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 the Companies' Annual Report on Form 10-K for the year ended December 31, 2014. See Note 9 in this report for further information about the Companies' 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 Dominion's quantitative information about Level 3 fair value measurements at September 30, 2015. 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⁾	$	99	Discounted Cash Flow	Market Price (per Dth)	⁽⁴⁾	(2) - 4	(1	)
				Credit spread	⁽⁵⁾	1% - 6%	3	%
Liquids⁽³⁾	5		Discounted Cash Flow	Market Price (per Gal)	⁽⁴⁾	0 - 2	1
Electric	4		Discounted Cash Flow	Market Price (per MWh)	⁽⁴⁾	26 - 47	45
FTRs	23		Discounted Cash Flow	Market Price (per MWh)	⁽⁴⁾	(3) - 12	2
Physical and Financial Options:
Natural Gas	6		Option Model	Market Price (per Dth)	⁽⁴⁾	2 - 6	4
				Price Volatility	⁽⁶⁾	23% - 75%	44	%
Total assets	$	137
Liabilities:
Physical and Financial Forwards and Futures:
Natural Gas⁽²⁾	$	10	Discounted Cash Flow	Market Price (per Dth)	⁽⁴⁾	(2) - 4	1
FTRs	2		Discounted Cash Flow	Market Price (per MWh)	⁽⁴⁾	(12) - 12	1
Physical and Financial Options:
Natural Gas	2		Option Model	Market Price (per Dth)	⁽⁴⁾	2 - 4	3
				Price Volatility	⁽⁶⁾	23% - 50%	34	%
Total liabilities	$	14


(1)	Averages weighted by volume.


(2)	Includes basis.


(3)	Includes NGLs and oil.


(4)	Represents market prices beyond defined terms for Levels 1 and 2.


(5)	Represents credit spreads unrepresented in published markets.


(6)	Represents volatilities 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)

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, 2015
Assets:
Derivatives:
Commodity	$	1	$	237	$	137	$	375
Interest rate	—		31		—		31
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap	2,401		—		—		2,401
Other	5		—		—		5
REIT	59		—		—		59
Non-U.S.:
Large cap	10		—		—		10
Fixed income:
Corporate debt instruments	—		463		—		463
U.S. Treasury securities and agency debentures	431		184		—		615
State and municipal	—		395		—		395
Other	—		97		—		97
Cash equivalents and other	6		1		—		7
Total assets	$	2,913	$	1,408	$	137	$	4,458
Liabilities:
Derivatives:
Commodity	$	1	$	117	$	14	$	132
Interest rate	—		214		—		214
Total liabilities	$	1	$	331	$	14	$	346
At December 31, 2014
Assets:
Derivatives:
Commodity	$	3	$	567	$	125	$	695
Interest rate	—		24		—		24
Investments⁽¹⁾:
Equity securities:
U.S.:
Large cap	2,669		—		—		2,669
Other	6		—		—		6
Non-U.S.:
Large cap	12		—		—		12
Fixed income:
Corporate debt instruments	—		441		—		441
U.S. Treasury securities and agency debentures	419		190		—		609
State and municipal	—		395		—		395



Other	—		74		—		74
Cash equivalents and other	3		10		—		13
Total assets	$	3,112	$	1,701	$	125	$	4,938
Liabilities:
Derivatives:
Commodity	$	3	$	571	$	18	$	592
Interest rate	—		202		—		202
Total liabilities	$	3	$	773	$	18	$	794


(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,
	2015			2014			2015			2014
(millions)
Beginning balance	$	71		$	3		$	107		$	(16	)
Total realized and unrealized gains (losses):
Included in earnings	(9		)	(2		)	1			98
Included in other comprehensive income (loss)	5			4			(7		)	7
Included in regulatory assets/liabilities	47			39			18			53
Settlements	10			5			1			(94		)
Transfers out of Level 3⁽¹⁾	(1		)	(2		)	3			(1		)
Ending balance	$	123		$	47		$	123		$	47
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		$	1		$	1		$	2


(1)	In March 2015, Dominion changed the classification of certain short term NGL derivatives from Level 3 to Level 2 due to an increase in liquidity in financial forward markets. The transfers out of Level 3 that relate to NGLs for the three and nine months ended September 30, 2015 are $--- million and $9 million, respectively.

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, 2015
Total gains (losses) included in earnings	$	—		$	—		$	(9	)	$	(9	)
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	—			—			1			1
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
Nine Months Ended September 30, 2015
Total gains (losses) included in earnings	$	2		$	—		$	(1	)	$	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	1			—			—			1
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

Virginia Power

The following table presents Virginia Power's quantitative information about Level 3 fair value measurements at September 30, 2015. 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:
FTRs	$	23	Discounted Cash Flow	Market Price (per MWh)	⁽³⁾	(3) - 12	2
Natural Gas⁽²⁾	93		Discounted Cash Flow	Market Price (per Dth)	⁽³⁾	(2) - 3	(1	)
				Credit spread	⁽⁴⁾	1% - 6%	3	%
Electric	4		Discounted Cash Flow	Market Price (per MWh)	⁽³⁾	44 - 47	45
Physical and Financial Options:
Natural Gas	2		Discounted Cash Flow	Market Price (per Dth)	⁽³⁾	2 - 6	5
				Price Volatility	⁽⁵⁾	50% - 75%	66	%
Total assets	$	122
Liabilities:
Physical and Financial Forwards and Futures:
FTRs	$	2	Discounted Cash Flow	Market Price (per MWh)	⁽³⁾	(12) - 12	1
Total liabilities	$	2


(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.


