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Derivatives and Hedge Accounting Activities
 12 Months Ended
Dec. 31, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedge Accounting Activities
DERIVATIVES AND HEDGE ACCOUNTING ACTIVITIES
Dominion and Virginia Power are exposed to the impact of market fluctuations in the price of electricity, natural gas and other energy-related products they market and purchase, as well as currency exchange and interest rate risks of their business operations. The Companies use derivative instruments to manage exposure to these risks, and designate certain derivative instruments as fair value or cash flow hedges for accounting purposes. As discussed in Note 2, for jurisdictions subject to cost-based rate regulation, changes in the fair value of derivatives are deferred as regulatory assets or regulatory liabilities until the related transactions impact earnings. See Note 7 for further information about fair value measurements and associated valuation methods for derivatives.
DOMINION
The following table presents the volume of Dominion's derivative activity as of December 31, 2011. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.
 

Current

Noncurrent

Natural Gas (bcf):
 
 
Fixed price(1)
279

79

Basis(1)
822

400

Electricity (MWh):
 

 

Fixed price(1)
19,955,507

20,056,109

FTRs
50,859,304

1,277,239

Capacity (MW)
109,416

281,185

Liquids (gallons)(2)
140,658,000

248,220,000

Interest rate
$
2,200,000,000

$
2,090,000,000

(1)
Includes options.
(2)
Includes NGLs and oil.
Selected information about Dominion's hedge accounting activities follows:
 
Year Ended December 31,
2011

2010

2009

(millions)
 

 

 

Portion of gains (losses) on hedging instruments determined to be ineffective and included in net income:
 

 

 

Fair value hedges(1)
$
(5
)
$
3

$
(4
)
Cash flow hedges(2)
(4
)
(1
)
—

Net ineffectiveness
$
(9
)
$
2

$
(4
)
Gains (losses) attributable to changes in the time value of options and change in the differences between spot prices and forward prices and excluded from the assessment of effectiveness(3):
 

 

 

Fair value hedges(4)
6

$
—

$
23

Total ineffectiveness and excluded amounts
$
(3
)
$
2

$
19

 
(1)
For the year ended December 31, 2011, includes $(1) million recorded in purchased gas and $(4) million recorded in operating revenue in Dominion's Consolidated Statement of Income. For the year ended December 31, 2010, includes $(1) million recorded in purchased gas and $4 million recorded in operating revenue in Dominion's Consolidated Statement of Income. For the year ended December 31, 2009, includes $(5) million recorded in purchased gas and $1 million recorded in operating revenue in Dominion's Consolidated Statement of Income.
(2)
For the year ended December 31, 2011, includes $(5) million recorded in purchased gas and $1 million recorded in operating revenue in Dominion's Consolidated Statement of Income. For the year ended December 31, 2010, includes $(3) million recorded in purchased gas and $2 million recorded in operating revenue in Dominion's Consolidated Statement of Income.
(3)
Amounts excluded from the measurement of ineffectiveness related to cash flow hedges for the years ended December 31, 2011, 2010 and 2009 were not material.
(4)
For the year ended December 31, 2011, amount was recorded in operating revenue in Dominion's Consolidated Statement of Income. For the year ended December 31, 2009, includes $22 million recorded in operating revenue and $1 million recorded in electric fuel and other energy-related purchases in Dominion's Consolidated Statement of Income.
The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion's Consolidated Balance Sheet at December 31, 2011:
 
 
AOCI
After-Tax

Amounts Expected to be Reclassified to Earnings during the next 12 Months After-Tax

Maximum
Term
(millions)
 
 
 
Commodities:
 
 
 
Gas
$
(33
)
$
(25
)
36 months
Electricity
146

53

48 months
NGLs
(57
)
(26
)
36 months
Other
6

2

41 months
Interest rate
(116
)
(5
)
372 months
Total
$
(54
)
$
(1
)
 

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices and interest rates.
The sale of the majority of Dominion's remaining E&P operations resulted in the discontinuance of hedge accounting for certain cash flow hedges in 2010, as discussed in Note 4.
In addition, changes to Dominion's financing needs during the first and second quarters of 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges since it was determined that the forecasted interest payments would not occur. In connection with the discontinuance of hedge accounting for these contracts, Dominion recognized a benefit recorded to interest and related charges reflecting the reclassification of gains from AOCI to earnings of $110 million ($67 million after-tax) for 2010. The reclassification of gains from AOCI to earnings was partially offset by subsequent changes in fair value for these contracts of $37 million ($23 million after-tax) for 2010.
 
