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Fair Value Measurements
 9 Months Ended
Sep. 30, 2014
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
The Companies' fair value measurements are made in accordance with the policies discussed in Note 6 to the Consolidated Financial Statements in Dominion's and Virginia Power's Annual Report on Form 10-K for the year ended December 31, 2013 and Note 6 in Exhibit 99.11(b) to Dominion Gas' Current Report on Form 8-K dated June 26, 2014. See Note 9 in this report for further information about their derivatives and hedge accounting activities.

The Companies enter into certain physical and financial forwards, futures, options and swaps, which are considered Level 3 as they have one or more inputs that are not observable and are significant to the valuation. The discounted cash flow method is used to value Level 3 physical and financial forwards and futures contracts. An option model is used to value Level 3 physical and financial options. The discounted cash flow model for forwards and futures calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return, and credit spreads. The option model calculates mark-to-market valuations using variations of the Black-Scholes option model. The inputs into the models are the forward market prices, implied price volatilities, risk-free rate of return, the option expiration dates, the option strike prices, the original sales prices, and volumes. For Level 3 fair value measurements, forward market prices, credit spreads and implied price volatilities are considered unobservable. The unobservable inputs are developed and substantiated using historical information, available market data, third-party data, and statistical analysis. Periodically, inputs to valuation models are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third-party pricing sources.

The following table presents the Companies' quantitative information about Level 3 fair value measurements at September 30, 2014. The range and weighted average are presented in dollars for market price inputs and percentages for credit spreads and price volatility.
 
Fair Value (millions)
Valuation Techniques
Unobservable Input
 
Range
Weighted Average(1)
Assets:
 
 
 
 
 
 
Physical and Financial Forwards and Futures:
 
 
 
 
 
 
Natural Gas(2)
$
27

Discounted Cash Flow
Market Price (per Dth)
(4) 
(2) - 5
(1
)
 
 
 
Credit spread
(6) 
1% - 3%
2
%
FTRs
37

Discounted Cash Flow
Market Price (per MWh)
(4) 
(1) - 16
2

NGLs(3)
3

Discounted Cash Flow
Market Price (per Gal)
(4) 
1 - 2
1

Physical and Financial Options:
 
 
 
 
 
 
Natural Gas
3

Option Model
Market Price (per Dth)
(4) 
3 - 5
4

 
 
 
Price Volatility
(5) 
17% - 51%
33
%
Total assets
$
70

 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Physical and Financial Forwards and Futures:
 
 
 
 
 
 
Natural Gas(2)
$
15

Discounted Cash Flow
Market Price (per Dth)
(4) 
(2) - 5
2

FTRs
4

Discounted Cash Flow
Market Price (per MWh)
(4) 
(16) - 16
(1
)
NGLs(3)
1

Discounted Cash Flow
Market Price (per Gal)
(4) 
1 - 2
2

Physical and Financial Options:
 
 
 
 
 
 
Natural Gas
3

Option Model
Market Price (per Dth)
(4) 
2 - 5
4

 
 
 
Price Volatility
(5) 
17% - 51%
37
%
Total liabilities
$
23

 
 
 
 
 
(1)
Averages weighted by volume.
(2)
Includes basis.
(3)
Information represents Dominion Gas' quantitative information about Level 3 fair value measurements.
(4)
Represents market prices beyond defined terms for Levels 1 and 2.
(5)
Represents volatilities unrepresented in published markets.
(6)
Represents credit spreads unrepresented in published markets.

