominion completed sale peoples png companies llc netted aftertax proceeds approximately 542 million sale resulted aftertax loss approximately 140 million included 79 million writeoff goodwill april 2010 dominion completed sale substantially appalachian ep operations newlyformed subsidiary consol approximately 35 billion transaction resulted aftertax gain approximately 14 billion included 134 million writeoff goodwill december 2009 dominion made decision retain hope include east ohio dominion’s gas distribution business within dominion energy segment goodwill allocated corporate segment dominion energy segment based relative fair values hope peoples remained heldforsale within dominion corporate segment dominion perform interim impairment test 2009 events occurred would morelikelythannot reduce reporting units’ fair values carrying values changes dominion’s carrying amount segment allocation goodwill presented 1 goodwill amounts contain accumulated impairment losses intangible assets dominion’s virginia power’s intangible assets subject amortization estimated useful lives dominion’s amortization expense intangible assets 107 million 155 million 95 million 2010 2009 2008 respectively 2010 dominion acquired 61 million intangible assets primarily representing software emissions allowances estimated weightedaverage amortization periods approximately 5 years 1 year respectively amortization expense virginia power’s intangible assets 26 million 26 million 28 million 2010 2009 2008 respectively 2010 virginia power acquired 20 million intangible assets primarily representing software estimated weightedaverage amortization period 5 years components intangible assets follows annual amortization expense intangible assets estimated follows note 13 regulatory assets liabilities regulatory assets liabilities include following 1 primarily reflects deferred fuel expenses virginia jurisdiction virginia power’s generation operations net 63 million damages awarded virginia power spent nuclear fuel costs june 30 2006 returned customers yet received see notes 14 23 information combined notes consolidated financial statements continued 2 reflects deferrals electric transmission ferc formula rate deferral transmissionrelated costs associated rider see note 14 information 3 pipp eligible customers receive energy assistance based ability pay difference customer’s total bill pipp plan amount deferred collected annually pipp rider according east ohio tariff provisions see note 14 information regarding pipp 4 reflects unrecovered gas costs dominion’s regulated gas operations recovered quarterly annual filings applicable regulatory authority 5 amounts recovered annual surcharge reimburse virginia power incremental sales taxes incurred due repeal public service company sales tax exemption virginia 6 represents unrecognized pension postretirement benefit costs expected recovered future rates certain dominion’s rateregulated subsidiaries 7 amounts recovered future rates pay income taxes become payable rate revenue provided recover afudcequity depreciation property plant equipment deferred income taxes recognized ratemaking purposes including amounts attributable tax rate changes 8 costs recognized excess amounts included regulated rates charged dominion’s regulated gas operations rates updated reflect change accounting method postretirement benefit costs cost related accrued benefit obligation recognized part accounting dominion’s acquisition cng 9 reflects reserve associated settlement virginia power’s 2009 base rate case proceedings see note 14 information 10 primarily reflects regulatory liability representing amounts collected virginia jurisdictional customers placed external trusts including income losses changes fair value thereon future decommissioning virginia power’s utility nuclear generation stations excess related aro 11 rates charged customers companies’ regulated businesses include provision cost future activities remove assets expected incurred time retirement 12 discussed derivative instruments note 2 jurisdictions subject costbased rate regulation changes fair value derivative instruments result recognition regulatory assets regulatory liabilities expected recovered refunded customers december 31 2010 approximately 81 million dominion’s 22 million virginia power’s regulatory assets represented past expenditures currently earn return dominion’s expenditures primarily include unrecovered gas costs expenditures expected recovered within next two years note 14 regulatory matters following discussion dominion’s virginia power’s pending regulatory matters electric regulation virginia prior regulation act significantly changed electricity regulation virginia power’s virginia jurisdictional base rates capped 1999 levels december 31 2010 time virginia convert retail competition electric supply service regulation act ended capped rates two years early december 31 2008 time retail competition made available individual retail customers demand 5 mw nonresidential retail customers obtain virginia commission approval aggregate load reach 5 mw threshold individual retail customers also permitted purchase renewable energy competitive suppliers incumbent electric utility offer 100 renewable energy tariff regulation act also authorizes standalone rate adjustment clauses recovery costs new generation projects fercapproved transmission costs environmental compliance conservation energy efficiency programs renewable energy programs regulation act provides enhanced returns capital expenditures specific new generation projects including limited nuclear generation clean coalcarbon capture compatible generation renewable generation projects regulation act also continues statutory provisions directing virginia power file annual fuel cost recovery cases virginia commission pursuant regulation act virginia commission entered order january 2009 initiating 2009 base rate review connection 2009 base rate review virginia power submitted base rate filings accompanying schedules virginia commission 2009 february 2010 virginia power filed revised stipulation recommendation virginia commission support interested parties including staff virginia commission virginia power’s fourth quarter 2009 results included charge 782 million 477 million aftertax representing best estimate time probable outcome 2009 base rate review march 2010 virginia commission issued virginia settlement approval order concluded 2009 base rate review resolved open issues relating virginia power’s fuel factor rider roe issue relating riders r c1 c2 also resolved virginia settlement approval order included following provisions credits 2008 revenues  credits customers 400 million virginia power’s 2008 revenues applied base rates rider charges base rates  change virginia power’s base rates existence prior september 1 2009 december 1 2013 unless emergency rate relief warranted statute  refund increased revenues collected interim base rates since september 1 2009  roe 119 inclusive performance incentive 60 basis points use virginia commission’s assessment upcoming biennial rate review virginia power’s earnings ftr credits  credits customers 129 million inclusive carrying charge relating revenues ftrs period july 1 2007 june 30 2009 generation riders r  roe 123 inclusive 100 basis point statutory enhancement 2010 rate year transmission rider  waiver recovery effective january 1 2011 deferred rto startup administrative costs amount 197 million including carrying charges previously approved recovery rider dsm riders c1 c2  roe 113 2010 rate year commencing 2011 virginia commission conduct biennial reviews virginia power’s base rates terms conditions biennial review 2009 base rate review virginia power’s authorized roe lower average reported less majority comparable utilities within southeastern us certain limitations described regulation act virginia power’s earnings 50 basis points authorized level earnings shared customers virginia power previously filed virginia commission application approval cost recovery eleven dsm programs including one peakshaving program ten energy efficiency programs virginia power plans use dsm along traditional renewable supplyside resources meet projected load growth next 15 years dsm programs provide first steps toward achieving virginia’s goal reducing 2022 electric energy consumption virginia power’s retail customers ten percent consumed 2006 march 2010 virginia commission approved recovery approximately 28 million five dsm programs initiation riders c1 c2 effective may 1 2010 respect six dsm programs approval sought virginia commission made finding public interest time allowed virginia power opportunity evaluation similar programs july 2010 virginia power submitted annual update filing riders c1 c2 respect five approved dsm programs proposed revenue requirements riders c1 c2 approximately 6 million 18 million respectively together represent decrease approximately 5 million compared revenue requirements included riders c1 c2 customer rates currently effect february 2011 evidentiary hearing held virginia commission virginia power’s update riders c1 c2 virginia commission required issue order march 30 2011 virginia power plans seek virginia commission approval several dsm programs 2011 connection bear garden virginia city hybrid energy center projects june 2010 virginia power filed annual updates riders r respectively virginia commission initially virginia power proposed approximately 86 million revenue requirement rider r april 1 2011 march 31 2012 rate year due application accelerated tax depreciation provisions small business jobs act 2010 passed september 2010 virginia power revised requested revenue requirement rider r november 2010 86 million 78 million adjusted 78 million revenue requirement represents increase approximately 14 million revenue requirement associated rider r customer rates currently effect proposed rider revenue requirement effective april 1 2011 rate year ending march 31 2012 approximately 200 million represents increase 46 million revenue requirement associated rider customer rates currently effect roe included rider filings 123 consistent terms virginia settlement approval order july 2010 virginia commission issued orders respect riders r adopted placeholder roe 113 including 100 basis point statutory enhancement use roe determined context virginia power’s upcoming biennial review evidentiary hearings held virginia commission riders r december november 2010 respectively virginia commission required issue orders proceedings march 30 2011 respect virginia power’s costs transmission service june 2010 virginia commission approved virginia power’s annual update rider effective september 1 2010 reflecting revenue requirement approximately 338 million recommended virginia commission staff agreed virginia power 338 million revenue requirement reflects increase approximately 118 million previous revenue requirement april 2010 virginia power filed virginia fuel factor application virginia commission application requested annual decrease fuel expense recovery approximately 82 million period july 1 2010 june 30 2011 proposed fuel factor went effect july 1 2010 interim basis evidentiary hearing virginia power’s application held september 2010 october 2010 virginia commission issued final order approving reduction virginia power’s fuel factor proposed application virginia commission’s future rate decisions including actions relating virginia power’s upcoming biennial review rate adjustment clause filings differ materially virginia power’s expectations could adversely affect results operations financial condition cash flows north carolina regulation virginia power’s north carolina base rates subject fiveyear base rate moratorium effective april 2005 fuel rates continued subject annual fuel rate adjustments deferred fuel accounting underrecoveries fuel costs february 2010 preparation end fiveyear base rate moratorium virginia power filed application increase base rates adjust fuel rates virginia power’s application included proposal recover proportionately purchased power energy costs fuel rates adjusted annually instead recovered base rates august 2010 virginia power filed annual application change fuel rates updated fuel application february 2010 reflect proposed decrease approximately 28 million compared current fuel rates also august 2010 virginia power updated base rate application seek 27 million increase instead 29 million originally proposed september 2010 parties base rate fuel case except one oppose settlement filed agreement stipulation settlement requested approval north carolina commission december 2010 north carolina commission issued north carolina settlement approval order north carolina settlement approval order authorizes increase base revenues approximately 8 million oneyear decrease combined fuel revenues approximately 32 million compared revenues produced combined notes consolidated financial statements continued current rates addition north carolina settlement approval order permits recovery fuel rates 85 net energy costs power purchases pjm wholesale suppliers nonutility generators subject economic dispatch provide actual cost data north carolina settlement approval order authorizes roe 107 capital structure composed 49 longterm debt 51 common equity new base fuel rates became effective january 1 2011 ohio west virginia regulation fourth quarter 2008 ohio commission approved approximately 41 million annual revenue increase east ohio return rate base incorporates roe 1038 changes reflected revised base rates commencing december 22 2008 october 2008 ohio commission approved cost recovery initial fiveyear period east ohio’s 25year pir program replace approximately 20 21000mile pipeline system august 2010 east ohio filed second annual application adjust cost recovery charge associated pir program actual costs return investments made june 30 2010 application reflected revenue requirement approximately 28 million november 2010 ohio commission approved settlement agreement filed east ohio staff ohio commission reflecting revenue requirement approximately 27 million interested parties case neither supported objected settlement agreement ohio pipp program eligible customers receive energy assistance based ability pay bill difference customer’s total bill pipp plan payment amount deferred collected pipp rider accordance rules ohio commission due increased participation program increases gas costs period since previous rider rate went effect unrecovered costs increased accordingly march 2010 ohio commission approved 12month recovery approximately 259 million uncollected receivables associated pipp program comprised accumulated pipp arrearages 163 million projected arrearages 96 million 12 months pipp rider rate would effect pipp rider rate went effect april 2010 ohio commission directed east ohio file application arrearages calculated calendar year basis update pipp rider within one year implementation new pipp rider rate annually thereafter november 2010 rule changes adopted ohio commission pipp program became effective rule changes established new program pipp plus replaced pipp plus program reduces customer’s monthly payments 10 6 household income provides forgiveness credits customer’s balance required payments received full due date credits may result elimination customer’s arrearage balance 24 months east ohio files annual uex rider ohio commission pursuant seeks recovery bad debt expense customers participating pipp plus uex rider adjusted annually achieve dollarfordollar recovery east ohio’s actual writeoffs uncollectable amounts 2010 east ohio deferred approximately 55 million bad debt expense recovery uex rider october 2008 hope filed request west virginia commission increase base rates charges natural gas service requested new base rates would increased hope’s revenues approximately 34 million annually november 2009 west virginia commission authorized approximately 9 million increase base rates june 2010 west virginia commission authorized additional base rate increase less 1 million correct miscalculation rates attached november 2009 order federal regulation may 2005 ferc issued order finding pjm’s existing transmission service rate design may reasonable ordered investigation hearings matter january 2008 ferc affirmed earlier decision pjm transmission rate design existing facilities become unjust unreasonable recovery costs investments new pjmplanned transmission facilities operate 500 kv ferc established regional rate design customers pay uniform rate based costs investment recovery costs investment new pjmplanned transmission facilities operate 500 kv ferc affirmed earlier decision allocate costs beneficiary pays approach notice appeal decision filed february 2008 us court appeals seventh circuit august 2009 court denied petition review concerning rate design existing facilities granted petition concerning rate design new facilities operate 500 kv remanded issue existing facilities back ferc proceedings although dominion virginia power cannot predict outcome ferc proceedings remand impact pjm rate design changes companies’ results operations expected material april 2008 ferc granted application virginia power’s electric transmission operations establish forwardlooking formula rate mechanism updates transmission rates annual basis approved roe 114 effective january 1 2008 formula rate designed recover expected revenue requirement calendar year updated based actual costs fercapproved formula method based projected costs allows virginia power earn current return growing investment electric transmission infrastructure july 2008 virginia power filed application ferc requesting revision revenue requirement reflect additional roe incentive adder eleven electric transmission enhancement projects proposal cost transmission service would increase include roe incentive adder eleven projects beginning date project enters commercial operation january 1 2009 virginia power proposed incentive 15 four projects including meadow brooktoloudoun line carsontosuffolk line incentive 125 seven projects august 2008 ferc approved proposal effective september 1 2008 total cost eleven projects estimated 877 million projects currently expected completed 2012 numerous parties sought rehearing ferc order august 2008 rehearing pending although virginia power cannot predict outcome rehearing expected material effect results operations march 2010 odec ncemc filed complaint ferc virginia power claiming approximately 223 million transmission costs related specific projects unjust unreasonable unduly discriminatory preferential excluded virginia power’s transmission formula rate odec ncemc requested ferc establish procedures determine amount costs applicable project excluded virginia power’s rates october 2010 ferc issued order dismissing complaint part established hearings settlement procedures remaining part complaint virginia power cannot predict outcome proceeding expected material effect results operations may 2008 rpm buyers filed complaint ferc claiming pjm’s reliability pricing model’s transitional auctions produced unjust unreasonable capacity prices rpm buyers requested refund effective date june 1 2008 established