Shareholders' Equity

12 Months Ended

Dec. 31, 2011

Shareholders' Equity

SHAREHOLDERS' EQUITY

Issuance of Common Stock

DOMINION

Dominion maintains Dominion Direct^® and a number of employee savings plans through which contributions may be invested in the Company's common stock. These shares may either be newly issued or purchased on the open market with proceeds contributed to these plans. During 2011, Dominion Direct^® and the Dominion employee savings plans purchased Dominion common stock on the open market with the proceeds received through these programs, rather than having additional new common shares issued. In January 2012, Dominion began issuing new common shares for these direct stock purchase plans.

During 2011, Dominion issued approximately 1.2 million shares of common stock and received cash proceeds of $38 million through the exercise of employee stock options.

In January 2012, Dominion filed a new SEC shelf registration for the sale of debt and equity securities including the ability to sell common stock through an at the market program.  The Company entered into four separate Sales Agency Agreements with each of BNY Mellon Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated,  Morgan Stanley & Co. LLC, and Goldman Sachs & Co., to effect sales under the program.  However, with the exception of issuing approximately $320 million in equity through employee savings plans, direct stock purchase and dividend reinvestment plans, and other employee and director benefit plans, Dominion does not anticipate issuing common stock in 2012. 

VIRGINIA POWER

In 2011, Virginia Power did not issue any shares of its common stock to Dominion. In 2010 and 2009, Virginia Power issued 33,013 and 31,877 shares of its common stock to Dominion for approximately $1 billion in each year, for the purpose of retiring short-term demand note borrowings from Dominion.

Shares Reserved for Issuance

At December 31, 2011, Dominion had approximately 54 million shares reserved and available for issuance for Dominion Direct^®, employee stock awards, employee savings plans, director stock compensation plans and contingent convertible senior notes.

Repurchase of Common Stock

In March 2010, Dominion began repurchasing common shares in anticipation of proceeds from the sale of its Appalachian E&P operations. During 2010, Dominion repurchased 21.4 million shares of its common stock for approximately $900 million.

In 2011, Dominion announced that it intended to repurchase between $600 million and $700 million of common stock with cash tax savings resulting from the extension of the bonus depreciation allowance. During 2011, Dominion repurchased approximately 13 million shares of common stock for approximately $601 million on the open market under this program, at an average price of $46.37 per share. Dominion does not plan to repurchase additional shares under this program during 2012.

Accumulated Other Comprehensive Income (Loss)

Presented in the table below is a summary of AOCI by component:

At December 31,	2011			2010
(millions)
Dominion
Net unrealized gains (losses) on derivatives-hedging activities, net of tax of $48 and $(27)	$	(54	)	$	51
Net unrealized gains on nuclear decommissioning trust funds, net of tax of $(154) and $(142)	243			226
Net unrecognized pension and other postretirement benefit costs, net of tax of $568 and $446	(799		)	(607		)
Total AOCI	$	(610	)	$	(330	)
Virginia Power
Net unrealized gains (losses) on derivatives-hedging activities, net of tax of $2 and $(2)	$	(3	)	$	4
Net unrealized gains on nuclear decommissioning trust funds, net of tax of $(14) and $(13)	22			20
Total AOCI	$	19		$	24

Stock-Based Awards

The 2005 Incentive Compensation Plan permits stock-based awards that include restricted stock, performance grants, goal-based stock, stock options, and stock appreciation rights. The Non-Employee Directors Plan permits grants of restricted stock and stock options. Under provisions of both plans, employees and non-employee directors may be granted options to purchase common stock at a price not less than its fair market value at the date of grant with a maximum term of eight years. Option terms are set at the discretion of the CGN Committee of the Board of Directors or the Board of Directors itself, as provided under each plan. At December 31, 2011, approximately 33 million shareswere available for future grants under these plans.

Dominion measures and recognizes compensation expense relating to share-based payment transactions over the vesting period based on the fair value of the equity or liability instruments issued. Dominion's results for the years ended December 31, 2011, 2010 and 2009 include $39 million, $40 million, and $44 million,respectively, of compensation costs and $13 million, $15 million, and $17 million, respectively of income tax benefits related to Dominion's stock-based compensation arrangements. Stock-based compensation cost is reported in other operations and maintenance expense in Dominion's Consolidated Statements of Income. Excess tax benefits are classified as a financing cash flow. During the years ended December 31, 2011, 2010 and 2009, Dominion realized $2 million, $10 million, and $5 million, respectively, of excess tax benefits from the vesting of restricted stock awards and exercise of stock options.