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:
Significant Unobservable Inputs
Position
Change to Input
Impact on Fair Value Measurement
Market Price
Buy
Increase (decrease)
Gain (loss)
Market Price
Sell
Increase (decrease)
Loss (gain)
Price Volatility
Buy
Increase (decrease)
Gain (loss)
Price Volatility
Sell
Increase (decrease)
Loss (gain)
Credit spread
Asset
Increase (decrease)
Loss (gain)
Credit spread
Liability
Increase (decrease)
Gain (loss)


Non-recurring Fair Value Measurements

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

Dominion Gas
In June 2013, Dominion Gas purchased certain natural gas infrastructure facilities that were previously leased from third parties. The purchase price was based on terms in the lease, which exceeded current market pricing. As a result of the purchase price and expected losses, Dominion Gas recorded an impairment charge of $49 million ($29 million after-tax) in other operations and maintenance expense in its Consolidated Statements of Income, to write down the long-lived assets to their estimated fair values 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 Gas used the income approach (discounted cash flows) to estimate the fair value of the assets in this impairment test. This was considered a Level 3 fair value measurement due to the use of significant unobservable inputs, including estimates of future production and other commodity prices.

Also in June 2013, Dominion Gas recorded an impairment charge of $6 million ($4 million after-tax) in other operations and
maintenance expense in its Consolidated Statements of Income, to write off previously capitalized costs following the cancellation of two development projects.

Recurring Fair Value Measurements

Dominion
The following table presents Dominion’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions: 
 
Level 1
Level 2
Level 3
Total
(millions)
 
 
 
 
At September 30, 2014
 
 
 
 
Assets:
 
 
 
 
Derivatives:
 
 
 
 
Commodity
$
—

$
612

$
70

$
682

Interest rate
—

50

—

50

Investments(1):
 
 
 
 
Equity securities:
 
 
 
 
U.S.:
 
 
 
 
Large cap
2,570

—

—

2,570

Other
6

—

—

6

Non-U.S.:
 
 
 
 
Large cap
12

—

—

12

Fixed income:
 
 
 
 
Corporate debt instruments
—

419

—

419

U.S. Treasury securities and agency debentures
444

181

—

625

State and municipal
—

366

—

366

Other
—

6

—

6

Cash equivalents and other
1

135

—

136

       Total assets
$
3,033

$
1,769

$
70

$
4,872

Liabilities:
 
 
 
 
Derivatives:
 
 
 
 
Commodity
$
1

$
1,200

$
23

$
1,224

Interest rate
—

100

—

100

Total liabilities
$
1

$
1,300

$
23

$
1,324

At December 31, 2013
 
 
 
 
Assets:
 
 
 
 
Derivatives:
 
 
 
 
Commodity
$
3

$
718

$
32

$
753

Interest rate
—

137

—

137

Investments(1):
 
 
 
 
Equity securities:
 
 
 
 
U.S.:
 
 
 
 
Large cap
2,417

—

—

2,417

Other
79

—

—

79

Non-U.S.:
 
 
 
 
Large cap
13

—

—

13

Fixed income:
 
 
 
 
Corporate debt instruments
—

345

—

345

U.S. Treasury securities and agency debentures
415

175

—

590

State and municipal
—

343

—

343

Other
—

3

—

3

Cash equivalents and other
—

103

—

103

Restricted cash equivalents
—

8

—

8

Total assets
$
2,927

$
1,832

$
32

$
4,791

Liabilities:
 
 
 
 
Derivatives:
 
 
 
 
Commodity
$
3

$
1,051

$
48

$
1,102

Total liabilities
$
3

$
1,051

$
48

$
1,102

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

The following table presents the net change in Dominion's assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2014
2013
2014
2013
(millions)
 
 
 
 
Beginning balance
$
3

$
2

$
(16
)
$
25

Total realized and unrealized gains (losses):
 
 
 
 
Included in earnings
(2
)
(1
)
98

1

Included in other comprehensive income (loss)
4

(25
)
7

11

Included in regulatory assets/liabilities
39

10

53

(17
)
Settlements
5

3

(94
)
(23
)
Transfers out of Level 3
(2
)
7

(1
)
(1
)
Ending balance
$
47

$
(4
)
$
47

$
(4
)
The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date
$
1

$
2

$
2

$
—



The following table presents Dominion's classification of gains and losses included in earnings in the Level 3 fair value category:
 
