Derivatives and Hedge Accounting Activities

6 Months Ended

Jun. 30, 2011

Derivatives and Hedge Accounting Activities

Note 10. Derivatives and Hedge Accounting Activities

Dominion's and Virginia Power's accounting policies and objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2010. See Note 9 in this report for further information about fair value measurements and associated valuation methods for derivatives.

The following table presents the volume of Dominion's derivative activity as of June 30, 2011. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.

	Current		Noncurrent
Natural Gas (bcf):
Fixed price(1)		245		60
Basis		1,019		458
Electricity (MWh):
Fixed price(1)		19,363,209		24,512,834
FTRs		108,707,777		1,074,048
Capacity (MW)		201,416		297,985
Liquids (gallons)(2)		143,136,000		300,006,000
Interest rate	$	600,000,000	$	3,100,000,000

(1) Includes options.

(2) Includes NGLs and oil.

For the three and six months ended June 30, 2011 and 2010, gains or losses on hedging instruments determined to be ineffective were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices and were not material for the three and six months ended June 30, 2011 and 2010.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion's Consolidated Balance Sheet at June 30, 2011:

	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next  12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(14	)	$	(5	)		42 months
Electricity		42			30			54 months
NGLs		(75	)		(32	)		42 months
Other		6			2			47 months
Interest rate		14			(6	)		378 months
Total	$	(27	)	$	(11	)

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices and interest rates.

The sale of the majority of Dominion's remaining E&P operations during 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges, as discussed in Note 3.

In addition, changes to Dominion's financing needs during the first and second quarters of 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges, since it became probable that forecasted interest payments would not occur. In connection with the discontinuance of hedge accounting for these contracts, Dominion recognized a benefit recorded to interest and related charges reflecting the reclassification of gains from AOCI to earnings of $70 million ($43 million after-tax) in the three months ended June 30, 2010 and $110 million ($67 million after-tax) in the six months ended June 30, 2010. The reclassification of gains from AOCI to earnings was partially offset by subsequent changes in fair value of $37 million ($23 million after-tax) for the three and six months ended June 30, 2010.

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of Dominion's derivatives and where they are presented in its Consolidated Balance Sheets:

	Fair Value – Derivatives under Hedge Accounting		Fair Value – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
June 30, 2011
ASSETS
Current Assets
Commodity	$	163	$	273	$	436
Interest rate		40		—		40
Total current derivative assets		203		273		476
Noncurrent Assets
Commodity		82		70		152
Interest rate		45		—		45
Total noncurrent derivative assets(1)		127		70		197
Total derivative assets	$	330	$	343	$	673
LIABILITIES
Current Liabilities
Commodity	$	172	$	344	$	516
Interest rate		27		—		27
Total current derivative liabilities(2)		199		344		543
Noncurrent Liabilities
Commodity		146		80		226
Interest rate		7		—		7
Total noncurrent derivative liabilities(3)		153		80		233
Total derivative liabilities	$	352	$	424	$	776
December 31, 2010
ASSETS
Current Assets
Commodity	$	291	$	425	$	716
Interest rate		23		—		23
Total current derivative assets		314		425		739
Noncurrent Assets
Commodity		44		83		127
Interest rate		31		—		31
Total noncurrent derivative assets(1)		75		83		158
Total derivative assets	$	389	$	508	$	897
LIABILITIES
Current Liabilities
Commodity	$	178	$	455	$	633
Total current derivative liabilities(2)		178		455		633
Noncurrent Liabilities
Commodity		86		106		192
Interest rate		5		—		5
Total noncurrent derivative liabilities(3)		91		106		197
Total derivative liabilities	$	269	$	561	$	830

(1) Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion's Consolidated Balance Sheets.

(2) Current derivative liabilities are presented in other current liabilities in Dominion's Consolidated Balance Sheets.

(3) Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion's Consolidated Balance Sheets.