ferc provide appropriate relief unjust unreasonable capacity charges within 15 months september 2008 ferc dismissed complaint rpm buyers requested rehearing ferc order october 2008 rehearing denied june 2009 notice appeal filed august 2009 maryland public service commission new jersey board public utilities us court appeals fourth circuit november 2009 court transferred appeal court appeals district columbia circuit february 2011 court appeals denied petition review concluding ferc adequately explained rates reasonable dominion virginia power plan operate facilities compliance approved nerc reliability requirements dominion virginia power employees participate various nerc committees track development implementation standards maintain proper compliance registration nerc’s regional organizations dominion virginia power anticipate incurring additional compliance expenditures next several years result implementation new cyber security programs well efforts ensure appropriate facility ratings virginia power’s transmission lines october 2010 nerc issued industry alert identifying possible discrepancies design actual field conditions transmission facilities potential reliability issue alert recommends entities review current facilities rating methodology verify methodology based actual field conditions rather solely design documents take corrective action necessary virginia power evaluating transmission facilities discrepancies design actual field conditions addition nerc requested industry increase number assets subject nerc reliability standards designated critical assets including cyber security assets dominion virginia power expect incur additional compliance costs connection nerc requirements initiatives expenses expected significantly affect results operations dominion transmission rates december 2007 dti ioga entered settlement agreement dti’s gathering processing rates dti ioga agreed may 2010 extend december 31 2014 dti option may elect extend agreement additional year december 31 2015 settlement extension maintains gas retainage fee structure dti since 2001 rates 105 gathering 05 processing settlement dti continues retain revenues liquids sales thus maintaining cash flow liquids business dti file negotiated rates associated agreement extension ferc december 2011 note 15 asset retirement obligations aros represent obligations result laws statutes contracts regulations related eventual retirement certain dominion’s virginia power’s longlived assets dominion’s virginia power’s aros primarily associated decommissioning nuclear generation facilities addition dominion’s aros include plugging abandonment gas oil wells interim retirements natural gas gathering transmission distribution storage pipeline components future abatement asbestos expected disturbed companies’ generation facilities companies also identified recognized aros related retirement dominion’s lng facility dominion’s gas storage wells underground natural gas storage network certain virginia power electric transmission distribution assets located property easements rights way franchises lease agreements virginia power’s hydroelectric generation facilities abatement certain asbestos expected disturbed companies’ generation facilities companies currently sufficient information estimate reasonable range expected retirement dates assets since economic lives assets extended indefinitely regular repair maintenance currently plans retire dispose assets result settlement date determinable assets aros assets reflected consolidated financial statements sufficient information becomes available determine reasonable estimate fair value activities performed companies continue monitor operational strategic developments combined notes consolidated financial statements continued identify sufficient information exists reasonably estimate retirement date assets changes aros 2009 2010 follows 1 includes 20 million 9 million 14 million reported current liabilities december 31 2008 2009 2010 respectively 2 primarily reflects updated decommissioning cost studies applicable escalation rates received companies’ nuclear facilities second quarter 2009 dominion also includes 103 million 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service 3 includes 2 million 1 million 3 million reported current liabilities december 31 2008 2009 2010 respectively dominion virginia power established trusts dedicated funding future decommissioning nuclear plants december 31 2010 2009 aggregate fair value dominion’s trusts consisting primarily equity debt securities totaled 29 billion 26 billion respectively december 31 2010 2009 aggregate fair value virginia power’s trusts consisting primarily debt equity securities totaled 13 billion 12 billion respectively note 16 variable interest entities primary beneficiary vie required consolidate vie disclose certain information significant variable interests vie primary beneficiary vie entity 1 power direct activities significantly impact entity’s economic performance 2 obligation absorb losses receive benefits entity could potentially significant vie virginia power longterm power capacity contracts four nonutility generators aggregate generation capacity approximately 974 mw contracts contain certain variable pricing mechanisms form partial fuel reimbursement virginia power considers variable interests evaluation information provided entities virginia power unable determine whether vies however information provided well virginia power’s knowledge generation facilities virginia enabled virginia power conclude vies would primary beneficiary conclusion reflects virginia power’s determination variable interests convey power direct significant activities impact economic performance entities remaining terms virginia power’s contracts years entities expected operate contractual relationships expire contracts expire various dates ranging 2015 2021 virginia power subject risk loss potential vies remaining purchase commitments totaled 15 billion december 31 2010 virginia power paid 213 million 210 million 205 million electric capacity 164 million 117 million 196 million electric energy entities years ended december 31 2010 2009 2008 respectively discussed note 25 dci held investment subordinated notes thirdparty cdo entity dominion previously concluded cdo entity vie dci primary beneficiary cdo entity dominion consolidated december 31 2007 march 2008 dominion entered agreement sell remaining interest subordinated notes effectively eliminating variability interest therefore deconsolidated cdo entity march 31 2008 virginia power purchased shared services drs affiliated vie approximately 465 million 416 million 397 million years ended december 31 2010 2009 2008 respectively virginia power determined closely associated entity drs therefore primary beneficiary drs provides accounting legal finance certain administrative technical services dominion subsidiaries including virginia power virginia power obligation absorb allocated share drs costs note 17 shortterm debt credit agreements dominion virginia power use shortterm debt fund working capital requirements bridge longterm debt financings levels borrowing may vary significantly course year depending upon timing amount cash requirements satisfied cash operations addition dominion utilizes cash letters credit fund collateral requirements collateral requirements impacted commodity prices hedging levels dominion’s credit ratings credit quality counterparties dominion virginia power replaced certain existing credit facilities september 2010 noted dominion commercial paper bank loans letters credit outstanding well capacity available credit facilities follows 1 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings issuance commercial paper well support 15 billion letters credit 2 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings commercial paper letter credit issuances 3 credit facility entered february 2006 terminated september 2010 credit facility used support bank borrowings commercial paper letter credit issuances 4 credit facility entered august 2005 terminated august 2010 facility used support bank borrowings issuance letters credit commercial paper 5 facility entered december 2005 terminated december 2010 credit facility used support commercial paper letter credit issuances 6 weightedaverage interest rates outstanding commercial paper supported dominion’s credit facilities 041 030 december 31 2010 2009 respectively 7 weightedaverage interest rate outstanding bank borrowings supported dominion’s credit facilities 033 december 31 2009 virginia power virginia power’s shortterm financing supported two threeyear joint revolving credit facilities dominion credit facilities used working capital support combined commercial paper programs dominion virginia power general corporate purposes virginia power’s share commercial paper bank loans letters credit outstanding well capacity available joint credit facilities dominion follows 1 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings issuance commercial paper well support 15 billion sublimit whichever less letters credit virginia power’s current sublimit credit facility increased decreased multiple times per year 2 credit facility entered september 2010 terminates september 2013 credit facility used support bank borrowings commercial paper letter credit issuances virginia power’s current sublimit credit facility increased decreased multiple times per year 3 weightedaverage interest rate outstanding commercial paper supported credit facilities 041 december 31 2010 december 31 2009 virginia power 442 million commercial paper 104 million letters credit outstanding fiveyear 28 billion joint credit facility dominion weightedaverage interest rate outstanding commercial paper 028 credit facility entered february 2006 terminated september 2010 credit facility used support bank borrowings commercial paper letter credit issuances addition credit facility commitments mentioned virginia power also threeyear 120 million credit facility entered september 2010 facility terminates september 2013 supports certain taxexempt financings virginia power combined notes consolidated financial statements continued note 18 longterm debt 1 represents weightedaverage coupon rates debt outstanding december 31 2010 2 160 million taxexempt bonds due 2040 issued industrial development authority wise county behalf virginia power december 2010 september 2009 included consolidated balance sheets bonds purchased held virginia power bonds remarketed third parties later date 3 financings relate certain pollution control equipment virginia power’s generating facilities certain variable rate taxexempt financings supported 120 million threeyear credit facility terminates september 2013 4 includes 1 million unamortized discount 2009 5 option holders 510 million dominion’s 525 senior notes due 2033 600 million dominion’s 8875 senior notes due 2019 subject redemption 100 principal amount plus accrued interest august 2015 january 2014 respectively 6 convertible combination cash shares dominion’s common stock time closing price common stock equals 120 applicable conversion price higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter option holders december 15 2011 2013 2018 securities subject redemption 100 principal amount plus accrued interest securities currently noncallable dominion december 15 2011 7 represents debt assumed dominion merger former cng subsidiary 8 235 million taxexempt bonds due 2041 issued massachusetts development finance agency behalf brayton point december 2010 included consolidated balance sheets bonds purchased held dominion bonds remarketed third parties later date 9 represents debt associated kincaid debt nonrecourse dominion secured facility’s assets 507 million december 31 2010 revenue 10 represents valuation certain fair value hedges associated dominion’s fixedrate debt 11 includes 2 million net unamortized discount fair value hedge valuation 2009 based stated maturity dates rather early redemption dates could elected instrument holders scheduled principal payments longterm debt december 31 2010 follows dominion’s virginia power’s shortterm credit facilities longterm debt agreements contain customary covenants default provisions december 31 2010 events default covenants convertible securities december 31 2010 dominion 202 million outstanding contingent convertible senior notes convertible holders combination cash shares dominion’s common stock certain circumstances conversion feature requires principal amount note repaid cash amounts payable excess principal amount paid common stock issuance notes valued conversion rate 27173 shares common stock per 1000 principal amount senior notes represented conversion price 3680 conversion rate subject adjustment upon certain events subdivisions splits combinations common stock issuance common stock holders certain common stock rights warrants options certain dividend increases december 31 2010 conversion rate adjusted 285032 shares primarily due individual dividend payments level paid issuance number shares included denominator diluted eps calculation calculated net shares issuable reporting period based upon average market price period results increase average shares outstanding used calculation dominion’s diluted eps conversion price lower average market price dominion’s common stock period results adjustment conversion price exceeds average market price senior notes convertible holders combination cash shares dominion’s common stock following circumstances 1 closing price dominion’s common stock equals 120 applicable conversion price higher least 20 last 30 consecutive trading days ending last trading day previous calendar quarter 2 senior notes called redemption dominion 3 occurrence specified corporate transactions 4 credit rating assigned senior notes moody’s baa3 standard poor’s bbb ratings discontinued reason first three quarters 2010 senior notes eligible conversion however september 30 2010 closing price dominion’s common stock equal 4224 per share higher least 20 last 30 consecutive trading days therefore senior notes eligible conversion fourth quarter 2010 less 1 million contingent convertible senior notes converted holders senior notes eligible conversion 2009 december 31 2010 closing price dominion’s common stock equal 4210 per share higher least 20 last 30 consecutive trading days therefore senior notes eligible conversion first quarter 2011 beginning 2007 notes eligible contingent interest average trading price defined indenture equals exceeds 120 principal amount senior notes holders right require dominion purchase senior notes cash 100 principal amount plus accrued interest december 2011 2013 2018 dominion undergoes certain fundamental changes junior subordinated notes payable affiliated trusts previous years dominion virginia power established several subsidiary capital trusts finance subsidiary respective parent company hold 100 voting interests trusts sold trust preferred securities representing preferred beneficial interests 97 beneficial ownership assets held trusts exchange funds realized sale trust preferred securities common securities represent remaining 3 beneficial ownership interest assets held capital trusts dominion virginia power issued various junior subordinated notes junior subordinated notes constitute 100 capital trust’s assets trust must redeem trust preferred securities respective junior subordinated notes repaid maturity redeemed prior maturity may 2008 virginia power repaid 412 million 7375 unsecured junior subordinated notes redeemed 16 million units 400 million 7375 virginia power capital trust ii combined notes consolidated financial statements continued preferred securities due july 30 2042 securities redeemed price 25 per preferred security plus accrued unpaid distributions following table provides summary information trust preferred securities junior subordinated notes outstanding december 31 2010 junior subordinated notesdebentures held assets capital trust follows 1 258 milliondominion resources inc 783 debentures due 1212027 2 10 milliondominion resources inc 84 debentures due 1152031 following table presents interest charges related companies’ junior subordinated notes payable affiliated trusts distribution payments trust preferred securities considered fully unconditionally guaranteed respective parent company issued debt instruments held trust related agreements taken consideration guarantee agreement provides guarantee distribution payments relevant trust preferred securities extent trust funds legally immediately available make distributions trust’s ability pay amounts due trust preferred securities dependent solely upon payment amounts dominion due junior subordinated notes dominion may defer interest payments junior subordinated notes one occasions five consecutive years related trusts must also defer distributions payment junior subordinated notes deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated junior subordinated notes enhanced junior subordinated notes june 2006 september 2006 dominion issued 300 million june 2006 hybrids 500 million september 2006 hybrids respectively june 2006 hybrids bear interest 75 per year june 30 2016 thereafter bear interest threemonth libor plus 2825 reset quarterly september 2006 hybrids bear interest 63 per year september 30 2011 thereafter bear interest threemonth libor plus 23 reset quarterly june 2009 dominion issued 685 million including 60 million related underwriter’s option purchase additional notes cover overallotments 8375 june 2009 hybrids june 2009 hybrids listed new york stock exchange symbol dru april 2010 dominion purchased cancelled 16 million september 2006 hybrids purchases conducted compliance rccs dominion may defer interest payments hybrids one occasions 10 consecutive years interest payments hybrids deferred dominion may make distributions related capital stock including dividends redemptions repurchases liquidation payments guarantee payments also deferral period dominion may make payments redeem repurchase debt securities equal right payment subordinated hybrids note 19 preferred stock dominion authorized issue 20 million shares preferred stock however none issued outstanding december 31 2010 2009 virginia power authorized issue 10 million shares preferred stock 100 liquidation preference 259 million preferred shares issued outstanding december 31 2010 2009 upon involuntary liquidation dissolution windingup virginia power share would entitled receive 100 plus accrued cumulative dividends holders virginia power’s outstanding preferred stock entitled voting rights except certain provisions amended restated articles incorporation related provisions virginia law restricting corporate action upon default dividends special statutory proceedings required virginia law mergers consolidations sales assets dissolution changes voting rights priorities preferred stock presented series virginia power preferred stock outstanding december 31 2010 1 7312011 10071 commencing 812011 amounts decline steps thereafter 10000 812013 2 8312011 10070 commencing 912011 amounts decline steps thereafter 10000 912013 3 dividend rate 625 3202011 rate determined according periodic auctions