Operating
revenue
Purchased Gas
Electric fuel
and other
energy-related
purchases
Total
(millions)
 
 
 
 
Three Months Ended September 30, 2014
 
 
 
 
Total gains (losses) included in earnings
$
3

$
(3
)
$
(2
)
$
(2
)
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date
3

(2
)
—

1

Three Months Ended September 30, 2013
 
 
 
 
Total gains (losses) included in earnings
$
5

$
—

$
(6
)
$
(1
)
The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date
2

—

—

2

Nine Months Ended September 30, 2014
 
 
 
 
Total gains (losses) included in earnings
$
(7
)
$
(4
)
$
109

$
98

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date
4

(2
)
—

2

Nine Months Ended September 30, 2013
 
 
 
 
Total gains (losses) included in earnings
$
12

$
—

$
(11
)
$
1

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

—

—

—



Virginia Power
The following table presents Virginia Power's quantitative information about Level 3 fair value measurements at September 30, 2014. The range and weighted average are presented in dollars for market price inputs and percentages for credit spreads.

 
Fair Value (millions)
Valuation Techniques
Unobservable Input
 
Range
Weighted Average(1)
Assets:
 
 
 
 
 
 
Physical and Financial Forwards and Futures:
 
 
 
 
 
 
FTRs
$
37

Discounted Cash Flow
Market Price (per MWh)
(3) 
(1) - 16
2

Natural Gas(2)
13

Discounted Cash Flow
Market Price (per Dth)
(3) 
(2) - 5
(1
)
 
 
 
Credit spread
(4) 
1% - 3%
2
%
Total assets
$
50

 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Physical and Financial Forwards and Futures:
 
 
 
 
 
 
FTRs
$
4

Discounted Cash Flow
Market Price (per MWh)
(3) 
(16) - 16
(1
)
Total liabilities
$
4

 
 
 
 
 
(1)
Averages weighted by volume.
(2)
Includes basis.
(3)
Represents market prices beyond defined terms for Levels 1 and 2.
(4)
Represents credit spreads unrepresented in published markets.

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:
Significant Unobservable Inputs
Position
Change to Input
Impact on Fair Value Measurement
Market Price
Buy
Increase (decrease)
Gain (loss)
Market Price
Sell
Increase (decrease)
Loss (gain)
Credit spread
Asset
Increase (decrease)
Loss (gain)
Credit spread
Liability
Increase (decrease)
Gain (loss)



The following table presents Virginia Power’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:
 
Level 1
Level 2
Level 3
Total
(millions)
 
 
 
 
At September 30, 2014
 
 
 
 
Assets:
 
 
 
 
Derivatives:
 
 
 
 
Commodity
$
—

$
3

$
50

$
53

Investments(1):
 
 
 
 
Equity securities:
 
 
 
 
U.S. Large cap
1,101

—

—

1,101

Fixed income:
 
 
 
 
Corporate debt instruments
—

229

—

229

U.S. Treasury securities and agency debentures
166

61

—

227

State and municipal
—

185

—

185

Cash equivalents and other
—

43

—

43

       Total assets
$
1,267

$
521

$
50

$
1,838

Liabilities:
 
 
 
 
Derivatives:
 
 
 
 
Commodity
$
—

$
3

$
4

$
7

Interest rate
—

23

—

23

Total liabilities
$
—

$
26

$
4

$
30

At December 31, 2013
 

 

 
 
Assets:
 

 

 
 
Derivatives:
 

 

 
 
Commodity
$
—

$
3

$
2

$
5

Interest rate
—

48

—

48

Investments(1):
 

 

 
 
Equity securities:
 

 

 
 
U.S.:
 

 

 
 
Large cap
1,021

—

—

1,021

Other
36

—

—

36

Fixed income:
 

 

 
 