The following tables present the gains and losses on Dominion's derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:

Derivatives in cash flow hedging relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives - Effective Portion(1)			Amount of Gain (Loss) Reclassified from AOCI to Income			Increase (Decrease) in Derivatives Subject to Regulatory Treatment(2)
(millions)
Three Months Ended June 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	32
Purchased gas					(7	)
Electric fuel and other energy-related purchases					1
Purchased electric capacity					1
Total commodity	$	49			27		$	(4	)
Interest rate(3)		(31	)		—			1
Total	$	18		$	27		$	(3	)
Three Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	114
Purchased gas					(19	)
Electric fuel and other energy-related purchases					(5	)
Purchased electric capacity					1
Total commodity	$	(16	)		91		$	2
Interest rate(3)		—			70			(23	)
Foreign currency(4)		—			(1	)		(1	)
Total	$	(16	)	$	160		$	(22	)
Six Months Ended June 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	60
Purchased gas					(55	)
Electric fuel and other energy-related purchases					2
Purchased electric capacity					2
Total commodity	$	(93	)		9		$	(9	)
Interest rate(3)		(32	)		—			—
Total	$	(125	)	$	9		$	(9	)
Six Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	295
Purchased gas					(116	)
Electric fuel and other energy-related purchases					(8	)
Purchased electric capacity					2
Total commodity	$	283			173		$	(11	)
Interest rate(3)		(3	)		110			(24	)
Foreign currency(4)		—			—			(2	)
Total	$	280		$	283		$	(37	)

(1) Amounts deferred into AOCI have no associated effect in Dominion's Consolidated Statements of Income.

(2) Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion's Consolidated Statements of Income.

(3) Amounts recorded in Dominion's Consolidated Statements of Income are classified in interest and related charges.

(4) Amounts recorded in Dominion's Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.

	Amount of Gain (Loss) Recognized in Income on Derivatives(1)
	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives not designated as hedging instruments	2011			2010			2011			2010
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	23		$	(14	)	$	42		$	26
Purchased gas		(7	)		2			(18	)		(29	)
Electric fuel and other energy-related purchases		(24	)		5			(8	)		26
Interest rate(2)		—			(37	)		—			(37	)
Total	$	(8	)	$	(44	)	$	16		$	(14	)

(1) Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion's Consolidated Statements of Income.

(2)	Amounts recorded in Dominion's Consolidated Statements of Income are classified in interest and related charges.

Virginia Electric and Power Company [Member]

Derivatives and Hedge Accounting Activities

Note 10. Derivatives and Hedge Accounting Activities

Dominion's and Virginia Power's accounting policies and objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in their Annual Report on Form 10-K for the year ended December 31, 2010. See Note 9 in this report for further information about fair value measurements and associated valuation methods for derivatives.

The following table presents the volume of Dominion's derivative activity as of June 30, 2011. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting deals, for which they represent the absolute value of the net volume of their long and short positions.

	Current		Noncurrent
Natural Gas (bcf):
Fixed price(1)		245		60
Basis		1,019		458
Electricity (MWh):
Fixed price(1)		19,363,209		24,512,834
FTRs		108,707,777		1,074,048
Capacity (MW)		201,416		297,985
Liquids (gallons)(2)		143,136,000		300,006,000
Interest rate	$	600,000,000	$	3,100,000,000

(1) Includes options.

(2) Includes NGLs and oil.

For the three and six months ended June 30, 2011 and 2010, gains or losses on hedging instruments determined to be ineffective were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices and were not material for the three and six months ended June 30, 2011 and 2010.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion's Consolidated Balance Sheet at June 30, 2011:

	AOCI After-Tax			Amounts Expected to be Reclassified to Earnings during the next  12 Months After-Tax			Maximum Term
(millions)
Commodities:
Gas	$	(14	)	$	(5	)		42 months
Electricity		42			30			54 months
NGLs		(75	)		(32	)		42 months
Other		6			2			47 months
Interest rate		14			(6	)		378 months
Total	$	(27	)	$	(11	)

The amounts that will be reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies and will vary from the expected amounts presented above as a result of changes in market prices and interest rates.

The sale of the majority of Dominion's remaining E&P operations during 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges, as discussed in Note 3.

In addition, changes to Dominion's financing needs during the first and second quarters of 2010 resulted in the discontinuance of hedge accounting for certain cash flow hedges, since it became probable that forecasted interest payments would not occur. In connection with the discontinuance of hedge accounting for these contracts, Dominion recognized a benefit recorded to interest and related charges reflecting the reclassification of gains from AOCI to earnings of $70 million ($43 million after-tax) in the three months ended June 30, 2010 and $110 million ($67 million after-tax) in the six months ended June 30, 2010. The reclassification of gains from AOCI to earnings was partially offset by subsequent changes in fair value of $37 million ($23 million after-tax) for the three and six months ended June 30, 2010.