periods established virginia power time auction process note 20 shareholders’ equity issuance common stock dominion 2010 dominion issued 23 million shares common stock cash proceeds 74 million shares issued cash proceeds received 2010 dominion direct® employee savings plans exercise employee stock options february 2010 dominion began purchasing common stock open market proceeds received dominion direct® employee savings plans rather additional new common shares issued virginia power 2010 virginia power issued 33013 shares common stock dominion approximately 1 billion proceeds used pay shortterm demand note borrowings dominion shares reserved issuance december 31 2010 dominion approximately 52 million shares reserved available issuance dominion direct® employee stock awards employee savings plans director stock compensation plans contingent convertible senior notes repurchase common stock march 2010 dominion began repurchasing common shares anticipation proceeds sale appalachian ep operations 2010 dominion repurchased 214 million shares common stock approximately 900 million january 28 2011 dominion announced intends repurchase 400 million 700 million common stock cash tax savings resulting extension bonus depreciation allowance discussed note 6 first quarter 2011 dominion began repurchasing shares open market program accumulated comprehensive income loss presented table summary aoci component stockbased awards 2005 incentive compensation plan permits stockbased awards include restricted stock performance grants goalbased stock options stock appreciation rights nonemployee directors plan permits grants restricted stock options provisions plans employees nonemployee directors may granted options purchase common stock price less fair market value date grant maximum term eight years option terms set discretion cgn committee board directors board directors provided plan december 31 2010 approximately 33 million shares available future grants plans dominion measures recognizes compensation expense relating sharebased payment transactions vesting period based fair value equity liability instruments issued dominion’s results years ended december 31 2010 2009 2008 include 40 million 44 million 46 million respectively compensation costs 15 million 17 million 17 million respectively income tax benefits related dominion’s stockbased compensation arrangements stockbased compensation cost reported operations maintenance expense dominion’s consolidated statements income benefits tax deductions excess compensation cost recognized stockbased compensation excess tax benefits classified financing cash flow years ended december 31 2010 2009 2008 dominion realized 10 million 5 million 7 million respectively excess tax benefits vesting restricted stock awards exercise stock options stock options following table provides summary changes amounts stock options outstanding years ended december 31 2010 2009 2008 options granted plan 2010 2009 2008 1 intrinsic value represents difference exercise price option market value dominion’s stock combined notes consolidated financial statements continued dominion issues new shares satisfy stock option exercises dominion received cash proceeds exercise stock options approximately 63 million 49 million 43 million years ended december 31 2010 2009 2008 respectively restricted stock fair value dominion’s restricted stock awards equal market price dominion’s stock date grant new shares issued restricted stock awards date grant generally vest threeyear service period following table provides summary restricted stock activity years ended december 31 2010 2009 2008 december 31 2010 unrecognized compensation cost related nonvested restricted stock awards totaled 21 million expected recognized weightedaverage period 16 years fair value restricted stock awards vested 26 million 29 million 40 million 2010 2009 2008 respectively employees may elect shares restricted stock withheld upon vesting satisfy tax withholding obligations number shares withheld vary employee depending vesting date fair market value dominion stock applicable federal state local tax withholding rates goalbased stock goalbased stock awards granted key contributors nonofficer employees certain officers achieved certain targeted level share ownership lieu cashbased performance grants current outstanding goalbased shares include awards granted february 2009 april 2009 february 2010 issuance awards based achievement multiple performance metrics twoyear period including roic bvp awards made 2008 2009 tsr relative peer group companies actual number shares issued vary zero 200 targeted shares depending level performance metrics achieved fair value goalbased stock equal market price dominion’s stock date grant goalbased stock awards granted key nonofficer employees convert restricted stock end twoyear performance period generally vest three years original grant date awards officers vest end twoyear performance period goalbased stock awards settled issuing new shares performance period april 2007 grants ended december 31 2008 cgn committee determined actual performance metrics established awards key nonofficer employees 127 thousand shares outstanding goalbased stock awards granted april 2007 converted 185 thousand shares restricted stock remaining term vesting period ending april 2010 awards officers 27 thousand shares outstanding goalbased stock awards converted 38 thousand nonrestricted shares issued officers performance period april 2008 grants ended december 31 2009 cgn committee determined actual performance metrics established awards key nonofficer employees 147 thousand shares outstanding goalbased stock awards granted april 2008 converted 186 thousand shares restricted stock remaining term vesting period ending april 2011 awards officers 12 thousand shares outstanding goalbased stock awards converted 15 thousand nonrestricted shares issued officers following table provides summary goalbased stock activity years ended december 31 2010 2009 2008 december 31 2010 targeted number shares expected issued february 2009 april 2009 february 2010 awards approximately 161 thousand january 2011 cgn committee determined actual performance metrics established february 2009 april 2009 awards performance period ended december 31 2010 based determination total number shares issued goalbased stock awards approximately 202 thousand december 31 2010 unrecognized compensation cost related nonvested goalbased stock awards totaled 2 million expected recognized weightedaverage period 11 years cashbased performance grant cashbased performance grants made dominion’s officers dominion’s ltip actual payout cashbased performance grants vary zero 200 targeted amount based level performance metrics achieved targeted amount cashbased performance grant made officers april 2007 11 million actual payout award february 2009 determined cgn committee 16 million based level performance metrics achieved targeted amount cashbased performance grant made officers april 2008 12 million actual payout award february 2010 determined cgn committee 15 million based level performance metrics achieved december 31 2009 liability 15 million accrued award february 2009 cashbased performance grant made officers portion grant representing 11 million targeted amount december 31 2010 paid december 2010 based achievement three performance metrics 2009 2010 roic bvp tsr relative peer group companies total expected award grant 14 million remaining portion grant paid march 15 2011 december 31 2010 liability 3 million accrued remaining portion award february 2010 cashbased performance grant made officers payout performance grant occur march 15 2012 based achievement two performance metrics 2010 2011 roic tsr relative peer group companies december 31 2010 targeted amount grant 12 million liability 6 million accrued award note 21 dividend restrictions virginia commission may prohibit public service company including virginia power declaring paying dividend affiliate found detrimental public interest december 31 2010 virginia commission restricted payment dividends virginia power certain agreements associated dominion’s virginia power’s credit facilities contain restrictions ratio debt total capitalization limitations restrict dominion’s virginia power’s ability pay dividends receive dividends subsidiaries december 31 2010 see note 18 description potential restrictions dividend payments dominion connection deferral interest payments junior subordinated notes note 22 employee benefit plans dominion provides certain benefits eligible active employees retirees qualifying dependents terms benefit plans dominion reserves right change modify terminate plans time past benefits changed changes reduced benefits dominion maintains qualified noncontributory defined benefit pension plans covering virtually employees retirement benefits based primarily years service age employee’s compensation dominion’s funding policy contribute annually amount accordance provisions erisa pension program also provides benefits certain retired executives companysponsored nonqualified employee benefit plan nonqualified plan funded contributions grantor trust dominion provides retiree healthcare life insurance benefits annual employee premiums based several factors age retirement date years service january 2011 dominion amended retiree healthcare life benefits change eligibility age majority nonunion employees 55 10 years service 58 10 years service resulting approximately 71 million reduction postretirement benefit plan obligation eligibility requirements nonunion employees hired january 1 2008 benefit retiree medical account design well union employees affected plan design change pension postretirement benefit costs affected employee demographics including age compensation levels years service level contributions made plans earnings plan assets costs may also affected changes key assumptions including expected longterm rates return plan assets discount rates healthcare cost trend rates rate compensation increases dominion uses december 31 measurement date employee benefit plans dominion uses marketrelated value pension plan assets determine expected return plan assets component net periodic pension cost marketrelated value recognizes changes fair value straightline basis fouryear period reduces yeartoyear volatility changes fair value measured difference expected actual plan asset returns including dividends interest realized unrealized investment gains losses since marketrelated value recognizes changes fair value fouryear period future marketrelated value pension plan assets impacted previously unrecognized changes fair value recognized dominion’s pension postretirement benefit plans hold investments trusts fund employee benefit payments aggregate actual returns dominion’s pension postretirement plan assets 624 million 2010 777 million 2009 versus expected returns 479 million 462 million respectively differences actual expected returns plan assets accumulated amortized future periods investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash contributed employee benefit plans combined notes consolidated financial statements continued medicare act introduced federal subsidy sponsors retiree healthcare benefit plans provide prescription drug benefit least actuarially equivalent medicare part dominion determined prescription drug benefit offered postretirement benefit plans least actuarially equivalent medicare part 2010 2009 dominion received federal subsidy 5 million 4 million respectively expects continue receive subsidy offered medicare act following table summarizes changes dominion’s pension plan postretirement benefit plan obligations plan assets includes statement plans’ funded status 1 represents transfer pension plan assets obligation active peoples employees february 1 2010 see note 4 information sale peoples completed february 2010 2 relates sales peoples dominion’s appalachian ep operations workforce reduction program 3 represents onetime special termination benefit certain employees connection workforce reduction program 4 represents pension plan assets classified assets held sale postretirement benefit plan obligations classified liabilities held sale peoples dominion’s consolidated balance sheets abo dominion’s defined benefit pension plans 41 billion 36 billion december 31 2010 2009 respectively funding policies dominion evaluates plan funding requirements annually usually fourth quarter receiving updated plan information actuary based funded status plan factors dominion determines amount contributions current year time 2010 dominion contributed 650 million qualified defined benefit pension plans contributions qualified defined benefit pension plans currently expected 2011 certain regulatory authorities held amounts recovered utility customers’ rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly certain dominion’s subsidiaries fund postretirement benefit costs vebas dominion’s remaining subsidiaries prefund postretirement benefit costs instead pay claims presented dominion expects contribute approximately 22 million dominion vebas 2011 dominion expect pension postretirement plan assets returned company 2011 following table provides information benefit obligations fair value plan assets plans benefit obligation excess plan assets 1 decrease reflects cash contributions pension plans 2010 merger dominion peoples gas union pension plan dpp december 31 2010 following table provides information abo fair value plan assets pension plans abo excess plan assets 1 decrease reflects cash contributions pension plans 2010 following benefit payments reflect expected future service appropriate expected paid benefit payments postretirement benefit plans expected offset medicare part subsidies approximately 6 million 2011 2012 7 million 2013 2014 8 million 2015 50 million period 2016 2020 dominion’s overall objective investing pension postretirement plan assets achieve best possible longterm rates return commensurate prudent levels risk minimize risk funds broadly diversified among asset classes investment strategies investment advisors strategic target asset allocations pension funds 28 us equity 18 nonus equity 33 fixed income 3 real estate 18 alternative investments us equity includes investments largecap midcap smallcap companies located united states nonus equity includes investments largecap companies located outside united states including developed emerging markets fixed income includes corporate debt instruments companies diversified industries us treasuries us equity nonus equity fixed income investments individual securities well mutual funds real estate includes equity reits investments partnerships alternative investments include partnership investments private equity debt hedge funds follow several different strategies strategic investment policies established dominion’s prefunded benefit plans based upon periodic assetliability studies factors considered setting investment policy include employee demographics liability growth rates future discount rates funded status plans expected longterm rate return plan assets deviations plans’ strategic allocation function dominion’s assessments regarding shortterm risk reward opportunities capital markets andor shortterm market movements result plans’ actual asset allocations varying strategic target asset allocations periodic rebalancing actual allocations brought back line target financial derivatives may used obtain manage market exposures hedge assets liabilities fair value measurement policies procedures related pension postretirement benefit plan assets see note 7 combined notes consolidated financial statements continued fair values dominion’s pension plan assets asset category follows 1 includes net assets related pending sales securities 26 million december 31 2010 excludes net assets related pending purchases securities 14 million december 31 2009 fair values dominion’s postretirement plan assets asset category follows 1 includes net assets related pending sales securities 1 million december 31 2010 excludes net assets related pending purchases securities 1 million december 31 2009 following table presents changes dominion’s pension plan assets measured fair value included level 3 fair value category following table presents changes dominion’s postretirement plan assets measured fair value included level 3 fair value category components provision net periodic benefit credit cost amounts recognized comprehensive income regulatory assets liabilities follows 1 relates sales peoples dominion’s appalachian ep operations workforce reduction program 2 represents onetime special termination benefit certain employees connection workforce reduction program combined notes consolidated financial statements continued components aoci regulatory assets liabilities recognized components periodic benefit credit cost follows 1 december 31 2010 18 billion 240 million related pension benefits postretirement benefits 978 million 75 million respectively included aoci remainder included regulatory assets liabilities december 31 2009 18 billion 235 million related pension benefits postretirement benefits 1 billion 87 million respectively included aoci remainder included regulatory assets liabilities following table provides components aoci regulatory assets liabilities december 31 2010 expected amortized components periodic benefit cost 2011 dominion determines expected longterm rates return plan assets pension plans postretirement benefit plans using combination • historical return analysis determine expected future risk premiums asset volatilities correlations • forwardlooking return expectations derived yield longterm bonds price earnings ratios major stock market indices • expected inflation riskfree interest rate assumptions • investment allocation plan assets dominion develops assumptions compared forecasts independent investment advisors ensure reasonableness internal committee selects final assumptions dominion determines discount rates analyses aaaa rated bonds cash flows matching expected payments made plans assumed healthcare cost trend rates significant effect amounts reported dominion’s retiree healthcare plans one percentage point change assumed healthcare cost trend rates would following effects addition dominion sponsors defined contribution employee savings plans 2010 2009 2008 dominion recognized 39 million 42 million 39 million respectively contributions plans virginia power virginia power participates defined benefit pension plan sponsored dominion benefits payable plan based primarily years service age employee’s compensation participating employer virginia power subject dominion’s funding policy contribute annually amount accordance provisions erisa 2010 virginia power contributed 302 million defined benefit pension plan virginia power’s net periodic pension cost related pension plan 84 million 48 million 32 million 2010 2009 2008 respectively 2010 net periodic pension cost includes impact settlement curtailment well onetime special termination benefit certain employees connection workforce reduction program employee compensation basis determining virginia power’s share total pension costs virginia power participates