Corporate debt instruments
—

191

—

191

U.S. Treasury securities and agency debentures
146

66

—

212

State and municipal
—

164

—

164

Cash equivalents and other
—

31

—

31

Restricted cash equivalents
—

8

—

8

Total assets
$
1,203

$
511

$
2

$
1,716

Liabilities:
 

 

 
 
Derivatives:
 

 

 
 
Commodity
$
—

$
3

$
9

$
12

Total liabilities
$
—

$
3

$
9

$
12

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

The following table presents the net change in Virginia Power’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2014
2013
2014
2013
(millions)
 
 
 
 
Beginning balance
$
7

$
(25
)
$
(7
)
$
2

Total realized and unrealized gains (losses):
 
 
 
 
Included in earnings
(2
)
(4
)
109

(9
)
Included in regulatory assets/liabilities
39

10

53

(17
)
Settlements
2

4

(109
)
9

Ending balance
$
46

$
(15
)
$
46

$
(15
)


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 nine months ended September 30, 2014 and 2013. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and nine months ended September 30, 2014 and 2013.

Dominion Gas
The following table presents Dominion Gas' assets and liabilities for derivatives 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 September 30, 2014
 
 
 
 
Assets:
 
 
 
 
Commodity
$
—

$
—

$
2

$
2

Liabilities:
 

 

 

 

Commodity
$
—

$
4

$
1

$
5

Interest rate
—

3

—

3

Total liabilities
$
—

$
7

$
1

$
8

At December 31, 2013
 

 

 

 

Assets:
 
 
 
 
Commodity
$
—

$
—

$
6

$
6

Interest rate
—

34

—

34

Total Assets
$
—

$
34

$
6

$
40

Liabilities:
 

 

 

 

Commodity
$
—

$
13

$
12

$
25



 The following table presents the net change in Dominion Gas' assets and liabilities for derivatives measured at fair value on a recurring basis and included in the Level 3 fair value category:
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2014
2013
2014
2013
(millions)
 
 
 
 
Beginning balance
$
(3
)
$
23

$
(6
)
$
(12
)
Total realized and unrealized gains (losses):
 

 

 

 

Included in earnings
(1
)
—

(8
)
2

Included in other comprehensive income (loss)
5

(23
)
8

11

Settlements
—

—

7

(1
)
Ending balance
$
1

$
—

$
1

$
—



The gains and losses included in earnings in the Level 3 fair value category were classified in operating revenue in Dominion Gas' Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three and nine months ended September 30, 2014 and 2013.

Fair Value of Financial Instruments
Substantially all of the Companies' financial instruments are recorded at fair value, with the exception of the instruments described below, which 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, affiliated current borrowings, payables to affiliates and accounts payable are representative of fair value because of the short-term nature of these instruments. For the Companies' financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:
 
 
September 30, 2014
December 31, 2013
 
Carrying
Amount
Estimated Fair
Value(1)
Carrying
Amount
Estimated Fair
Value(1)
(millions)
 
 
 
 
Dominion
 
 
 
 
Long-term debt, including securities due within one year(2)
$
18,801

$
20,853

$
18,396

$
19,887

Junior subordinated notes(3)
1,373

1,379

1,373

1,394

Remarketable subordinated notes(3)
2,083

2,233

1,080

1,192

Subsidiary preferred stock(4)
134

140

257

261

Virginia Power
 
 
 
 
Long-term debt, including securities due within one year(3)
$
8,728

$
9,858

$
8,032

$
8,897

Preferred stock(4)
134

140

257

261

Dominion Gas
 
 
 
 
Long-term debt(3)
$
1,199

$
1,237

$
1,198

$
1,169

(1)
Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.
(2)
Carrying amount includes amounts which represent the unamortized discount and/or premium. At September 30, 2014 and December 31, 2013, includes the valuation of certain fair value hedges associated with fixed rate debt of approximately $34 million and $55 million, respectively.
(3)
Carrying amount includes amounts which represent the unamortized discount and/or premium.
(4)
Carrying amount includes deferred issuance expenses of $2 million at December 31, 2013.