Regulatory Matters

Regulatory Matters Involving Potential Loss Contingencies

As a result of issues generated in the ordinary course of business, the Companies are involved in various regulatory matters. Certain regulatory matters may ultimately result in a loss; however, as such matters are in an initial procedural phase, involve uncertainty as to the outcome of pending reviews or orders, and/or involve significant factual issues that need to be resolved, it is not possible for the Companies to estimate a range of possible loss. For matters for which the Companies cannot estimate a range of possible loss, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the regulatory process such that the Companies are able to estimate a range of possible loss. For regulatory matters for which the Companies are able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any estimated range is based on currently available information, involves elements of judgment and significant uncertainties and may not represent the Companies' maximum possible loss exposure. The circumstances of such regulatory matters will change from time to time and actual results may vary significantly from the current estimate. For current matters not specifically reported below, management does not anticipate that the outcome from such matters would have a material effect on the Companies' financial position, liquidity or results of operations.

FERC - Electric

Under the Federal Power Act, FERC regulates wholesale sales and transmission of electricity in interstate commerce by public utilities. Dominion's merchant generators sell electricity in the states of Georgia and Tennessee and in the PJM, MISO and ISO-NE regions under Dominion's market-based sales tariffs authorized by FERC. Virginia Power purchases and, under its FERC market-based rate authority, sells electricity in the wholesale market. In addition, Virginia Power has FERC approval of a tariff to sell wholesale power at capped rates based on its embedded cost of generation. This cost-based sales tariff could be used to sell to loads within or outside Virginia Power's service territory. Any such sales would be voluntary.

Rates

In April 2008, FERC granted an application for Virginia Power's electric transmission operations to establish a forward-looking formula rate mechanism that updates transmission rates on an annual basis and approved an ROE of 11.4%, effective as of January 1, 2008. The formula rate is designed to recover the expected revenue requirement for each calendar year and is updated based on actual costs. The FERC-approved formula method, which is based on projected costs, allows Virginia Power to earn a current return on its growing investment in electric transmission infrastructure.

In March 2010, ODEC and NCEMC filed a complaint with FERC against Virginia Power claiming that approximately $223 million in transmission costs related to specific projects were unjust, unreasonable and unduly discriminatory or preferential and should be excluded from Virginia Power's transmission formula rate. In October 2010, FERC issued an order dismissing the complaint in part and established hearings and settlement procedures on the remaining part of the complaint. In February 2012, Virginia Power submitted to FERC a settlement agreement to resolve all issues set for hearing. The settlement was accepted by FERC in May 2012 and provides for payment by Virginia Power to the transmission customer parties collectively of $250,000 per year for ten years and resolves all matters other than allocation of the incremental cost of certain underground transmission facilities.

In March 2014, FERC issued an order excluding from Virginia Power’s transmission rates for wholesale transmission customers located outside Virginia the incremental costs of undergrounding certain transmission line projects. FERC found it is not just and reasonable for non-Virginia wholesale transmission customers to be allocated the incremental costs of undergrounding the facilities because the projects are a direct result of Virginia legislation and Virginia Commission pilot programs intended to benefit the citizens of Virginia. The order is retroactively effective as of March 2010 and will cause the reallocation of the costs charged to wholesale transmission customers with loads outside Virginia to wholesale transmission customers with loads in Virginia. FERC determined that there was not sufficient evidence on the record to determine the magnitude of the underground increment and ordered a hearing to determine the appropriate amount of undergrounding cost to be allocated to each wholesale transmission customer in Virginia. The hearing has been held in abeyance pending the outcome of an ongoing settlement proceeding, as ordered by FERC. While Virginia Power cannot predict the outcome of the hearing and settlement proceedings, it is not expected to have a material effect on results of operations.

Other Regulatory Matters

Other than the following matters, there have been no significant developments regarding the pending regulatory matters disclosed in Note 13 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, Note 12 to the Consolidated Financial Statements in Dominion’s and Virginia Power’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, Note 12 in Exhibit 99.11(b) to Dominion Gas’ Current Report on Form 8-K dated June 26, 2014, Note 11 in Exhibit 99.11(c) to Dominion Gas’ Current Report on Form 8-K dated June 26, 2014 and Note 12 to the Consolidated Financial Statements in the Companies’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.

Virginia Regulation

Virginia Fuel Expenses

In September 2014, the Virginia Commission approved Virginia Power’s increased fuel rate, which was already in effect on an interim basis since July 1, 2014. The new rate includes approval of Virginia Power’s offer to defer recovery of 50% of its total estimated $268 million jurisdictional deferred fuel balance to the 2015-2016 fuel year. The new rate represents an annual fuel revenue increase of approximately $300 million.