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of Dominion's derivatives and where they are presented in its Consolidated Balance Sheets:

	Fair Value  – Derivatives under Hedge Accounting		Fair Value  – Derivatives not under Hedge Accounting		Total Fair Value
(millions)
June 30, 2011
ASSETS
Current Assets
Commodity	$	163	$	273	$	436
Interest rate		40		—		40
Total current derivative assets		203		273		476
Noncurrent Assets
Commodity		82		70		152
Interest rate		45		—		45
Total noncurrent derivative assets(1)		127		70		197
Total derivative assets	$	330	$	343	$	673
LIABILITIES
Current Liabilities
Commodity	$	172	$	344	$	516
Interest rate		27		—		27
Total current derivative liabilities(2)		199		344		543
Noncurrent Liabilities
Commodity		146		80		226
Interest rate		7		—		7
Total noncurrent derivative liabilities(3)		153		80		233
Total derivative liabilities	$	352	$	424	$	776
December 31, 2010
ASSETS
Current Assets
Commodity	$	291	$	425	$	716
Interest rate		23		—		23
Total current derivative assets		314		425		739
Noncurrent Assets
Commodity		44		83		127
Interest rate		31		—		31
Total noncurrent derivative assets(1)		75		83		158
Total derivative assets	$	389	$	508	$	897
LIABILITIES
Current Liabilities
Commodity	$	178	$	455	$	633
Total current derivative liabilities(2)		178		455		633
Noncurrent Liabilities
Commodity		86		106		192
Interest rate		5		—		5
Total noncurrent derivative liabilities(3)		91		106		197
Total derivative liabilities	$	269	$	561	$	830

(1) Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion's Consolidated Balance Sheets.

(2) Current derivative liabilities are presented in other current liabilities in Dominion's Consolidated Balance Sheets.

(3) Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion's Consolidated Balance Sheets.

The following tables present the gains and losses on Dominion's derivatives, as well as where the associated activity is presented in its Consolidated Balance Sheets and Statements of Income:

Derivatives in cash flow hedging relationships	Amount of  Gain (Loss) Recognized in AOCI  on Derivatives - Effective Portion(1)			Amount of Gain (Loss)  Reclassified from AOCI to Income			Increase (Decrease)  in Derivatives Subject to Regulatory Treatment(2)
(millions)
Three Months Ended June 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	32
Purchased gas					(7	)
Electric fuel and other energy-related purchases					1
Purchased electric capacity					1
Total commodity	$	49			27		$	(4	)
Interest rate(3)		(31	)		—			1
Total	$	18		$	27		$	(3	)
Three Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	114
Purchased gas					(19	)
Electric fuel and other energy-related purchases					(5	)
Purchased electric capacity					1
Total commodity	$	(16	)		91		$	2
Interest rate(3)		—			70			(23	)
Foreign currency(4)		—			(1	)		(1	)
Total	$	(16	)	$	160		$	(22	)
Six Months Ended June 30, 2011
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	60
Purchased gas					(55	)
Electric fuel and other energy-related purchases					2
Purchased electric capacity					2
Total commodity	$	(93	)		9		$	(9	)
Interest rate(3)		(32	)		—			—
Total	$	(125	)	$	9		$	(9	)
Six Months Ended June 30, 2010
Derivative Type and Location of Gains (Losses)
Commodity:
Operating revenue				$	295
Purchased gas					(116	)
Electric fuel and other energy-related purchases					(8	)
Purchased electric capacity					2
Total commodity	$	283			173		$	(11	)
Interest rate(3)		(3	)		110			(24	)
Foreign currency(4)		—			—			(2	)
Total	$	280		$	283		$	(37	)

(1) Amounts deferred into AOCI have no associated effect in Dominion's Consolidated Statements of Income.

(2) Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion's Consolidated Statements of Income.

(3) Amounts recorded in Dominion's Consolidated Statements of Income are classified in interest and related charges.

(4) Amounts recorded in Dominion's Consolidated Statements of Income are classified in electric fuel and other energy-related purchases.

	Amount of Gain (Loss) Recognized in Income on Derivatives(1)
	Three Months Ended June 30,						Six Months Ended June 30,
Derivatives not designated as hedging instruments	2011			2010			2011			2010
(millions)
Derivative Type and Location of Gains (Losses)
Commodity
Operating revenue	$	23		$	(14	)	$	42		$	26
Purchased gas		(7	)		2			(18	)		(29	)
Electric fuel and other energy-related purchases		(24	)		5			(8	)		26
Interest rate(2)		—			(37	)		—			(37	)
Total	$	(8	)	$	(44	)	$	16		$	(14	)

(1) Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion's Consolidated Statements of Income.

(2) Amounts recorded in Dominion's Consolidated Statements of Income are classified in interest and related charges.