Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Note 6. Income Taxes

Continuing Operations

For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to Dominion's and Virginia Power's effective income tax rate as follows:

	Dominion						Virginia Power
Six Months Ended June 30,	2011			2010			2011			2010
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		3.7			4.5			3.9			3.9
Legislative changes		—			1.6			—			2.6
Other, net		(0.1	)		(0.5	)		(0.3	)		(1.4	)
Effective tax rate		38.6	%		40.6	%		38.6	%		40.1	%

Dominion's and Virginia Power's effective tax rates in 2010 reflect the reduction of deferred tax assets resulting from the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 which eliminated the employer's deduction, beginning in 2013, for that portion of its retiree prescription drug coverage cost that is being reimbursed by the Medicare Part D subsidy. In addition, Dominion's effective tax rate in 2010 reflects higher state income taxes due to the sale of its Appalachian E&P operations.

During the quarter ended June 30, 2011, the Companies' unrecognized tax benefits decreased $26 million to reflect resolution of several issues with tax authorities, including a recent Internal Revenue Service decision not to appeal rulings by the U.S. Tax Court in favor of two other taxpayers that street lighting assets are depreciable for tax purposes over seven years. See 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, 2010, for a discussion of the Companies' unrecognized tax benefits, including possible changes that could reasonably occur during the next twelve months.

Discontinued Operations

Income tax expense in 2010 for Dominion's discontinued operations primarily reflects the impact of goodwill written off in the sale of Peoples that is not deductible for tax purposes and the reversal of deferred taxes for which the benefit was offset by the reversal of income tax-related regulatory assets.

Virginia Electric and Power Company [Member]

Income Taxes

Note 6. Income Taxes

Continuing Operations

For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to Dominion's and Virginia Power's effective income tax rate as follows:

	Dominion						Virginia Power
Six Months Ended June 30,	2011			2010			2011			2010
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		3.7			4.5			3.9			3.9
Legislative changes		—			1.6			—			2.6
Other, net		(0.1	)		(0.5	)		(0.3	)		(1.4	)
Effective tax rate		38.6	%		40.6	%		38.6	%		40.1	%

Dominion's and Virginia Power's effective tax rates in 2010 reflect the reduction of deferred tax assets resulting from the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 which eliminated the employer's deduction, beginning in 2013, for that portion of its retiree prescription drug coverage cost that is being reimbursed by the Medicare Part D subsidy. In addition, Dominion's effective tax rate in 2010 reflects higher state income taxes due to the sale of its Appalachian E&P operations.

During the quarter ended June 30, 2011, the Companies' unrecognized tax benefits decreased $26 million to reflect resolution of several issues with tax authorities, including a recent Internal Revenue Service decision not to appeal rulings by the U.S. Tax Court in favor of two other taxpayers that street lighting assets are depreciable for tax purposes over seven years. See 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, 2010, for a discussion of the Companies' unrecognized tax benefits, including possible changes that could reasonably occur during the next twelve months.

Discontinued Operations

Income tax expense in 2010 for Dominion's discontinued operations primarily reflects the impact of goodwill written off in the sale of Peoples that is not deductible for tax purposes and the reversal of deferred taxes for which the benefit was offset by the reversal of income tax-related regulatory assets.