(5)	Represents volatilities 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)
Price Volatility	Buy	Increase (decrease)	Gain (loss)
Price Volatility	Sell	Increase (decrease)	Loss (gain)

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, 2015
Assets:
Derivatives:
Commodity	$	—	$	20	$	122	$	142
Interest rate	—		8		—		8
Investments⁽¹⁾:
Equity securities:
U.S. large cap	1,037		—		—		1,037
REIT	59		—				59
Fixed income:
Corporate debt instruments	—		252		—		252
U.S. Treasury securities and agency debentures	164		61		—		225
State and municipal	—		199		—		199
Other	—		30		—		30
Total assets	$	1,260	$	570	$	122	$	1,952
Liabilities:
Derivatives:
Commodity	$	—	$	4	$	2	$	6
Interest rate	—		67		—		67
Total liabilities	$	—	$	71	$	2	$	73
At December 31, 2014
Assets:
Derivatives:
Commodity	$	—	$	7	$	106	$	113
Investments⁽¹⁾:
Equity securities:
U.S. large cap	1,157		—		—		1,157
Fixed income:
Corporate debt instruments	—		250		—		250
U.S. Treasury securities and agency debentures	137		61		—		198
State and municipal	—		211		—		211
Other	—		23		—		23
Total assets	$	1,294	$	552	$	106	$	1,952
Liabilities:
Derivatives:
Commodity	$	—	$	11	$	4	$	15
Interest rate	—		72		—		72
Total liabilities	$	—	$	83	$	4	$	87


(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,
	2015			2014			2015			2014
(millions)
Beginning balance	$	73		$	7		$	102		$	(7	)
Total realized and unrealized gains (losses):
Included in earnings	(10		)	(2		)	(1		)	109
Included in regulatory assets/liabilities	47			39			18			53
Settlements	10			2			1			(109		)
Ending balance	$	120		$	46		$	120		$	46

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, 2015 and 2014. 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, 2015 and 2014.

Dominion Gas

The following table presents Dominion Gas' quantitative information about Level 3 fair value measurements at September 30, 2015. 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:
NGLs	$	4	Discounted Cash Flow	Market Price (per Gal)	⁽²⁾	0 - 2	1
Total assets	$	4


(1)	Averages weighted by volume.


(2)	Represents market prices beyond defined terms for Levels 1 and 2.

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)

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, 2015
Assets:
Commodity	$	—	$	5	$	4	$	9
Total Assets	$	—	$	5	$	4	$	9
Liabilities:
Commodity	$	—	$	1	$	—	$	1
Interest rate	—		17		—		17
Total liabilities	$	—	$	18	$	—	$	18
At December 31, 2014
Assets:
Commodity	$	—	$	—	$	2	$	2
Total Assets	$	—	$	—	$	2	$	2
Liabilities:
Interest rate	$	—	$	9	$	—	$	9
Total liabilities	$	—	$	9	$	—	$	9

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,
	2015			2014			2015			2014
(millions)
Beginning balance	$	(1	)	$	(3	)	$	2		$	(6	)
Total realized and unrealized gains (losses):
Included in earnings	—			(1		)	1			(8		)
Included in other comprehensive income (loss)	5			5			(7		)	8
Settlements	—			—			(1		)	7
Transfers out of Level 3⁽¹⁾	—			—			9			—
Ending balance	$	4		$	1		$	4		$	1


(1)	In March 2015, Dominion Gas changed the classification of certain short term NGL derivatives from Level 3 to Level 2 due to an increase in liquidity in financial forward markets. The transfers out of Level 3 that relate to NGLs for the three and nine months ended September 30, 2015 are $--- million and $9 million, respectively.

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, 2015 and 2014. 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, 2015 and 2014.

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, restricted cash (which is recorded in other current assets), 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, 2015				December 31, 2014
	Carrying Amount		Estimated Fair Value⁽¹⁾		Carrying Amount		Estimated Fair Value⁽¹⁾
(millions)
Dominion
Long-term debt, including securities due within one year⁽²⁾⁽³⁾	$	21,318	$	22,923	$	19,723	$	21,881
Junior subordinated notes⁽³⁾	1,370		1,290		1,374		1,396
Remarketable subordinated notes⁽³⁾	2,085		2,214		2,083		2,362
Virginia Power
Long-term debt, including securities due within one year⁽³⁾	$	9,629	$	10,764	$	8,937	$	10,293
Dominion Gas
Long-term debt⁽³⁾	$	2,595	$	2,618	$	2,594	$	2,672


(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)	At both September 30, 2015 and December 31, 2014, includes the valuation of certain fair value hedges associated with fixed rate debt of approximately $19 million.


(3)	Carrying amount includes amounts which represent the unamortized discount and/or premium.