plan provides certain retiree healthcare life insurance benefits multiple dominion subsidiaries annual employee premiums based several factors age retirement date years service virginia power’s net periodic benefit cost related plan 59 million 55 million 33 million 2010 2009 2008 respectively employee headcount basis determining virginia power’s share total postretirement benefit costs certain regulatory authorities held amounts recovered rates postretirement benefits excess benefits actually paid year must deposited trust funds dedicated sole purpose paying benefits accordingly virginia power funds postretirement benefit costs veba virginia power’s contributions veba 35 million 34 million 15 million 2010 2009 2008 respectively virginia power expects contribute approximately 4 million veba 2011 dominion holds investments trusts fund employee benefit payments pension postretirement benefit plans virginia power’s employees participate investmentrelated declines trusts result future increases periodic cost recognized employee benefit plans included determination amount cash virginia power provide dominion share employee benefit plan contributions virginia power also participates dominionsponsored defined contribution employee savings plans cover substantially employees employer matching contributions 14 million incurred 2010 2009 2008 note 23 commitments contingencies result issues generated ordinary course business dominion virginia power involved legal tax regulatory proceedings various courts regulatory commissions governmental agencies involve substantial amounts money ultimate outcome proceedings cannot predicted time however current proceedings specifically reported herein management anticipate liabilities arising proceedings would material effect dominion’s virginia power’s financial position liquidity results operations longterm purchase agreements december 31 2010 virginia power following longterm commitments noncancelable cancelable certain conditions third parties used secure financing facilities provide contracted goods services 1 commitments represent estimated amounts payable capacity power purchase contracts qualifying facilities independent power producers last ends 2021 capacity payments contracts generally based fixed dollar amounts per month subject escalation using broadbased economic indices december 31 2010 present value virginia power’s total commitment capacity payments 18 billion capacity payments totaled 344 million 356 million 379 million energy payments totaled 303 million 254 million 372 million 2010 2009 2008 respectively lease commitments dominion virginia power lease various facilities vehicles equipment primarily operating leases payments certain leases escalated based index consumer price index future minimum lease payments noncancelable operating capital leases initial remaining lease terms excess one year december 31 2010 follows rental expense dominion totaled 171 million 172 million 160 million 2010 2009 2008 respectively rental expense virginia power totaled 50 million 49 mil lion 39 million 2010 2009 2008 respectively majority rental expense reflected operations maintenance expense dominion leases fairless began commercial operations june 2004 construction dominion acted construction agent lessor controlled design construction facility since reimbursed project costs 898 million advanced lessor dominion makes annual lease payments 53 million reflected lease commitments table lease expires 2013 time dominion may renew lease negotiated amounts based original project costs current market conditions subject lessor approval purchase fairless original construction cost plus 51 appraised value excess original construction cost sell fairless behalf lessor independent third party fairless sold proceeds sale less original construction cost dominion would required make payment lessor amount 7075 original project costs adjusted certain costs specified lease agreement contain provisions involve credit rating stock price trigger events environmental matters dominion virginia power subject costs resulting number federal state local laws regulations designed protect human health environment laws regulations affect future planning existing operations result increased capital operating costs result compliance remediation containment monitoring obligations air caa comprehensive program utilizing broad range regulatory tools protect preserve nation’s air quality minimum states required establish regulatory programs address requirements caa however states may choose develop regulatory programs restrictive many dominion’s virginia power’s facilities subject caa’s permitting requirements may 2010 dominion received request information pursuant section 114 caa epa request concerns historical operating changes capital improvements undertaken brayton point salem harbor dominion submitted response request november 2010 cannot predict outcome matter february 2008 dominion received request information pursuant section 114 caa epa request concerns historical operating changes capital improvements undertaken state line kincaid april 2009 dominion received second request information dominion provided information response requests also april 2009 dominion received notice finding violations epa claiming violations caa new source review requirements new source performance standards title v permit program stations’ respective state implementation plans notice states epa may issue order requiring compliance relevant caa provisions may seek injunctive relief andor civil penalties pursuant epa’s enforcement combined notes consolidated financial statements continued authority caa dominion cannot predict outcome matter however adverse resolution could material effect future results operations andor cash flows march 2005 epa promulgated regulations finalizing cair camr february 2008 court appeals district columbia circuit issued ruling vacating camr epa proceeding development mact rulemaking coal oilfired electric utility steam generating units rules could require significant reductions mercury haps electric generation facilities noted dominion continues governed individual state mercury emission reduction regulations massachusetts illinois largely unaffected camr ruling july 2008 court issued ruling vacating cair december 2008 court denied rehearing also issued decision remand cair epa cair rules remain effect time epa develops implements new rulemaking addressing issues identified court july 2010 epa announced proposed new rule called transport rule eventually replace cair proposed requires significant reductions so2 nox emissions epa finalized rules establishing new 1hour naaqs no2 january 2010 new 1hour naaqs so2 june 2010 could require additional nox so2 controls certain areas companies operate states developed implementation plans standards impact dominion’s virginia power’s facilities emit nox so2 uncertain however based preliminary assessment dominion determined new 1hour so2 naaqs likely require significant future capital expenditures state line accordingly recorded impairment charge facility second quarter 2010 january 2010 epa also proposed new stringent naaqs ozone rulemaking transport rule complete states developed implementation plans new no2 so2 ozone standards possible determine impact dominion’s virginia power’s facilities emit nox so2 companies cannot currently predict certainty whether extent new rules ultimately require additional controls however significant expenditures required could adversely affect dominion’s results operations dominion’s virginia power’s cash flows june 2005 epa finalized amendments regional haze rule also known clean air visibility rule although dominion virginia power anticipate emission reductions achieved compliance caa required programs generally address rule additional emission reduction requirements may imposed companies’ facilities implementation projects comply so2 nox mercury limitations state emission control programs ongoing influenced changes regulatory environment availability emission allowances emission control technology response federal state regulatory requirements dominion virginia power estimate make capital expenditures affected generating facilities approximately 24 billion 20 billion respectively period 2011 2015 december 2010 virginia department environmental quality approved air permit construct power station development project warren county virginia connection air permit process virginia power reached agreement national park service permanently retire north branch power station 74 mw coal fired plant located west virginia warren county power station begins commercial operations june 2010 conservation law foundation healthlink inc filed complaint district court massachusetts dominion energy new england inc alleging salem harbor units 1 2 3 4 violation visible emissions standards monitoring requirements massachusetts state implementation plan station’s state federal operating permits although dominion cannot predict outcome matter time expected material effect results operations june 2008 virginia state air pollution control board approved issued air permit construct operate virginia city hybrid energy center also approved issued another air permit hazardous emissions construction virginia city hybrid energy center commenced facility expected operation 2012 august 2008 selc behalf four environmental groups filed petitions appeal richmond circuit court challenging approval air permits richmond circuit court issued order september 2009 upholding initial air permit upholding second air permit hazardous emissions except one condition related permit limit mercury emissions september 2009 hazardous emissions air permit amended virginia department environmental quality comply richmond circuit court order permit amendment impact project october 2009 selc filed notice appeal court’s order regarding initial air permit richmond circuit court initiating appeals process virginia court appeals may 2010 court appeals affirmed circuit court’s opinion appeal virginia city hybrid energy center’s air permit selc appeal court appeals decision supreme court virginia water cwa comprehensive program requiring broad range regulatory tools including permit program authorize regulate discharges surface waters strong enforcement mechanisms dominion virginia power must comply aspects cwa programs operating facilities july 2004 epa published regulations cwa section 316b govern existing utilities employ cooling water intake structure flow levels exceeding minimum threshold epa’s rule presented several compliance options however january 2007 us court appeals second circuit issued decision appeal regulations remanding rule epa july 2007 epa suspended regulations pending rulemaking consistent decision issued us court appeals second circuit november 2007 number industries appealed lower court decision us supreme court april 2008 us supreme court granted industry request review question whether section 316b cwa authorizes epa compare costs benefits determining best technology available minimizing “adverse environmental impact” cooling water intake structures us supreme court ruled april 2009 epa authority consider costs versus environmental benefits selecting best technology available reducing impacts cooling water intakes power stations currently unknown epa interpret ruling ongoing rulemaking activity addressing cooling water intakes well states implement decision dominion sixteen facilities including eight virginia power likely subject regulations november 2010 epa settled original litigants agreed publish proposed rule later march 14 2011 final rule later july 27 2012 dominion virginia power cannot predict outcome epa regulatory processes determine certainty specific controls may required august 2006 cdep issued notice tentative determination renew npdes permit millstone included draft copy revised permit october 2007 cdep issued report hearing officer tentative determination stating agency’s intent revise draft permit december 2007 cdep issued new draft permit administrative hearing draft permit began january 2009 completed february 2009 february 2010 hearing officer issued proposed final decision recommending cdep commissioner issue revised draft permit without change september 2010 permit reissued cwa conditions permit require evaluation control technologies could result additional expenditures future however dominion cannot currently predict outcome evaluation october 2010 permit issuance appealed state court private plaintiff permit expected remain effect appeal october 2003 epa massachusetts department environmental protection issued new npdes permits brayton point new permits contained identical conditions effect require installation cooling towers address concerns withdrawal discharge cooling water currently dominion estimates total cost install cooling towers approximately 600 million remaining expenditures 354 million included planned capital expenditures 2012 october 2007 vswcb issued renewed vpdes permit north anna bredl persons appealed vswcb’s decision richmond circuit court challenging several permit provisions related north anna’s discharge cooling water february 2009 court ruled vswcb required regulate thermal discharge north anna waste heat treatment facility virginia power filed motion reconsideration court february 2009 denied final order issued court september 2009 court’s order allows north anna continue operate pursuant currently issued vpdes permit october 2009 virginia power filed notice appeal court’s order richmond circuit court initiating appeals process virginia court appeals june 2010 virginia court appeals reversed richmond circuit court’s september 2009 order virginia court appeals held lower court applied wrong standard review vswcb’s determination regulate station’s thermal discharge waste heat treatment facility lawful july 2010 bredl original appellants filed petition appeal supreme court virginia requesting review court appeals’ decision december 2010 supreme court virginia granted bredl’s petition briefing merits case occur first quarter 2011 appeals process complete revised permit issued possible predict certainty financial impact may result however adverse resolution could material effect virginia power’s cash flows solid hazardous waste cercla amended provides immediate response removal actions coordinated epa event threatened releases hazardous substances environment authorizes us government either clean sites hazardous substances created actual potential environmental hazards order persons responsible situation cercla amended generators transporters hazardous substances well past present owners operators contaminated sites strictly jointly severally liable cost cleanup potentially responsible parties ordered perform cleanup sued costs associated epadirected cleanup voluntarily settle us government concerning liability cleanup costs voluntarily begin site investigation site remediation state oversight time dominion virginia power may identified potentially responsible party superfund site epa state either allow party conduct pay remedial investigation feasibility study remedial action conduct remedial investigation action seek reimbursement potentially responsible parties party held jointly severally strictly liable cleanup costs parties also bring contribution actions seek reimbursement insurance companies result dominion virginia power may responsible costs remedial investigation actions superfund law laws regulations regarding remediation waste companies believe currently identified sites result significant liabilities dominion determined associated 17 former manufactured gas plant sites studies conducted utilities former manufactured gas plant sites indicated sites contain coal tar potentially harmful materials none 17 former sites dominion associated investigation state federal environmental agency one former sites dominion conducting stateapproved post closure groundwater monitoring program environmental land use restriction recorded another site accepted statebased voluntary remediation program dominion yet estimated future remediation costs known degree former sites may contain environmental contamination dominion combined notes consolidated financial statements continued able estimate cost may required possible remediation sites june 2010 epa proposed federal regulations rcra management coal combustion byproducts generated power plants epa considering two possible options regulation coal combustion byproducts fall rcra first proposal epa would classify byproducts special wastes subject regulation subtitle c hazardous waste provisions rcra destined disposal landfills surface impoundments second proposal epa would regulate coal combustion byproducts subtitle rcra section nonhazardous wastes companies cannot currently predict outcome matter regulation either option affect dominion’s virginia power’s onsite disposal facilities coal combustion byproduct management practices potentially require material investments climate change legislation regulation december 2009 epa issued final endangerment cause contribute findings greenhouse gases section 202a clean air act finding ghgs “endanger public health public welfare current future generations” april 1 2010 epa department transportation’s national highway safety administration announced joint final rule establishing program dramatically reduce ghg emissions improve fuel economy new cars trucks sold united states rules took effect january 2011 established ghg emissions regulated pollutants caa may 2010 epa issued final prevention significant deterioration title v greenhouse gas tailoring rule combined prior actions require dominion virginia power obtain permits ghg emissions new modified facilities certain size thresholds meet best available control technology ghg emissions beginning 2011 epa issued draft guidance ghg permitting including best available control technology epa also announced schedule proposing regulations ghg emissions new source performance standards would apply new existing electric generating units also companies expect continued regulatory action state level regulation ghg emissions future new contemplated regulations may affect capital costs create significant permitting delays new modified facilities emit ghgs legislative proposals may considered would indirect impact ghg emissions potential congress consider mandatory clean energy standard promote greater energy efficiency early retirements coalfired power plants addition possible federal action regions states dominion virginia power operate already adopted may adopt ghg emission reduction programs example virginia energy plan released governor virginia september 2007 includes goal reducing ghg emissions statewide back 2000 levels 2025 governor formed commission climate change develop plan achieve goal november 2008 commission formulated recommendations governor july 2008 massachusetts passed gwsa among provisions gwsa sets economywide ghg emissions reduction goals massachusetts including reductions 10 25 1990 levels 2020 interim goals 2030 2040 reductions 80 1990 levels 2050 regulations requiring implementation gwsa yet proposed dominion operates two coaloilfired generating