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 PJM, MISO and ISO-NE wholesale markets 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. While Virginia Power cannot predict the outcome of the hearing, 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 the Companies' Annual Report on Form 10-K for the year ended December 31, 2014.

Virginia Regulation

2015 Biennial Review

In March 2015, Virginia Power filed its base rate case and schedules for the Virginia Commission’s 2015 biennial review of Virginia Power’s rates, terms and conditions. Per legislation enacted in February 2015, this biennial review is limited to reviewing Virginia Power’s earnings on rates for generation and distribution services for the combined 2013 and 2014 test period, and determining whether credits are due to customers in the event Virginia Power’s earnings exceeded the earnings band determined in the 2013 Biennial Review Order. Virginia Power’s filing demonstrated a 10.13% ROE for the combined test periods, which is within the earnings band. This case is pending.

Virginia Fuel Expenses

In February 2015, Virginia Power submitted its annual fuel factor filing to the Virginia Commission to recover an estimated $1.6 billion in Virginia jurisdictional projected fuel expenses for the rate year beginning July 1, 2015. Virginia Power’s new fuel rate, approved on an interim basis effective April 1, 2015, represents a fuel revenue decrease of approximately $512 million when applied to projected kilowatt-hour sales for the period April 1, 2015 to June 30, 2016. This case is pending. As a result of the legislation enacted in February 2015, Virginia Power recognized a charge of $85 million ($52 million after-tax) in electric fuel and other energy-related purchases in its Consolidated Statements of Income to write off 50% of its December 31, 2014 deferred fuel costs attributable to customers in Virginia.

Rate Adjustment Clauses

Below is a discussion of significant riders associated with various Virginia Power projects:


•	The Virginia Commission previously approved Rider S in conjunction with the Virginia City Hybrid Energy Center. In March 2015, the Virginia Commission approved an approximately $245 million revenue requirement for the rate year beginning April 1, 2015.


•	The Virginia Commission previously approved Rider BW in conjunction with Brunswick County. In April 2015, the Virginia Commission approved an approximately $111 million total revenue requirement for the rate year beginning September 1, 2015.


•	The Virginia Commission previously approved Rider R in conjunction with Bear Garden. In March 2015, the Virginia Commission approved an approximately $84 million revenue requirement for the rate year beginning April 1, 2015.

•

The Virginia Commission previously approved Riders C1A and C2A in connection with cost recovery for DSM programs. In April 2015, the Virginia Commission approved an approximately $37 million revenue requirement for the rate year beginning May 1, 2015. The Virginia Commission approved two new energy efficiency programs for a three-year period with a combined cost cap of approximately $20 million, and reduced Virginia Power’s annual base rate revenues by approximately $7 million to remove the costs of a discontinued energy efficiency program no longer combined in Virginia Power’s base rates effective May 1, 2015.


•	The Virginia Commission previously approved Rider B in conjunction with the conversion of three power stations to biomass. In March 2015, the Virginia Commission approved an approximately $9 million revenue requirement for the rate year beginning April 1, 2015.

Electric Transmission Project

In April 2015, the Supreme Court of Virginia issued its opinion in the consolidated appeals of the Virginia Commission’s order granting a CPCN for the Skiffes Creek transmission line and related facilities. The Supreme Court of Virginia unanimously affirmed on all but one of the alleged grounds for appeal. The court approved the proposed project including the proposed route for a 500 kV overhead transmission line from Surry Power Station to the Skiffes Creek Switching Station site. The court reversed and remanded the Virginia Commission’s determination in one set of appeals that the Skiffes Creek Switching Station was a transmission line for purposes of statutory exemption from local zoning ordinances. On April 27, 2015, Virginia Power and the Virginia Commission each filed a Notice of Intent to Apply for Rehearing with the Supreme Court of Virginia relating to the ruling on the switching station. This matter is pending.

North Anna

Virginia Power is considering the construction of a third nuclear unit at a site located at North Anna. If Virginia Power decides to build a new unit, it must first receive a COL from the NRC, approval of the Virginia Commission and certain environmental permits and other approvals. The COL is expected in 2016. Virginia Power has not yet committed to building a new nuclear unit at North Anna.

In September 2014, BREDL filed a 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. BREDL asserted that the NRC must make a safety finding on the feasibility and capacity of geologic disposal of spent fuel prior to the issuance of a license. BREDL also alleged 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. In January 2015, BREDL filed another petition asking the NRC to supplement the final environmental impact statement for North Anna 3 to incorporate the NRC’s generic assessment of the impacts of continued spent fuel storage, which would allow BREDL to then challenge that assessment.

The NRC denied the September 2014 petition and motions filed by BREDL in February 2015 and the January 2015 petition filed by BREDL in April 2015. In April 2015, BREDL filed a new motion and petition seeking to object to the NRC’s reliance on the continued storage rule in licensing proceedings. The BREDL filings are substantially the same as those filed in other COL proceedings in which final environmental impact statements were issued prior to promulgation of the continued storage rule, like North Anna 3. Resolution of these filings is not expected to affect the schedule for issuance of the COL.

Ohio Regulation

PIR Program

In March 2015, East Ohio filed an application with the Ohio Commission requesting approval to extend the PIR program for an additional five years and to increase the annual capital investment, with corresponding increases in the annual rate-increase caps. In its application, East Ohio proposed that PIR investments for 2016 should fall under the existing authorization and that the new five-year period should include investment through December 31, 2021. East Ohio also proposed that the PIR investment should be increased by $20 million in 2017 and another $20 million in 2018, bringing the total annual investment to $200 million. Thereafter, East Ohio proposed capital investment increases of 3% per year for 2019 through 2021 to mitigate inflation and other cost pressures experienced to date, which will continue into the future. This case is pending.

In February 2015, East Ohio filed an application to adjust the PIR cost recovery for 2014 costs. The filing reflects gross plant investment for 2014 of $155 million, cumulative gross plant investment of $829 million and a revenue requirement of $108 million. This application was approved by the Ohio Commission in April 2015.

AMR Program

In February 2015, East Ohio filed its application with the Ohio Commission to adjust its AMR cost recovery charge to recover costs for calendar year 2014 associated with AMR deployment, which was completed in 2012. The filing reflects a projected revenue requirement of approximately $8 million. This application was approved by the Ohio Commission in April 2015.