STOCK OPTIONS

The following table provides a summary of changes in amounts of stock options outstanding as of and for the years ended December 31, 2011, 2010 and 2009. No options were granted under any plan in 2011, 2010 or 2009.

	Shares		Weighted - average Exercise Price		Weighted - average Remaining Contractual Life	Aggregated Intrinsic Value(1)
	(thousands)				(years)	(millions)
Outstanding and exercisable at December 31, 2008	5,558		$	30.53		30
Exercised	(1,706	)	$	28.93		$	10
Forfeited/expired	(30	)	$	28.89
Outstanding and exercisable at December 31, 2009	3,822		$	31.25		$	29
Exercised	(1,983	)	$	30.81		$	22
Forfeited/expired	(29	)	$	29.84
Outstanding and exercisable at December 31, 2010	1,810		$	31.76		$	20
Exercised	(1,174	)	$	32.46		$	17
Forfeited/expired	(8	)	$	31.57
Outstanding and exercisable at December 31, 2011	628		$	30.81	0.6	$	14

(1) Intrinsic value represents the difference between the exercise price of the option and the market value of Dominion's stock.

Dominion issues new shares to satisfy stock option exercises. Dominion received cash proceeds from the exercise of stock options of approximately $38 million, $63 million, and $49 million in the years ended December 31, 2011, 2010 and 2009, respectively.

RESTRICTED STOCK

Restricted stock grants are made to officers under Dominion's LTIP and may also be granted to certain key contributors from time to time. The fair value of Dominion's restricted stock awards is equal to the market price of Dominion's stock on the date of grant. New shares are issued for restricted stock awards on the date of grant and generally vest over a three-year service period. The following table provides a summary of restricted stock activity for the years ended December 31, 2011, 2010 and 2009:

	Shares		Weighted - average Grant Date Fair Value
	(thousands)
Nonvested at December 31, 2008	1,756		$	38.55
Granted	533		33.84
Vested	(913	)	34.81
Cancelled and forfeited	(77	)	38.32
Converted from goal-based stock to restricted stock	185		44.18
Nonvested at December 31, 2009	1,484		$	39.88
Granted	463		38.80
Vested	(618	)	43.54
Cancelled and forfeited	(39	)	36.92
Converted from goal-based stock to restricted stock	186		40.84
Nonvested at December 31, 2010	1,476		$	38.20
Granted	299		43.68
Vested	(617	)	40.72
Cancelled and forfeited	(25	)	36.29
Converted from goal-based stock to restricted stock	168		30.99
Nonvested at December 31, 2011	1,301		$	37.37

As of December 31, 2011, unrecognized compensation cost related to nonvested restricted stock awards totaled $18 million and is expected to be recognized over a weighted-average period of 2.1 The fair value of restricted stock awards that vested was $28 million, $26 million, and $29 million in 2011, 2010 and 2009, respectively. Employees may elect to have shares of restricted stock withheld upon vesting to satisfy tax withholding obligations. The number of shares withheld will vary for each employee depending on the vesting date fair market value of Dominion stock and the applicable federal, state and local tax withholding rates. Shares tendered for taxes are added to the shares remaining to be issued and become available for reissuance as incentive awards.

GOAL-BASED STOCK

Goal-based stock awards are granted to officers who have not achieved a certain targeted level of share ownership in lieu of cash-based performance grants. In 2008 and 2009, goal-based stock awards were also made to certain key non-officer employees. Current outstanding goal-based shares include awards granted to officers in February 2010 and February 2011.

The issuance of awards is based on the achievement of multiple performance metrics during a two-year period, including ROIC, BVP and TSR relative to that of a peer group of companies for 2009, and for 2010 and 2011 the two metrics of ROIC and TSR relative to that of a peer group of companies. The actual number of shares issued will vary between zero and 200% of targeted shares depending on the level of performance metrics achieved. The fair value of goal-based stock is equal to the market price of Dominion's stock on the date of grant. Goal-based stock awards granted to key non-officer employees convert to restricted stock at the end of the two-year performance period and generally vest three years from the original grant date. Awards to officers vest at the end of the two-year performance period. All goal-based stock awards are settled by issuing new shares.