power stations massachusetts acts retail electric supplier massachusetts entities subject implementation gwsa additionally massachusetts rhode island connecticut among states joined rggi multistate effort reduce co2 emissions northeast implemented state specific regulations initiative aggregate co2 emissions power plants participating states required stabilized current levels 2009 2015 reductions current levels would required phased starting 2016 2019 would 10 reduction participating state power plant co2 emissions 2011 possibly continuing 2012 rggi undergo program review could impact regulations implementation rggi impact program review dominion’s fossil fired generation operations rggi states unknown time three dominion’s facilities brayton point salem harbor manchester street subject rggi beginning calendar year 2009 rggi requires dominion cover ton co2 direct stack emissions facilities either allowance offset allowances purchased auction secondary market dominion participated rggi allowance auctions date procured allowances meet estimated compliance requirements rggi 2009 2010 partially 2011 dominion expect allowances material impact results operations financial condition december 2009 governors 11 northeast midatlantic states including connecticut maryland massachusetts new york pennsylvania rhode island rggi states plus pennsylvania signed memorandum understanding committing states toward developing low carbon fuel standard reduce ghg emissions vehicles memorandum understanding establishes process develop regional framework 2011 examine economic impacts low carbon fuel standard program us currently party kyoto protocol united nations framework convention climate change became effective signatories february 16 2005 kyoto protocol process generally requires developed countries cap ghg emissions certain levels 20082012 time period conclusion december 2009 united nations climate change conference copenhagen denmark copenhagen accord adopted includes collection nonbinding voluntary actions various countries including us keep increase global mean temperature 2 degrees celsius include specific emissions targets calls industrial nations offer emissions reduction targets 2020 us expected participate process nuclear operations nuclear decommissioningminimum financial assurance nrc requires nuclear power plant owners annually update minimum financial assurance amounts future decommissioning nuclear facilities 2010 calculation nrc minimum financial assurance amount aggregated dominion’s virginia power’s nuclear units 31 billion 18 billion respectively satisfied combination funds collected deposited nuclear decommissioning trusts real annual rate return growth funds allowed nrc 2010 nrc minimum financial assurance amounts shown calculated using september 30 2010 us bureau labor statistics indices final nrc minimum financial assurance amounts filed nrc march 2011 likely based december 31 2010 indices dominion anticipate material difference nrc minimum financial assurance amounts shown final nrc minimum financial amounts filed nrc dominion believes amounts currently available decommissioning trusts expected earnings sufficient cover expected decommissioning costs millstone kewaunee units virginia power also believes decommissioning funds expected earnings surry north anna units sufficient particularly combined future ratepayer collections contributions decommissioning trusts future collections contributions required reflects positive longterm outlook trust fund investment returns units decommissioned decades dominion virginia power continue monitor trusts ensure meet minimum financial assurance requirement may include use parent company guarantees surety bonding financial guarantees recognized nrc nuclear insurance priceanderson act provides public 126 billion liability protection per nuclear incident via obligations required owners nuclear power plants priceanderson amendments act 1988 allows inflationary provision adjustment every five years dominion virginia power purchased 375 million coverage commercial insurance pools reactor site remainder provided mandatory industry risksharing program event nuclear incident licensed nuclear reactor us companies could assessed 118 million licensed reactors exceed 18 million per year per reactor limit number incidents retrospective premium assessed current level property insurance coverage dominion’s virginia power’s nuclear units follows companies’ coverage exceeds nrc minimum requirement nuclear power plant licensees 106 billion per reactor site includes coverage premature decommissioning functional total loss nrc requires proceeds insurance used first return reactor maintain safe stable condition second decontaminate reactor station site accordance plan approved nrc nuclear property insurance provided neil mutual insurance company subject retrospective premium assessments policy year losses exceed funds available insurance company dominion’s virginia power’s maximum retrospective premium assessment current policy period 77 million 39 million respectively based severity incident board directors nuclear insurer discretion lower eliminate maximum retrospective premium assessment dominion virginia power financial responsibility losses exceed limits insurance proceeds available must first used stabilization decontamination dominion virginia power also purchase insurance neil mitigate certain expenses including replacement power costs associated prolonged outage nuclear unit due direct physical damage program companies subject retrospective premium assessment policy year losses exceed funds available neil dominion’s virginia power’s maximum retrospective premium assessment current policy period 32 million 18 million respectively odec part owner north anna massachusetts municipal wholesale electric company central vermont public service corporation part owners millstone’s unit 3 responsible dominion virginia power share nuclear decommissioning obligation insurance premiums applicable units including retrospective premium assessments losses covered insurance spent nuclear fuel provisions nuclear waste policy act 1982 dominion virginia power entered contracts doe disposal spent nuclear fuel doe failed begin accepting spent fuel january 31 1998 date provided nuclear waste policy act companies’ contracts doe january 2004 dominion virginia power filed lawsuits us court federal claims doe requesting damages connection failure commence accepting spent nuclear fuel trial occurred may 2008 posttrial briefing argument concluded july 2008 october 15 2008 court issued opinion order dominion amount approximately 155 million includes approximately 112 million damages incurred virginia power spent fuelrelated costs surry north anna power stations approximately 43 million damages incurred spent nuclear fuelrelated costs dominion’s millstone power station june 30 2006 judgment entered court october 28 2008 december 2008 government appealed judgment u court appeals federal circuit appeal docketed march 2009 federal circuit granted government’s combined notes consolidated financial statements continued request stay appeal may 2010 stay lifted government’s initial brief appeal filed june 2010 issues raised government appeal pertain damages awarded dominion millstone government take issue damages awarded virginia power surry north anna result virginia power recognized receivable amount 174 million largely offset property plant equipment regulatory assets liabilities representing certain spent nuclear fuelrelated costs incurred june 30 2010 briefing appeal concluded september 2010 oral argument took place federal circuit january 2011 payment damages occur appeal process resolved lawsuit also filed kewaunee august 2010 dominion federal government reached settlement resolving dominion’s claims damages incurred kewaunee december 31 2008 approximately 21 million settlement payment received september 2010 companies continue manage spent fuel accepted doe virginia power kewaunee continue recognize receivables certain spent nuclear fuelrelated costs probable recovery doe guarantees surety bonds letters credit dominion december 31 2010 dominion issued 131 million guarantees primarily support equity method investees significant amounts related guarantees recorded december 31 2010 dominion’s exposure guarantees 54 million primarily related certain reserve requirements associated nonrecourse financing first quarter 2010 dominion’s 165 million limitedscope guarantee indemnification onehalf nedpower’s projectlevel financing relating litigation seeking halt nedpower wind farm formally terminated consent nedpower’s lenders result dismissal applicable court litigation pursuant agreed dismissal order addition guarantees dominion partners shell bp may required make additional periodic equity contributions nedpower fowler ridge connection certain funding requirements associated respective nonrecourse financings december 31 2010 dominion’s maximum remaining cumulative exposure equity funding agreements 144 million 2019 maximum annual future contributions could range approximately 16 million 19 million dominion expects operating cash flows projects sufficient meet financing requirements dominion also enters guarantee arrangements behalf consolidated subsidiaries primarily facilitate commercial transactions third parties extent liability subject guarantee incurred one dominion’s consolidated subsidiaries liability included consolidated financial statements dominion required recognize liabilities guarantees issued behalf subsidiaries unless becomes probable perform guarantees terms guarantees typically end obligations paid dominion currently believes unlikely would required perform otherwise incur losses associated guarantees subsidiaries’ obligations december 31 2010 dominion issued following subsidiary guarantees 1 represents estimated portion guarantee’s stated limit utilized december 31 2010 based upon prevailing economic conditions fact patterns specific guarantee arrangement guarantees related obligations recorded liabilities dominion’s subsidiaries value includes recorded amount 2 guarantees debt certain dei subsidiaries event default subsidiaries dominion would obligated repay amounts 3 guarantees related energy trading marketing activities commodity commitments certain subsidiaries including subsidiaries virginia power dei guarantees provided counterparties order facilitate physical financial transactions gas oil electricity pipeline capacity transportation related commodities services subsidiaries fail perform pay contracts counterparties seek performance payment dominion would obligated satisfy obligation dominion subsidiaries receive similar guarantees collateral credit extended others value provided includes certain guarantees stated limits 4 guarantee dei subsidiary’s leasing obligation fairless 5 guarantees related certain dei subsidiaries’ potential retrospective premiums could assessed nuclear incident dominion’s nuclear insurance programs guarantees dei subsidiary’s virginia power’s commitment buy nuclear fuel excludes dominion’s agreement provide 150 million 60 million two dei subsidiaries pay operating expenses millstone kewaunee respectively event prolonged outage part satisfying certain nrc requirements concerned ensuring adequate funding operations nuclear power stations additionally december 31 2010 dominion purchased 87 million surety bonds authorized issuance standby letters credit financial institutions 136 million facilitate commercial transactions subsidiaries third parties terms surety bonds dominion obligated indemnify respective surety bond company amounts paid virginia power december 31 2010 virginia power issued 16 million guarantees primarily support taxexempt debt issued conduits virginia power also purchased 39 million surety bonds various purposes including providing workers’ compensation coverage authorized issuance standby letters credit financial institutions 91 million facilitate commercial transactions subsidiaries third parties terms surety bonds virginia power obligated indemnify respective surety bond company amounts paid indemnifications part commercial contract negotiations normal course business dominion virginia power may sometimes agree make payments compensate indemnify parties possible future unfavorable financial consequences resulting specified events specified events may involve adverse judgment lawsuit imposition additional taxes due change tax law interpretation tax law dominion virginia power unable develop estimate maximum potential amount future payments contracts events would obligate yet occurred event occurred notified occurrence however december 31 2010 dominion virginia power believe future payments could ultimately become payable contract provisions would material impact results operations cash flows financial position workforce reduction program first quarter 2010 dominion virginia power announced workforce reduction program reduced total workforces approximately 9 11 respectively 2010 goal workforce reduction program reduce operations maintenance expense growth improve efficiency companies first quarter 2010 dominion recorded 338 million 206 million aftertax charge including 202 million 123 million aftertax virginia power primarily reflected operations maintenance expense consolidated statements income due severance pay benefits related workforce reduction program 2010 dominion virginia power paid 109 million 104 million respectively costs related program terms workforce reduction program consistent companies’ existing severance plan note 24 credit risk credit risk financial loss counterparties fail perform contractual obligations order minimize overall credit risk credit policies maintained including evaluation counterparty financial condition collateral requirements use standardized agreements facilitate netting cash flows associated single counterparty addition counterparties may make available collateral including letters credit cash held margin deposits result exceeding agreedupon credit limits may required prepay transaction dominion virginia power maintain provision credit losses based factors surrounding credit risk customers historical trends information management believes based credit policies december 31 2010 provision credit losses unlikely material adverse effect financial position results operations cash flows would occur result counterparty nonperformance general dominion diversified energy company dominion transacts primarily major companies energy industry commercial residential energy consumers transactions principally occur northeast midatlantic midwest regions us texas dominion believe geo graphic concentration contributes significantly overall exposure credit risk addition result large diverse customer base dominion exposed significant concentration credit risk receivables arising electric gas utility operations dominion’s exposure credit risk concentrated primarily within energy marketing price risk management activities dominion transacts smaller less diverse group counterparties transactions may involve large notional volumes potentially volatile commodity prices energy marketing price risk management activities include trading energyrelated commodities marketing merchant generation output structured transactions use financial contracts enterprisewide hedging purposes gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2010 dominion’s gross credit exposure totaled 620 million application collateral credit exposure reduced 591 million amount investment grade counterparties including internally rated represented 85 one counterparty exposure represents 10 dominion’s total exposure large financial institution rated investment grade virginia power virginia power sells electricity provides distribution transmission services customers virginia northeastern north carolina management believes geographic concentration risk mitigated diversity virginia power’s customer base includes residential commercial industrial customers well rural electric cooperatives municipalities credit risk associated trade accounts receivable energy consumers limited due large number customers virginia power’s exposure potential concentrations credit risk results primarily sales wholesale customers virginia power’s gross credit exposure counterparty calculated outstanding receivables plus unrealized offbalance sheet exposure taking account contractual netting rights gross credit exposure calculated prior application collateral december 31 2010 virginia power’s exposure potential concentrations credit risk considered material creditrelated contingent provisions majority dominion’s derivative instruments contain creditrelated contingent provisions require dominion provide collateral upon occurrence specific events primarily credit downgrade creditrelated contingent features underlying instruments liability position fully collateralized cash fully triggered december 31 2010 2009 dominion would required post additional 88 million 36 million respectively collateral counterparties collateral would required posted includes impacts offsetting asset positions amounts already posted derivatives nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms dominion posted 54 million collateral including 19 million letters credit december 31 2010 62 combined notes consolidated financial statements continued million collateral including 48 million letters credit december 31 2009 related derivatives creditrelated contingent provisions liability position fully collateralized cash collateral posted includes amounts paid related nonderivative contracts derivatives elected normal purchases normal sales exception per contractual terms aggregate fair value derivative instruments creditrelated contingent provisions liability position fully collateralized cash december 31 2010 2009 210 million 181 million respectively include impact offsetting asset positions see note 8 information derivative instruments note 25 dominion capital inc december 31 2007 dci held investment subordinated notes thirdparty cdo entity cdo entity’s primary focus purchase origination middle market senior secured first second lien commercial industrial loans primary secondary loan markets dominion concluded previously cdo entity vie dci primary beneficiary cdo entity therefore dominion consolidated cdo entity december 31 2007 march 2008 dominion reached agreement sell remaining interest subordinated notes third party effectively eliminating variability interest therefore deconsolidated cdo entity march 31 2008 recognized impairment losses 62 million 38 million aftertax recorded operations maintenance expense consolidated statement income connection sale subordinated notes april 2008 dominion received proceeds 54 million including accrued interest sale concluded dominion’s efforts divest dci since remaining assets aligned dominion’s core business note 26 relatedparty transactions virginia power engages relatedparty transactions primarily dominion subsidiaries affiliates virginia power’s receivable payable balances affiliates settled based contractual terms monthly basis depending nature underlying transactions virginia power included dominion’s consolidated federal income tax