 
 
Fair Value and Gains and Losses on Derivative Instruments
The following tables present the fair values of Dominion's derivatives and where they are presented in its Consolidated Balance Sheets:
 
At December 31, 2011
Fair Value  -
Derivatives
under
Hedge
Accounting

Fair Value -
Derivatives
not under
Hedge
Accounting

Total
Fair
Value

(millions)
 
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Commodity
$
176

$
495

$
671

Interest rate
34

—

34

Total current derivative assets
210

495

705

Noncurrent Assets
 

 

 

Commodity
198

96

294

Interest rate
71

—

71

Total noncurrent derivative assets(1)
269

96

365

Total derivative assets
$
479

$
591

$
1,070

LIABILITIES
 

 

 

Current Liabilities
 

 

 

Commodity
$
162

$
530

$
692

Interest rate
222

37

259

Total current derivative liabilities
384

567

951

Noncurrent Liabilities
 

 

 

Commodity
118

78

196

Interest rate
—

10

10

Total noncurrent derivative liabilities(2)
118

88

206

Total derivative liabilities
$
502

$
655

$
1,157

At December 31, 2010
 
 
 

 

 

 

ASSETS
 
 
 
Current Assets
 
 
 
Commodity
$
291

$
425

$
716

Interest rate
23

—

23

Total current derivative assets
314

425

739

Noncurrent Assets
 

 

 

Commodity
44

83

127

Interest rate
31

—

31

Total noncurrent derivative assets(1)
75

83

158

Total derivative assets
$
389

$
508

$
897

LIABILITIES
 

 

 

Current Liabilities
 

 

 

Commodity
$
178

$
455

$
633

Total current derivative liabilities
178

455

633

Noncurrent Liabilities
 

 

 

Commodity
86

106

192

Interest rate
5

—

5

Total noncurrent derivative liabilities(2)
91

106

197

Total derivative liabilities
$
269

$
561

$
830

(1)
Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion's Consolidated Balance Sheets.
(2)
Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion's Consolidated Balance Sheets.
 
The following tables present the gains and losses on Dominion's derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:
 
Derivatives in cash flow hedging
relationships
Year ended December 31, 2011
Amount of
Gain (Loss)
Recognized
in AOCI on
Derivatives
(Effective
Portion)(1)

Amount of
Gain (Loss)
Reclassified
from AOCI
to Income

Increase
(Decrease)
in
Derivatives
Subject to
Regulatory
Treatment(2)

(millions)
 
 
 
Derivative Type and Location of Gains (Losses)
 
 
 
Commodity:
 
 
 
Operating revenue
 

$
153

 

Purchased gas
 

(78
)
 

Electric fuel and other energy-related purchases
 

(2
)
 

Purchased electric capacity
 
1

 
Total commodity
$
137

$
74

$
(20
)
Interest rate(3)
(252
)
(8
)
(143
)
Total
$
(115
)
$
66

$
(163
)
Year ended December 31, 2010
 
 
 

 

 

 

Derivative Type and Location of Gains (Losses)
 

 

 

Commodity:
 

 

 

Operating revenue
 

$
557

 

Purchased gas
 

(155
)
 

Electric fuel and other energy-related purchases
 

(8
)
 

Purchased electric capacity
 
3

 
Total commodity
$
139

$
397

$
(17
)
Interest rate(3)
(3
)
109

(27
)
Foreign currency(4)
—

1

(2
)
Total
$
136

$
507

$
(46
)
Year ended December 31, 2009
 
 
 
 
 

 

 

Derivative Type and Location of Gains (Losses)
 

 

 

Commodity:
 

 

 

Operating revenue
 

$
1,072

 

Purchased gas
 

(179
)
 

Electric fuel and other energy-related purchases
 

(10
)
 

Purchased electric capacity
 
4

 
Total commodity
$
358

$
887

$
6

Interest rate(3)
159

(4
)
87

Foreign currency(4)
—

2

(3
)
Total
$
517

$
885

$
90

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

 
Derivatives not designated as hedging
instruments
Amount of Gain (Loss) Recognized in Income on Derivatives(1)
 
Year ended December 31,
2011

2010

2009

(millions)
 
 
 
Derivative Type and Location of Gains (Losses)
 
 
 
Commodity:
 
 
 
Operating revenue
$
111

$
67

$
105

Purchased gas
(35
)
(41
)
(66
)
Electric fuel and other energy-related purchases
(45
)
51

(163
)
Interest rate(2)
(5
)
(37
)
—

Total
$
26

$
40

$
(124
)
(1)
Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion's Consolidated Statements of Income.
(2)
Amounts recorded in Dominion's Consolidated Statements of Income are classified in interest and related charges.
VIRGINIA POWER
The following table presents the volume of Virginia Power's derivative activity at December 31, 2011. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.
 