After the performance period for the April 2008 grants ended on December 31, 2009, the CGN Committee determined the actual performance against metrics established for those awards. For awards to key non-officer employees, 147 thousand shares of the outstanding goal-based stock awards granted in April 2008 were converted to 186 thousand shares of restricted stock for the remaining term of the vesting period ending in April 2011. For awards to officers, 12 thousand shares of the outstanding goal-based stock awards were converted to 15 thousand non-restricted shares and issued to the officers.

After the performance period for the April 2009 grants ended on December 31, 2010, the CGN Committee determined the actual performance against metrics established for those awards. For awards to key non-officer employees, 132 thousand shares of the outstanding goal-based stock awards granted in April 2009 were converted to 168 thousand shares of restricted stock for the remaining term of the vesting period ending in April 2012. For awards to officers, 20 thousand shares of the outstanding goal-based stock awards were converted to 25 thousand non-restricted shares and issued to the officers.

The following table provides a summary of goal-based stock activity for the years ended December 31, 2011, 2010 and 2009:

	Targeted Number of Shares		Weighted - average Grant Date Fair Value
	(thousands)
Nonvested at December 31, 2008	315		$	42.56
Granted	165		31.43
Vested	(28	)	44.38
Cancelled and forfeited	(2	)	37.24
Converted from goal-based stock to restricted stock	(127	)	44.18
Nonvested at December 31, 2009	323		$	36.12
Granted	9		37.46
Vested	(16	)	39.31
Cancelled and forfeited	(8	)	30.99
Converted from goal-based stock to restricted stock	(147	)	40.84
Nonvested at December 31, 2010	161		$	31.79
Granted	3		43.54
Vested	(20	)	34.62
Cancelled and forfeited	—		—
Converted from goal-based stock to restricted stock	(132	)	30.99
Nonvested at December 31, 2011	12		$	39.19

At December 31, 2011, the targeted number of shares expected to be issued under the February 2010 and February 2011 awards was approximately 12 thousand. In January 2012, the CGN Committee determined the actual performance against metrics established for the February 2010 awards with a performance period that ended December 31, 2011. Based on that determination, the total number of shares to be issued under the February 2010 goal-based stock awards was approximately 15 thousand.

As of December 31, 2011, unrecognized compensation cost related to nonvested goal-based stock awards was not material.

CASH-BASED PERFORMANCE GRANTS

Cash-based performance grants are made to Dominion's officers under Dominion's LTIP. The actual payout of cash-based performance grants will vary between zero and 200% of the targeted amount based on the level of performance metrics achieved.

The targeted amount of the cash-based performance grant made to officers in April 2008 was $12 million, but the actual payout of the award in February 2010 determined by the CGN Committee was $15 million, based on the level of performance metrics achieved.

In February 2009, a cash-based performance grant was made to officers. A portion of the grant, representing the $11 million targeted amount as of December 31, 2010, was paid in December 2010, based on the achievement of three performance metrics during 2009 and 2010: ROIC, BVP and TSR relative to that of a peer group of companies. The total amount of the award under the grant was $14 million and the remaining $3 million of the grant was paid in February 2011. At December 31, 2010, a liability of $3 million had been accrued for the remaining portion of the award.

In February 2010, a cash-based performance grant was made to officers. A portion of the grant, representing the initial payout of $14 million, which included the $12 million targeted amount, was paid in December 2011, based on the achievement of two performance metrics during 2010 and 2011: ROIC and TSR relative to that of a peer group of companies. The total expected award under the grant is $20 million and the remaining portion of the grant will be paid by March 15, 2012. At December 31, 2011, a liability of $5 million had been accrued for the remaining portion of the award.

In February 2011, a cash-based performance grant was made to officers. Payout of the performance grant will occur by March 15, 2013 based on the achievement of two performance metrics during 2011 and 2012: ROIC and TSR relative to that of a peer group of companies. At December 31, 2011, the targeted amount of the grant was $12 million and a liability of $6 million had been accrued for this award.