Rate Adjustment Clauses

Below are developments to significant riders associated with various Virginia Power projects:

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The Virginia Commission previously approved Riders C1A and C2A in connection with cost recovery for DSM programs. In August 2014, Virginia Power proposed a total revenue requirement of approximately $47 million for the rate year beginning May 1, 2015. Virginia Power further proposed three new energy efficiency programs for Virginia Commission approval with a requested five-year cost cap of approximately $106 million for those programs. This case is pending.


•	The Virginia Commission previously approved Rider BW in connection with Brunswick County. In October 2014, Virginia Power proposed a total revenue requirement of approximately $111 million for the rate year beginning September 1, 2015. This case is pending.


•	In July 2014, Virginia legislation became effective providing for recovery of costs, subject to approval by the Virginia Commission, to move certain electric distribution lines underground. In October 2014, Virginia Power filed for approval of Rider U, which proposes a revenue requirement of approximately $28 million during the initial rate year beginning September 1, 2015. This case is pending.

Brunswick County

In August 2013, three motions for reconsideration were filed with the Virginia Commission, asking that it reconsider its August 2013 final order approving a CPCN for construction of Brunswick County. In November 2013, the Virginia Commission denied reconsideration. Three appeals were filed with the Supreme Court of Virginia, but two were withdrawn. In September 2014, the Supreme Court of Virginia issued an opinion affirming the Virginia Commission’s decision in the remaining appeal.

North Anna COL

In June 2012, the U.S. Court of Appeals for the District of Columbia Circuit vacated and remanded a 2010 NRC decision and related rulemaking that generically assessed the environmental impacts of spent fuel storage after expiration of a reactor’s license until a repository became available. In August 2012, the NRC partially granted a petition filed by BREDL and other petitioners in a number of ongoing licensing proceedings, including the North Anna COL proceeding, to withhold issuance of licenses until completion of action on the remand, and held proposed contentions accompanying the petition in abeyance. In August 2014, the NRC approved a new final rule codifying the NRC's further generic assessment of environmental impacts of continued storage of spent fuel and lifted the suspension of final licensing decisions in pending cases and dismissed pending contentions on the subject, including the proposed contention filed by BREDL in the North Anna 3 COL proceeding.

In September 2014, BREDL filed a new petition with the NRC again seeking suspension of final decision making in the COL proceeding, along with motions to reopen and file a new contention. Substantially identical suspension petitions and contentions were filed by various intervenor groups in other licensing proceedings pending before the NRC. The new filings assert that the NRC must make a safety finding on the feasibility and capacity of geologic disposal of spent fuel as a prerequisite to issuance of a license. The filings allege that because these safety findings are no longer made as part of the NRC’s new continued storage rule, such findings must now be made in individual licensing proceedings. Resolution of the matter is not expected to affect the schedule for issuance of the COL.

North Anna and Offshore Wind Legislation

In April 2014, legislation was enacted in Virginia that permits Virginia Power to recover 70% of the costs previously deferred or capitalized related to the development of a third nuclear unit located at North Anna and offshore wind facilities through December 31, 2013 as part of the 2013 and 2014 base rates. Virginia Power has deferred or capitalized costs totaling approximately $577 million for these projects as of December 31, 2013, substantially all of which relate to North Anna. For the 70% portion of these previously deferred or capitalized costs allocable to customers in Virginia, Virginia Power will recognize such amounts that are now recoverable in 2013 and 2014 base rates as charges against net income beginning in the second quarter of 2014 and for the remainder of the year. In the second quarter of 2014, Virginia Power recognized a $287 million ($191 million after-tax) charge against income representing the cumulative recovery of costs from January 2013 through June 2014. In the third quarter of 2014, Virginia Power recognized a $43 million ($28 million after-tax) charge and will recognize a charge of approximately $44 million ($29 million after-tax) in the fourth quarter of 2014. The remaining deferred or capitalized costs, as well as costs incurred after December 31, 2013, continue to be eligible for inclusion in a future rate adjustment clause.

North Carolina Regulation

In August 2014, Virginia Power submitted its annual filing to the North Carolina Commission to adjust the fuel component of its electric rates for the rate year beginning January 1, 2015. The proposed fuel increase is approximately $25 million if Virginia Power fully recovers its total estimated $19 million jurisdictional deferred fuel balance in the 2015 fuel year, or approximately $15 million if Virginia Power’s mitigation proposal to defer recovering 50% of that balance to the 2016 fuel year is approved. This case is pending.

Ohio Regulation

In January 2013, East Ohio filed with the Ohio Supreme Court an appeal of a rate reduction ordered by the Ohio Commission in October 2012 and a motion seeking a stay of the AMR cost recovery rate imposed. The Ohio Supreme Court granted the stay in March 2013 and East Ohio put the higher AMR cost recovery rate filed by East Ohio into effect. In July 2014, the Ohio Supreme Court ruled in East Ohio’s favor by agreeing that the rate reduction imposed by the Ohio Commission was unreasonable.