 
Current

Noncurrent

Natural Gas (bcf):
 
 
Fixed price
18

—

Basis
9

—

Electricity (MWh):
 

 

Fixed price
683,200

—

FTRs
49,190,007

484,288

Capacity (MW)
76,000

182,500

Interest rate
$
1,200,000,000

$
90,000,000

For the years ended December 31, 2011, 2010 and 2009, gains or losses on hedging instruments determined to be ineffective and amounts excluded from the assessment of effectiveness were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to the time value of options and changes in the differences between spot prices and forward prices.

Fair Value and Gains and Losses on Derivative Instruments
The following tables present the fair values of Virginia Power's derivatives and where they are presented in its Consolidated Balance Sheets:
 
At December 31, 2011
Fair Value  -
Derivatives
under
Hedge
Accounting

Fair Value -
Derivatives
not under
Hedge
Accounting

Total
Fair
Value

(millions)
 

 

 

ASSETS
 

 

 

Current Assets
 

 

 

Commodity
$
—

$
2

$
2

Total current derivative assets(1)
—

2

2

Total derivative assets
$
—

$
2

$
2

LIABILITIES
 

 

 

Current Liabilities
 

 

 

Commodity
$
14

$
31

$
45

Interest rate
53

37

90

Total current derivative liabilities
67

68

135

Noncurrent Liabilities
 

 

 

Commodity
2

—

2

Interest rate
—

10

10

Total noncurrent derivative liabilities(2)
2

10

12

Total derivative liabilities
$
69

$
78

$
147

 
At December 31, 2010
 
 
 
 
 

 

 

ASSETS
 

 

 

Current Assets
 

 

 

Commodity
$
12

$
15

$
27

Total current derivative assets(1)
12

15

27

Total derivative assets
$
12

$
15

$
27

LIABILITIES
 

 

 

Current Liabilities
 

 

 

Commodity
$
2

$
1

$
3

Total current derivative liabilities
2

1

3

Noncurrent Liabilities
 

 

 

Commodity
3

—

3

Total noncurrent derivative liabilities(2)
3

—

3

Total derivative liabilities
$
5

$
1

$
6

(1)
Current derivative assets are presented in other current assets in Virginia Power's Consolidated Balance Sheets.
(2)
Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Virginia Power's Consolidated Balance Sheets.
 
 
 
The following tables present the gains and losses on Virginia Power's derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:
 
Derivatives in cash flow hedging
relationships
Year Ended December 31, 2011
Amount of Gain
(Loss)
Recognized in
AOCI on
Derivatives
(Effective
Portion)(1)

Amount of
Gain (Loss)
Reclassified
from AOCI to
Income

Increase
(Decrease) in
Derivatives
Subject to
Regulatory
Treatment(2)

(millions)
 
 
 
Derivative Type and Location of Gains (Losses)
 
 
 
Commodity:
 
 
 
Electric fuel and other energy-related purchases
 

$
(1
)
 

Purchased electric capacity
 
1

 
Total commodity
$
(3
)
$
—

$
(20
)
Interest rate(3)
(6
)
1

(143
)
Total
$
(9
)
$
1

$
(163
)
 Year Ended December 31, 2010
 
 
 
 
 

 

 

Derivative Type and Location of Gains (Losses)
 
 
 
Commodity:
 
 
 
Electric fuel and other energy-related purchases
 

$
(1
)
 

Purchased electric capacity
 
4

 
Total commodity
$
(1
)
$
3

$
(17
)
Interest rate(3)
(1
)
9

(27
)
Foreign currency(4)
—

—

(2
)
Total
$
(2
)
$
12

$
(46
)
 Year Ended December 31, 2009
 
 
 
 
 

 

 

Derivative Type and Location of Gains (Losses)
 
 
 
Commodity:
 
 
 
Electric fuel and other energy-related purchases
 

$
(8
)
 

Purchased electric capacity
 
5

 
Total commodity
$
(3
)
$
(3
)
$
6

Interest rate(3)
15

—

87

Foreign currency(4)
—

1

(3
)
Total
$
12

$
(2
)
$
90

(1)
Amounts deferred into AOCI have no associated effect in Virginia Power's Consolidated Statements of Income.
(2)
Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power's Consolidated Statements of Income.
(3)
Amounts recorded in Virginia Power's Consolidated Statements of Income are classified in interest and related charges.
(4)
Amounts recorded in Virginia Power's Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.
 
Derivatives not designated as hedging
instruments
Amount of Gain (Loss) Recognized
in Income on Derivatives(1)
 
Year Ended December 31,
2011

2010

2009

(millions)
 

 

 
Derivative Type and Location of Gains (Losses)
 

 

 
Commodity(2)
$
(45
)
$
51

$
(165
)
Interest rate(3)
(5
)
(3
)
—

Total
$
(50
)
$
48

$
(165
)
(1)
Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Virginia Power's Consolidated Statements of Income.
(2)
Amounts recorded in Virginia Power's Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.
(3)
Amounts recorded in Virginia Power's Consolidated Statements of Income are classified in interest and related charges.