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

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

During March 2011, Dominion determined that it was unlikely that State Line would participate in the May 2011 PJM capacity base residual auction that would commit State Line's capacity from June 2014 through May 2015. This determination reflected an expectation that margins for coal-fired generation will remain compressed in the 2014 and 2015 period in combination with the expectation that State Line may be impacted during the same time period by environmental regulations that would likely require significant capital expenditures. As a result, Dominion evaluated State Line for impairment since it was more likely than not that State Line would be retired before the end of its previously estimated useful life. As a result of this evaluation, Dominion recorded an impairment charge of $55 million ($39 million after-tax) reflected in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line's long-lived assets to their estimated fair value of less than $1 million. As management was not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach to fair value, Dominion used the income approach (discounted cash flows) to estimate the fair value of State Line's long-lived assets. This was considered a Level 3 fair value measurement due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

In June 2010, Dominion evaluated State Line for impairment due to the station's relatively low level of profitability combined with the EPA's issuance of a new stringent 1-hour primary National Ambient Air Quality Standard for SO₂ that would likely require significant environmental capital expenditures in the future. As a result of this evaluation, Dominion recorded an impairment charge of $163 million ($95 million after-tax) in other operations and maintenance expense in its Consolidated Statement of Income, to write down State Line's long-lived assets to their estimated fair value of $59 million. As management was not aware of any recent market transactions for comparable assets with sufficient transparency to develop a market approach to fair value, Dominion relied on the income approach (discounted cash flows) to estimate the fair value of State Line's long-lived assets. This was considered a Level 3 fair value measurement due to the use of significant unobservable inputs including estimates of future power and other commodity prices.

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


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

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

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

Total liabilities	$	9	$	563	$	204	$	776


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

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

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

Total liabilities	$	12	$	721	$	97	$	830

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

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

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

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

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

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

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