return participates certain dominion benefit plans discussion significant related party transactions follows transactions affiliates virginia power transacts affiliates certain quantities natural gas commodities ordinary course business virginia power also enters certain commodity derivative contracts affiliates virginia power uses contracts principally comprised commodity swaps options manage commodity price risks associated purchases natural gas drs provides accounting legal finance certain administrative technical services virginia power presented significant transactions drs affiliates 2009 virginia power purchased turbines affiliate 58 million used bear garden power station currently construction following table presents virginia power’s borrowings dominion shortterm arrangements virginia power incurred interest charges related borrowings dominion 1 million 5 million 10 million 2010 2009 2008 respectively 2010 2009 2008 virginia power issued 33013 31877 11786 shares common stock dominion settlement approximately 1 billion 1 billion 350 million shortterm demand note borrowings dominion respectively note 27 operating segments dominion virginia power organized primarily basis products services sold us description operations included companies’ primary operating segments follows addition operating segments companies also report corporate segment corporate segment virginia power primarily includes specific items attributable operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments corporate segment dominion includes corporate service company functions including unallocated debt net impact peoples certain dci operations discussed notes 4 25 respectively addition corporate includes specific items attributable dominion’s operating segments included profit measures evaluated executive management assessing segments’ performance allocating resources among segments dominion 2010 dominion reported aftertax net benefits 837 million specific items corporate segment 1 billion net benefits attributable operating segments net benefits specific items 2010 primarily related impact following items  25 billion 14 billion aftertax benefit resulting gain sale substantially dominion’s appalachian ep operations net charges related divestiture attributable dominion energy partially offset  338 million 206 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program attributable  dvp 67 million aftertax  dominion energy 24 million aftertax  dominion generation 115 million aftertax  134 million 155 million aftertax loss discontinued operations peoples primarily reflecting net loss sale attributable corporate segment  194 million 127 million aftertax impairment charge certain merchant generation power stations attributable dominion generation 2009 dominion reported aftertax net expenses 655 million specific items corporate segment 688 million net expenses attributable operating segments net expenses specific items 2009 primarily related impact following items  455 million 281 million aftertax ceiling test impairment charge related carrying value dominion’s ep properties attributable dominion energy  712 million 435 million aftertax charge connection settlement virginia power’s 2009 base rate case proceedings attributable  dominion generation 257 million aftertax  dvp 178 million aftertax 2008 dominion reported aftertax net expenses 3 million specific items corporate segment 134 million net expenses attributable operating segments net expenses specific items 2008 primarily related impact following items  180 million 109 million aftertax impairment charges reflecting otherthantemporary declines fair value securities held investments nuclear decommissioning trusts december 31 2008 attributable dominion generation  62 million 38 million aftertax impairment charge related disposition certain dci investments attributable corporate segment  42 million 26 million aftertax charge related postclosing adjustments gain sale nonappalachian ep business attributable corporate segment  39 million 24 million aftertax impairment charges related nonrefundable deposits certain generationrelated vendor contracts attributable dominion generation  119 million 192 million aftertax benefit reflecting discontinued operations peoples attributable corporate segment combined notes consolidated financial statements continued following table presents segment information pertaining dominion’s operations december 31 2010 2009 2008 none dominion’s longlived assets significant percentage operating revenues associated international operations virginia power majority virginia power’s revenue provided tariff rates generally revenue allocated management reporting based unbundled rate methodology among virginia power’s dvp dominion generation segments 2010 virginia power reported aftertax net expenses 153 million specific items attributable operating segments corporate segment net expenses specific items 2010 primarily related impact following  202 million 123 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program attributable  dvp 63 million aftertax  dominion generation 60 million aftertax 2009 virginia power reported aftertax net expenses 430 million specific items attributable operating segments corporate segment net expenses primarily related 700 million 427 million aftertax charge connection settlement 2009 base rate case proceedings attributable dominion generation 257 million aftertax dvp 170 million aftertax 2008 virginia power’s corporate segment included 23 million net aftertax expenses attributable dominion generation segment net expenses 2008 primarily related impairment charges 18 million 11 million aftertax related nonrefundable deposits certain generationrelated vendor contracts 8 million 5 million aftertax reflecting otherthantemporary declines fair value securities held investments nuclear decommissioning trusts following table presents segment information pertaining virginia power’s operations combined notes consolidated financial statements continued note 28 quarterly financial common stock data unaudited summary dominion’s virginia power’s quarterly results operations years ended december 31 2010 2009 follows amounts reflect adjustments necessary opinion management fair statement results interim periods results interim periods may fluctuate result weather conditions changes rates factors dominion 1 amounts attributable dominion’s common shareholders dominion’s 2010 results include impact following significant items  first quarter results include 206 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program 149 million aftertax loss discontinued operations peoples primarily reflecting net loss sale  second quarter results include 14 billion aftertax benefit resulting gain sale substantially dominion’s appalachian ep operations net charges related divestiture 95 million aftertax impairment charge state line reflect estimated fair value power station dominion’s 2009 results include impact following significant items  first quarter results include 272 million aftertax ceiling impairment charge related carrying value ep properties 50 million aftertax net loss investments held nuclear decommissioning trust funds  second quarter results include 62 million aftertax reduction operations maintenance expense due downward revision nuclear decommissioning aro power station unit longer service  third quarter results include 34 million aftertax net gain investments held nuclear decommissioning trust funds  fourth quarter results include 435 million aftertax charge connection settlement virginia power’s 2009 base rate case proceedings virginia power virginia power’s quarterly results operations follows virginia power’s 2010 results include impact following significant item  first quarter results include 123 million aftertax charge primarily reflecting severance pay benefits related workforce reduction program virginia power’s 2009 results include impact following significant item  fourth quarter results include 427 million aftertax charge connection settlement 2009 base rate case proceedings item 9 item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 28 schedules omitted applicable required information either material shown financial statements related notes 2 exhibits indicates management contract compensatory plan arrangement pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2008 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer thomas n chewning thomas n chewning director executive vice president chief financial officer thomas p wohlfarth thomas p wohlfarth senior vice president chief accounting officer steven rogers steven rogers director item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 56 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion virginia power dominion gas 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 32c certification securities exchange commission chief executive officer chief financial officer dominion gas holdings llc required section 906 sarbanesoxley act 2002 furnished herewith x following financial statements dominion resources inc virginia electric power company dominion gas holdings llc annual report form 10k year ended december 31 2014 filed february 27 2015 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 27 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2015 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 27 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2015 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer dominion gas pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion gas holdings llc thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 27 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2015 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer exhibit index exhibit number description dominion virginia power dominion gas 32c certification securities exchange commission chief executive officer chief financial officer dominion gas holdings llc required section 906 sarbanesoxley act 2002 furnished herewith x following financial statements dominion resources inc virginia electric power company dominion gas holdings llc annual report form 10k year ended december 31 2014 filed february 27 2015 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 69 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion energy virginia power dominion energy gas 32c certification securities exchange commission chief executive officer chief financial officer dominion energy gas holdings llc required section 906 sarbanesoxley act 2002 furnished herewith x dominion energy inc earnings release kit furnished herewith x following financial statements dominion energy inc’s annual report form 10k year ended december 31 2019 filed february 28 2020 formatted ixbrl inline extensible business reporting language consolidated statements income ii consolidated statements comprehensive income iii consolidated balance sheets iv consolidated statements equity v consolidated statements cash flows vi notes consolidated financial statements following financial statements virginia electric power company’s annual report form 10k year ended december 31 2019 filed february 28 2020 formatted ixbrl inline extensible business reporting language consolidated statements income ii consolidated statements comprehensive income iii consolidated balance sheets iv consolidated statements common shareholder’s equity v consolidated statements cash flows vi notes consolidated financial statements following financial statements dominion energy gas holdings llc’s annual report form 10k year ended december 31 2019 filed february 28 2020 formatted ixbrl inline extensible business reporting language consolidated statements income ii consolidated statements comprehensive income iii consolidated balance sheets iv consolidated statements equity v consolidated statements cash flows vi notes consolidated financial statements x cover page interactive data file formatted ixbrl inline extensible business reporting language contained exhibit 101 x indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures dominion energy pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 28 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2020 signature title thomas f farrell ii thomas f farrell ii chairman board directors president chief executive officer james bennett james bennett director helen e dragas helen e dragas director james ellis jr james ellis jr director maybank hagood maybank hagood director john w harris john w harris director ronald w jibson ronald w jibson director mark j kington mark j kington director joseph rigby joseph rigby director pamela j royal pamela j royal director robert h spilman jr robert h spilman jr director susan n story susan n story director michael e szymanczyk michael e szymanczyk director james r chapman james r chapman executive vice president chief financial officer treasurer michele l cardiff michele l cardiff vice president controller chief accounting officer virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 28 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2020 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer robert blue robert blue director carlos brown carlos brown director james r chapman james r chapman executive vice president chief financial officer treasurer michele l cardiff michele l cardiff vice president controller chief accounting officer dominion energy gas pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 28 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2020 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer carlos brown carlos brown director james r chapman james r chapman director executive vice president chief financial officer treasurer michele l cardiff michele l cardiff vice president controller chief accounting officer item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 29 schedules omitted applicable required information either material shown financial statements related notes 2 exhibits indicates management contract compensatory plan arrangement pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 26 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2009 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer thomas n chewning thomas n chewning director executive vice president chief financial officer thomas p wohlfarth thomas p wohlfarth senior vice president chief accounting officer steven rogers steven rogers director item 15 exhibits financial statement schedules reports form 8k certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 30 2 financial statement schedules omitted applicable required information shown financial statements related notes 3 exhibits 311 certification registrant’s chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification registrant’s chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 313 certification registrant’s chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 314 certification registrant’s chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 32 certification securities exchange commission registrant’s chief executive officers chief financial officer required section 906 sarbanesoxley act 2002 furnished herewith indicates management contract compensatory plan arrangement b reports form 8k following current reports form 8k filed sec 1 company filed report form 8k december 4 2003 relating sale relating sale 230000000 aggregate principal amount company’s 2003 series b 450 senior notes due 2010 200000000 aggregate principal amount company’s 2003 series c525 senior notes due 2015 2 company filed report form 8k december 11 2003 relating sale 225000000 aggregate principal amount company’s 410 callable puttable enhanced securitiessm “capessm” due 2038 independent auditors’ report board directors virginia electric power company richmond virginia audited consolidated financial statements virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries december 31 2003 2002 three years period ended december 31 2003 issued report thereon dated february 26 2004 report expresses unqualified opinion includes explanatory paragraph changes accounting principles asset retirement obligations contracts involved energy trading derivative contracts held trading purposes derivative contracts price adjustment feature consolidation variable interest entities guarantees 2003 derivative contracts hedging activities 2001 consolidated financial statements report included elsewhere form 10k audits also included financial statement schedule company listed item 15 financial statement schedule responsibility company’s management responsibility express opinion based audits opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein deloitte touche llp richmond virginia february 26 2004 virginia electric power company schedule iivaluation qualifying accounts represents net amounts chargedoff uncollectible b represents adjustments reflecting changes estimates c represents payments liabilities signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date march 1 2004 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 1st day march 2004 signature title thos e capps thos e capps chairman board directors thomas n chewning thomas n chewning director thomas f farrell ii thomas f farrell ii director jay l johnson jay l johnson president chief executive officer paul koonce paul koonce chief executive officerenergy mark f mcgettrick mark f mcgettrick president chief executive officergeneration g scott hetzer g scott hetzer senior vice president treasurer principal financial officer steven rogers steven rogers vice president principal accounting officer item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 85 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion energy virginia power following financial statements dominion energy inc’s annual report form 10k year ended december 31 2020 filed february 25 2021 formatted ixbrl inline extensible business reporting language consolidated statements income ii consolidated statements comprehensive income iii consolidated balance sheets iv consolidated statements equity v consolidated statements cash flows vi notes consolidated financial statements following financial statements virginia electric power company’s annual report form 10k year ended december 31 2020 filed february 25 2021 formatted ixbrl inline extensible business reporting language consolidated statements income ii consolidated statements comprehensive income iii consolidated balance sheets iv consolidated statements common shareholder’s equity v consolidated statements cash flows vi notes consolidated financial statements x cover page interactive data file formatted ixbrl inline extensible business reporting language contained exhibit 101 x indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures dominion energy pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 25 2021 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 25th day february 2021 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 25 2021 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 25th day february 2021 signature title edward h baine edward h baine director robert blue robert blue director chief executive officer diane leopold diane leopold director james r chapman james r chapman executive vice president chief financial officer treasurer michele l cardiff michele l cardiff senior vice president controller chief accounting officer item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 57 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion virginia power 1042 form special performance grant thomas f farrell ii mark f mcgettrick approved january 16 2014 filed herewith x 1043 base salaries named executive officers dominion resources inc filed herewith x 1044 nonemployee directors’ annual compensation dominion resources inc filed herewith x 12a ratio earnings fixed charges dominion resources inc filed herewith x 12b ratio earnings fixed charges virginia electric power company filed herewith x 12c ratio earnings fixed charges dividends virginia electric power company filed herewith x subsidiaries dominion resources inc virginia electric power company filed herewith x consent deloitte touche llp filed herewith x 31a certification chief executive officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31b certification chief financial officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31c certification chief executive officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 31d certification chief financial officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 991 towers watson energy services survey participants filed herewith x following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2013 filed february 27 2014 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 27 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2014 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 27 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2014 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer ashwini sawhney ashwini sawhney vice president controller chief accounting officer mark webb mark webb director exhibit index exhibit number description dominion virginia power 12c ratio earnings fixed charges dividends virginia electric power company filed herewith x subsidiaries dominion resources inc virginia electric power company filed herewith x consent deloitte touche llp filed herewith x 31a certification chief executive officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31b certification chief financial officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31c certification chief executive officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 31d certification chief financial officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 991 towers watson energy services survey participants filed herewith x following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2013 filed february 27 2014 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 28 schedules omitted applicable required information either material shown financial statements related notes 2 exhibits 2004 page 63 2004 page 64 indicates management contract compensatory plan arrangement 2004 page 65 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date february 28 2005 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2005 signature title thos e capps thos e capps chairman board directors thomas n chewning thomas n chewning director thomas f farrell ii thomas f farrell ii director jay l johnson jay l johnson president chief executive officer paul koonce paul koonce chief executive officerenergy mark f mcgettrick mark f mcgettrick president chief executive officergeneration g scott hetzer g scott hetzer senior vice president treasurer principal financial officer steven rogers steven rogers vice president principal accounting officer 2004 page 66 item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 55 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted indicates management contract compensatory plan arrangement signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 26 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2010 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 26 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2010 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer ashwini sawhney ashwini sawhney vice presidentaccounting chief accounting officer steven rogers steven rogers director exhibit index indicates management contract compensatory plan arrangement item 15 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 financial statements see index page 32 2 financial statement schedules omitted applicable required information shown financial statements related notes 3 exhibits 31 restated articles incorporation amended effect may 6 1999 amended december 6 2002 filed herewith 32 bylaws amended effect april 28 2000 exhibit 3 form 10q quarter ended march 31 2000 file 12255 incorporated reference 41 see exhibit 31 42 indenture mortgage virginia electric power company dated november 1 1935 supplemented modified fiftyeight supplemental indentures exhibit 4ii form 10k fiscal year ended december 31 1985 file 12255 incorporated reference sixtyseventh supplemental indenture exhibit 4i form 8k dated april 2 1991 file 12255 incorporated reference seventieth supplemental indenture exhibit 4iii form 8k dated february 25 1992 file 12255 incorporated reference seventyfirst supplemental indenture exhibit 4i seventysecond supplemental indenture exhibit 4ii form 8k dated july 7 1992 file 12255 incorporated reference seventythird supplemental indenture exhibit 4i form 8k dated august 6 1992 file 12255 incorporated reference seventyfourth supplemental indenture exhibit 4i form 8k dated february 10 1993 file 12255 incorporated reference seventyfifth supplemental indenture exhibit 4i form 8k dated april 6 1993 file 12255 incorporated reference seventysixth supplemental indenture exhibit 4i form 8k dated april 21 1993 file 12255 incorporated reference seventyseventh supplemental indenture exhibit 4i form 8k dated june 8 1993 file 12255 incorporated reference seventyeighth supplemental indenture exhibit 4i form 8k dated august 10 1993 file 12255 incorporated reference seventyninth supplemental indenture exhibit 4i form 8k dated august 10 1993 file 12255 incorporated reference eightieth supplemental indenture exhibit 4i form 8k dated october 12 1993 file 12255 incorporated reference eightyfirst supplemental indenture exhibit 4iii form 10k fiscal year ended december 31 1993 file 12255 incorporated reference eightysecond supplemental indenture exhibit 4i form 8k dated january 18 1994 file 12255 incorporated reference eightythird supplemental indenture exhibit 4i form 8k dated october 19 1994 file 12255 incorporated reference eightyfourth supplemental indenture exhibit 4i form 8k dated march 23 1995 file 12255 incorporated reference eightyfifth supplemental indenture exhibit 4i form 8k dated february 20 1997 file 12255 incorporated reference 43 indenture dated june 1 1986 virginia electric power company jp morgan chase bank formerly chase manhattan bank chemical bank exhibit 4v form 10k fiscal year ended december 31 1993 file 12255 incorporated reference 44 indenture dated april 1 1988 virginia electric power company jp morgan chase bank formerly chase manhattan bank chemical bank supplemented modified first supplemental indenture dated august 1 1989 exhibit 4vi form 10k fiscal year ended december 31 1993 file 12255 incorporated reference second supplemental indenture dated may 1 1999 exhibit 42 form s3 file 3337615 filed april 13 1999 incorporated reference 45 subordinated note indenture dated august 1 1995 virginia electric power company jp morgan chase bank formerly chase manhattan bank chemical bank trustee exhibit 4a form s3 registration statement file 33320561 filed january 28 1997 incorporated reference form second supplemental indenture exhibit 46 form 8k filed august 20 2002 12255 incorporated reference 46 form senior indenture dated june 1 1998 virginia electric power company jp morgan chase bank formerly chase manhattan bank exhibit 4ii form s3 registration statement file 33347119 filed february 27 1997 incorporated reference supplemented first supplemental indenture exhibit 42 form 8k dated june 12 1998 file 12255 incorporated reference second supplemental indenture exhibit 42 form 8k dated june 3 1999 file no12255 incorporated reference third supplemental indenture exhibit 42 form 8k dated october 27 1999 file 12255 incorporated reference form fourth supplemental indenture exhibit 42 form 8k dated march 22 2001 file 12255 incorporated reference form fifth supplemental indenture exhibit 43 form 8k dated march 22 2001 file 12255 incorporated reference form sixth supplemental indenture exhibit 42 form 8k dated january 24 2002 incorporated reference seventh supplemental indenture dated september 1 2002 exhibit 44 form 8k filed september 11 2002 file 12255 incorporated reference form eighth supplemental indenture exhibit 42 form 8k filed february 27 2000 file 12255 incorporated reference 47 virginia electric power company agrees furnish commission upon request instrument respect longterm debt total amount securities authorized exceed 10 dominion resources inc’s total consolidated assets 101 amended restated interconnection operating agreement dated july 29 1997 virginia electric power company old dominion electric cooperative exhibit 13 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 102 services agreement dominion resources services inc virginia electric power company dated january 1 2000 exhibit 1019 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 103 support agreement dominion resources services inc virginia electric power company dated january 1 2000 exhibit 1020 form 10k fiscal year ended december 31 1999 file 12255 incorporated reference 104 pjm south implementation agreement virginia electric power company pjm interconnection llc dated september 30 2002 amended december 6 2002 filed herewith 105 1250000000 364day credit agreement among dominion resources inc virginia electric power company consolidated natural gas company jpmorgan chase bank administrative agent lenders dated may 30 2002 filed herewith 106 750000000 threeyear credit agreement among dominion resources inc virginia electric power company consolidated natural gas company jpmorgan chase bank administrative agent lenders dated may 30 2002 filed herewith 107 dominion resources inc executive supplemental retirement plan effective january 1 1981 amended restated september 1 1996 amendment dated june 20 1997 amendment effective february 20 1998 exhibit 1014 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference amendment dated november 26 2001 exhibit 106 form 10k fiscal year ended december 31 2001 file 12255 incorporated reference 108 dominion resources inc’s cash incentive plan adopted december 20 1991 exhibit 10xxv form 10k fiscal year ended december 31 1991 file 12255 incorporated reference 109 dominion resources inc incentive compensation plan effective april 22 1997 amended restated effective july 20 2001 exhibit 101 form 10q quarter ended june 30 2001 file 12255 incorporated reference 1010 dominion resources inc executive stock purchase loan plan phase ii dated february 15 2000 filed herewith 1011 dominion resources inc retirement benefit funding plan effective june 29 1990 amended restated september 1 1996 exhibit 1016 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference 1012 dominion resources inc retirement benefit restoration plan adopted effective january 1 1991 amended restated september 1 1996 exhibit 1017 form 10k fiscal year ended december 31 1997 file 12255 incorporated reference amendment dated november 26 2001 exhibit 109 form 10k fiscal year ended december 31 2001 file 12255 incorporated reference 1013 dominion resources inc executives’ deferred compensation plan effective january 1 1994 amended restated january 1 2003 filed herewith 1014 dominion resources inc leadership stock option plan effective july 1 2000 amended restated effective july 20 2001 exhibit 102 form 10q quarter ended june 30 2001 file 18489 incorporated reference 1015 dominion resources inc executive stock purchase tool kit effective september 1 2001 restated december 20 2002 filed herewith 1016 dominion resources inc security option plan effective january 1 2003 filed herewith 1017 omitted 1018 omitted 1019 letter agreement company thomas f farrell ii filed herewith 1020 form employment continuity agreement certain officers dominion including messrs farrell christian staton rivas johnson hilton exhibit 102 form 10q quarter ended june 30 1999 file 12255 incorporated reference amended october 19 2001 exhibit 1015 form 10k fiscal year ended december 31 2001 file 12255 incorporated reference 1021 form executive supplemental retirement plan lifetime benefits certain officers company including mr hilton exhibit 1019 form 10k fiscal year ended december 31 2001 file 12255 incorporated reference 1022 employment agreement dated august 1 2000 company jimmy staton exhibit 1024 form 10k fiscal year ended december 31 2001 file 12255 incorporated reference 1023 supplemental retirement agreement dated december 12 2000 company david christian exhibit 1025 form 10k fiscal year ended december 31 2001 file 12255 incorporated reference 1024 memorandum regarding terms retirement related general release dated october 23 2002 dominion edgar roach jr exhibit 102 form 10q quarter ended september 30 2002 file 12255 incorporated reference 1025 memorandum regarding terms retirement related general release dated november 5 2002 dominion james p o’hanlon exhibit 103 form 10q quarter ended september 30 2002 file 12255 incorporated reference 1026 offer employment dated august 21 2000 dominion energy inc jay l johnson filed herewith 1027 supplemental agreement dated july 29 2002 dominion resources services inc edward j rivas filed herewith 121 ratio earnings fixed charges exhibit 12 form 8k filed february 27 2003 file 12255 incorporated reference 122 ratio earnings fixed charges dividends filed herewith 181 letter change accounting principles exhibit 18 form 10q quarter ended september 30 2000 file 12255 incorporated reference subsidiaries registrant filed herewith 231 consent deloitte touche llp filed herewith 232 consent jackson kelly filed herewith 233 consent mcguirewoods llp filed herewith 991 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 992 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 993 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 994 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith 995 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 filed herewith indicates management contract compensatory plan arrangement b reports form 8k 1 company filed report form 8k december 10 2002 relating sale 1250 units unit consisting 1000 shares flexible money market cumulative preferred stock 2002 series liquidation preference 100 per share 2 company filed report form 8k february 23 2003 relating sale 400000000 aggregate principal amount company’s 2003 series 475 senior notes due 2013 independent auditors’ report board directors virginia electric power company richmond virginia audited consolidated financial statements virginia electric power company whollyowned subsidiary dominion resources inc subsidiaries december 31 2002 2001 three years period ended december 31 2002 issued report thereon dated january 21 2003 report expresses unqualified opinion includes explanatory paragraph changes accounting principle derivative instruments hedging activities 2001 method accounting used develop marketrelated value pension plan assets 2000 consolidated financial statements report included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility company’s management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp richmond virginia january 21 2003 virginia electric power company schedule iivaluation qualifying accounts represents net amounts chargedoff uncollectible b represents adjustments reflecting changes estimates c represents payments workforce reductions andor restructuring liabilities signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thos e capps thos e capps chairman board directors date march 20 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 20th day march 2003 signature title thos e capps thos e capps chairman board directors thomas n chewning thomas n chewning director thomas f farrell ii thomas f farrell ii president chief executive officer director jay l johnson jay l johnson president chief executive officer paul koonce paul koonce chief executive officer transmission mark f mcgettrick mark f mcgettrick president chief executive officer generation g scott hetzer g scott hetzer senior vice president treasurer principal financial officer steven rogers steven rogers vice president principal accounting officer certifications thomas f farrell ii certify 1 reviewed annual report form 10k virginia electric power company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses jay l johnson certify 1 reviewed annual report form 10k virginia electric power company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses paul koonce certify 1 reviewed annual report form 10k virginia electric power company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses mark f mcgettrick certify 1 reviewed annual report form 10k virginia electric power company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses g scott hetzer certify 1 reviewed annual report form 10k virginia electric power company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 60 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion virginia power dominion gas 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 32c certification securities exchange commission chief executive officer chief financial officer dominion gas holdings llc required section 906 sarbanesoxley act 2002 furnished herewith x following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2016 filed february 28 2017 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 28 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2017 signature title thomas f farrell ii thomas f farrell ii chairman board directors president chief executive officer william p barr william p barr director helen e dragas helen e dragas director james ellis jr james ellis jr director ronald w jibson ronald w jibson director john w harris john w harris director mark j kington mark j kington director joseph rigby joseph rigby director pamela j royal pamela j royal director robert h spilman jr robert h spilman jr director susan n story susan n story director michael e szymanczyk michael e szymanczyk director david wollard david wollard director mark f mcgettrick mark f mcgettrick executive vice president chief financial officer michele l cardiff michele l cardiff vice president controller chief accounting officer virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2017 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer dominion gas pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion gas holdings llc thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2017 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer exhibit index exhibit number description dominion virginia power dominion gas following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2016 filed february 28 2017 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 69 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion energy virginia power dominion energy gas audited consolidated financial statements schedule scana corporation december 31 2018 2017 three years ended december 31 2018 together related notes financial statements incorporated reference item 8 financial statements supplementary data scana corporation scana corporation annual report form 10k fiscal year ended december 31 2018 filed february 28 2019 file 18809 scana corporation’s annual report included combined filing annual report south carolina electric gas company information related affiliated entity considered component audited financial statements scana corporation x following financial statements dominion energy inc virginia electric power company dominion energy gas holdings llc annual report form 10k year ended december 31 2018 filed february 28 2019 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures dominion energy pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion energy inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 28 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2019 signature title thomas f farrell ii thomas f farrell ii chairman board directors president chief executive officer james bennett james bennett director helen e dragas helen e dragas director james ellis jr james ellis jr director maybank hagood maybank hagood director john w harris john w harris director ronald w jibson ronald w jibson director mark j kington mark j kington director joseph rigby joseph rigby director pamela j royal pamela j royal director robert h spilman jr robert h spilman jr director susan n story susan n story director michael e szymanczyk michael e szymanczyk director james r chapman james r chapman executive vice president chief financial officer treasurer michele l cardiff michele l cardiff vice president controller chief accounting officer virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2019 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer robert blue robert blue director carlos brown carlos brown director james r chapman james r chapman executive vice president chief financial officer treasurer michele l cardiff michele l cardiff vice president controller chief accounting officer dominion energy gas pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion energy gas holdings llc thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2019 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer carlos brown carlos brown director james r chapman james r chapman director executive vice president chief financial officer treasurer michele l cardiff michele l cardiff vice president controller chief accounting officer item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 24 schedules omitted applicable required information either material shown financial statements related notes 2 exhibits 103 agreement pjm interconnection llc virginia electric power company exhibit 101 form 8k filed april 26 2005 file 12255 incorporated reference 104 25 billion fiveyear revolving credit agreement dated may 12 2005 among dominion resources inc virginia electric power company consolidated natural gas company jpmorgan chase bank na administrative agent citibank na syndication agent barclays bank plc bank nova scotia wachovia bank national association codocumentation agents lenders named herein exhibit 101 form 8k filed may 18 2005 file 18489 incorporated reference 105 form settlement agreement form proposed consent decree among united states america behalf united states environmental protection agency state new york state new jersey state connecticut commonwealth virginia state west virginia dominion exhibit 10 form 10q quarter ended march 31 2003 file 12255 incorporated reference 106 dominion resources inc executive supplemental retirement plan amended restated effective december 17 2004 exhibit 105 form 8k filed december 23 2004 file 18489 incorporated reference 107 dominion resources inc incentive compensation plan effective april 22 1997 amended restated effective july 20 2001 exhibit 101 form 10q quarter ended june 30 2001 file 12255 incorporated reference 108 dominion resources inc 2005 incentive compensation plan exhibit 10 form 8k filed march 3 2004 file 18489 incorporated reference 109 dominion resources inc executive stock purchase loan plan ii dated february 15 2000 exhibit 1010 form 10k fiscal year ended december 31 2002 file 12255 incorporated reference 1010 form employment continuity agreement certain officers company amended restated july 15 2003 exhibit 101 form 10q quarter ended june 30 2003 file 12255 incorporated reference 1011 dominion resources inc retirement benefit funding plan effective june 29 1990 amended restated september 1 1996 exhibit 10iii form 10q quarter ended june 30 1997 file 18489 incorporated reference 1012 dominion resources inc retirement benefit restoration plan amended restated effective december 17 2004 exhibit 106 form 8k filed december 23 2004 file 18489 incorporated reference 1013 dominion resources inc executives’ deferred compensation plan amended restated effective december 17 2004 exhibit 107 form 8k filed december 23 2004 file 18489 incorporated reference 1014 dominion resources inc new executive supplemental retirement plan effective january 1 2005 exhibit 108 form 8k filed december 23 2004 file 18489 incorporated reference amended january 19 2006 filed herewith 1015 dominion resources inc new retirement benefit restoration plan effective january 1 2005 exhibit 109 form 8k filed december 23 2004 file 18489 incorporated reference 1016 dominion resources inc leadership stock option plan effective july 1 2000 amended restated effective july 20 2001 exhibit 102 form 10q quarter ended june 30 2001 file 12255 incorporated reference 1017 dominion resources inc executive stock purchase tool kit effective september 1 2001 amended restated december 16 2005 exhibit 1012 form 8k filed december 16 2005 file 18489 incorporated reference 1018 dominion resources inc security option plan effective january 1 2003 amended december 31 2004 restated effective january 1 2005 exhibit 1013 form 8k filed december 23 2004 file 18489 incorporated reference 121 ratio earnings fixed charges filed herewith 122 ratio earnings fixed charges dividends filed herewith subsidiaries registrant filed herewith 231 consent deloitte touche llp filed herewith 232 consent jackson kelly pllc filed herewith 233 consent mcguire woods llp filed herewith 311 certification registrant’s chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification registrant’s chief financial officer pursuant section 302 sarbanesoxley act 2002 filed herewith certification securities exchange commission registrant’s chief executive officer chief financial officer required section 906 sarbanesoxley act 2002 furnished herewith indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date march 2 2006 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 2nd day march 2006 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer thomas n chewning thomas n chewning director executive vice president chief financial officer steven rogers steven rogers vice president principal accounting officer item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 53 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion virginia power 12a ratio earnings fixed charges dominion resources inc filed herewith x 12b ratio earnings fixed charges virginia electric power company filed herewith x 12c ratio earnings fixed charges dividends virginia electric power company filed herewith x subsidiaries dominion resources inc virginia electric power company filed herewith x consent deloitte touche llp filed herewith x 31a certification chief executive officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31b certification chief financial officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31c certification chief executive officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 31d certification chief financial officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x towers watson energy services survey participants filed herewith x 101 following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2011 filed february 28 2012 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement exhibit deemed “filed” purposes section 18 securities exchange act 1934 15 usc 78r otherwise subject liability section exhibit deemed incorporated reference filing securities act securities exchange act except extent one companies specifically incorporates reference signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 28 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2012 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2012 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer ashwini sawhney ashwini sawhney vice presidentaccounting chief accounting officer steven rogers steven rogers director exhibit index exhibit number description dominion virginia power 31c certification chief executive officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 31d certification chief financial officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x towers watson energy services survey participants filed herewith x 101 following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2011 filed february 28 2012 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement exhibit deemed “filed” purposes section 18 securities exchange act 1934 15 usc 78r otherwise subject liability section exhibit deemed incorporated reference filing securities act securities exchange act except extent one companies specifically incorporates reference item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 53 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise note exhibit number description dominion virginia power 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 991 dominion resources inc earnings release kit furnished herewith x 992 supplemental summary 2012 operating earnings furnished herewith x 993 towers watson energy services survey participants filed herewith x 101 following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2012 filed february 28 2013 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement exhibit deemed “filed” virginia electric power company purposes section 18 securities exchange act 1934 15 usc 78r otherwise subject liability section exhibit deemed incorporated reference filing securities act securities exchange act except extent virginia electric power company specifically incorporates reference signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 28 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2013 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2013 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer ashwini sawhney ashwini sawhney vice presidentaccounting chief accounting officer steven rogers steven rogers director exhibit index exhibit number description dominion virginia power 31d certification chief financial officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 991 dominion resources inc earnings release kit furnished herewith x 992 supplemental summary 2012 operating earnings furnished herewith x 993 towers watson energy services survey participants filed herewith x 101 following financial statements dominion resources inc virginia electric power company annual report form 10k year ended december 31 2012 filed february 28 2013 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement exhibit deemed “filed” virginia electric power company purposes section 18 securities exchange act 1934 15 usc 78r otherwise subject liability section exhibit deemed incorporated reference filing securities act securities exchange act except extent virginia electric power company specifically incorporates reference item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 24 schedules omitted applicable required information either material shown financial statements related notes 2 exhibits indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2007 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer thomas n chewning thomas n chewning director executive vice president chief financial officer steven rogers steven rogers senior vice president chief accounting officer item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 58 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion virginia power dominion gas 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 32c certification securities exchange commission chief executive officer chief financial officer dominion gas holdings llc required section 906 sarbanesoxley act 2002 furnished herewith x following financial statements dominion resources inc virginia electric power company dominion gas holdings llc annual report form 10k year ended december 31 2015 filed february 26 2016 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 26 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2016 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 26 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2016 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer dominion gas pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion gas holdings llc thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 26 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2016 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer exhibit index exhibit number description dominion virginia power dominion gas following financial statements dominion resources inc virginia electric power company dominion gas holdings llc annual report form 10k year ended december 31 2015 filed february 26 2016 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 65 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures dominion energy pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion energy inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 27 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2018 signature title thomas f farrell ii thomas f farrell ii chairman board directors president chief executive officer william p barr william p barr director helen e dragas helen e dragas director james ellis jr james ellis jr director john w harris john w harris director ronald w jibson ronald w jibson director mark j kington mark j kington director joseph rigby joseph rigby director pamela j royal pamela j royal director robert h spilman jr robert h spilman jr director susan n story susan n story director michael e szymanczyk michael e szymanczyk director mark f mcgettrick mark f mcgettrick executive vice president chief financial officer michele l cardiff michele l cardiff vice president controller chief accounting officer virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 27 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2018 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer dominion energy gas pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion energy gas holdings llc thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 27 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2018 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer mark webb mark webb director michele l cardiff michele l cardiff vice president controller chief accounting officer item 15 exhibits financial statement schedules certain documents filed part form 10k incorporated reference found pages noted 1 financial statements see index page 53 2 schedules omitted applicable required information either material shown financial statements related notes 3 exhibits incorporated reference unless otherwise noted exhibit number description dominion virginia power 1045 nonemployee directors’ annual compensation dominion resources inc filed herewith x 1046 restricted stock award agreement gary l sypolt approved september 24 2010 filed herewith x 12a ratio earnings fixed charges dominion resources inc filed herewith x 12b ratio earnings fixed charges virginia electric power company filed herewith x 12c ratio earnings fixed charges dividends virginia electric power company filed herewith x subsidiaries dominion resources inc virginia electric power company filed herewith x consent deloitte touche llp filed herewith x 31a certification chief executive officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31b certification chief financial officer dominion resources inc pursuant section 302 sarbanesoxley act 2002 filed herewith x 31c certification chief executive officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 31d certification chief financial officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 101 following financial statements dominion resources inc annual report form 10k year ended december 31 2010 filed february 28 2011 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement exhibit deemed “filed” purposes section 18 securities exchange act 1934 15 usc 78r otherwise subject liability section exhibit deemed incorporated reference filing securities act securities exchange act except extent one companies specifically incorporates reference signatures dominion pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dominion resources inc thomas f farrell ii thomas f farrell ii chairman president chief executive officer date february 28 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2011 virginia power pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized virginia electric power company thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer date february 28 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2011 signature title thomas f farrell ii thomas f farrell ii chairman board directors chief executive officer mark f mcgettrick mark f mcgettrick director executive vice president chief financial officer ashwini sawhney ashwini sawhney vice presidentaccounting chief accounting officer steven rogers steven rogers director exhibit index exhibit number description dominion virginia power 31c certification chief executive officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 31d certification chief financial officer virginia electric power company pursuant section 302 sarbanesoxley act 2002 filed herewith x 32a certification securities exchange commission chief executive officer chief financial officer dominion resources inc required section 906 sarbanesoxley act 2002 furnished herewith x 32b certification securities exchange commission chief executive officer chief financial officer virginia electric power company required section 906 sarbanesoxley act 2002 furnished herewith x 101 following financial statements dominion resources inc annual report form 10k year ended december 31 2010 filed february 28 2011 formatted xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements common shareholders’ equity iv consolidated statements comprehensive income v consolidated statements cash flows vi notes consolidated financial statements x indicates management contract compensatory plan arrangement exhibit deemed “filed” purposes section 18 securities exchange act 1934 15 usc 78r otherwise subject liability section exhibit deemed incorporated reference filing securities act securities exchange act except extent one companies specifically incorporates reference