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 state of Georgia and in the PJM, MISO and ISO-NE regions 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. The hearing has been held in abeyance pending the outcome of an ongoing settlement proceeding, as ordered by FERC. While Virginia Power cannot predict the outcome of the hearing and settlement proceedings, 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 Dominion's and Virginia Power's Annual Report on Form 10-K for the year ended December 31, 2013, Note 12 to the Consolidated Financial Statements in Dominion's and Virginia Power's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, Note 12 in Exhibit 99.11(b) to Dominion Gas' Current Report on Form 8-K dated June 26, 2014 and Note 11 in Exhibit 99.11(c) to Dominion Gas' Current Report on Form 8-K dated June 26, 2014.

Virginia Regulation

Virginia Fuel Expenses

In May 2014, Virginia Power submitted its annual fuel factor filing to the Virginia Commission to recover an estimated $1.9 billion in Virginia jurisdictional projected fuel expense for the rate year beginning July 1, 2014. Virginia Power also offered to defer recovery of 50% of its total estimated $268 million jurisdictional deferred fuel balance to the 2015-2016 fuel year, thereby recovering $134 million of its jurisdictional deferred fuel balance for the rate year beginning July 1, 2014. In May 2014, the Virginia Commission issued an order approving the increased fuel rate on an interim basis effective July 1, 2014. This case is pending.

Rate Adjustment Clauses

Below are developments to significant riders associated with various Virginia Power projects:


•	The Virginia Commission previously approved Rider B in conjunction with the conversion of three power stations to biomass. In June 2014,Virginia Power proposed an approximately $13 million revenue requirement for the rate year beginning April 1, 2015. This case is pending.


•	The Virginia Commission previously approved Rider S in conjunction with the Virginia City Hybrid Energy Center. In June 2014, Virginia Power proposed an approximately $244 million revenue requirement for the rate year beginning April 1, 2015. This case is pending.


•	The Virginia Commission previously approved Rider W in conjunction with Warren County. In May 2014, Virginia Power proposed an approximately $135 million revenue requirement for the rate year beginning April 1, 2015. This case is pending.


•	The Virginia Commission previously approved Rider R in conjunction with Bear Garden. In June 2014, Virginia Power proposed an approximately $84 million revenue requirement for the rate year beginning April 1, 2015. This case is pending.


•	The Virginia Commission previously approved Rider BW in connection with Brunswick County. In July 2014, the Virginia Commission approved an approximately $85 million revenue requirement for the rate year beginning September 1, 2014, which represents an approximately $41 million increase over the previous year.

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The Virginia Commission previously approved Riders C1A and C2A in connection with various DSM programs. In April 2014, the Virginia Commission approved an approximately $1 million revenue requirement for Rider C1A, and an approximately $30 million revenue requirement for Rider C2A, for the rate year beginning May 1, 2014, which represents an approximately $4 million increase to the total revenue requirement for both Riders over the previous year. The Virginia Commission also approved a combined spending cap of approximately $72 million, inclusive of lost revenues, for three new DSM programs.


•	The Virginia Commission previously approved Rider T1. In July 2014, the Virginia Commission approved an approximately $538 million revenue requirement for the rate year beginning September 1, 2014, which represents an approximately $134 million increase over the previous year.

Electric Transmission Projects

In April 2014, the Virginia Commission issued an order granting Virginia Power a CPCN to rebuild within existing rights-of-way its 500-kV Loudoun-Pleasant View transmission line in Loudoun County at an estimated cost of approximately $31 million.

North Anna COL

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. In April 2013, Virginia Power decided to replace the reactor design previously selected for a potential unit with ESBWR technology. Virginia Power filed the first of its two-part amendment to the COL application with the NRC in July 2013 to reflect the ESBWR technology and filed the second part of the amendment in December 2013. The COL is expected in 2016. Virginia Power has not yet committed to building a new nuclear unit at North Anna.

In February 2014, BREDL filed a petition with the NRC seeking to stay final decision making in the COL proceeding until a rulemaking petition filed by a number of environmental groups several weeks earlier is resolved. The suspension request and underlying petition for rulemaking are based on analyses of the consequences of a spent fuel pool fire, but none of the analyses relates specifically to the ESBWR design. The NRC denied the petition in July 2014. Substantially identical suspension petitions and contentions were filed by various intervenor groups in other licensing proceedings pending before the NRC. In March 2014, BREDL filed a motion to reopen the COL proceeding on seismic issues under a previous ruling of the ASLB. No other issues were raised by BREDL in its filing. In June 2014, the ASLB denied BREDL’s motion to reopen the COL proceeding. BREDL did not appeal the ASLB’s decision, and under a previous ruling of the NRC, the contested portion of the COL proceeding remains terminated.

North Anna and Offshore Wind Legislation

In April 2014 legislation was enacted in Virginia that permits Virginia Power to recover 70% of the costs previously deferred or capitalized related to the development of a third nuclear unit located at North Anna and offshore wind facilities through December 31, 2013 as part of the 2013 and 2014 base rates. Virginia Power has deferred or capitalized costs totaling approximately $577 million for these projects as of December 31, 2013, substantially all of which relate to North Anna. For the 70% portion of these previously deferred or capitalized costs allocable to customers in Virginia, Virginia Power will recognize such amounts that are now recoverable in 2013 and 2014 base rates as charges against net income beginning in the second quarter of 2014 and for the remainder of the year. In the second quarter of 2014, Virginia Power recognized a $287 million ($191 million after-tax) charge against income representing the cumulative recovery of costs from January 2013 through June 2014 and will recognize additional charges of approximately $87 million ($57 million after-tax) ratably during the remainder of 2014. The remaining deferred or capitalized costs, as well as costs incurred after December 31, 2013, continue to be eligible for inclusion in a future rate adjustment clause.

North Carolina Regulation

In December 2012, the North Carolina Commission approved a $36 million increase in Virginia Power’s annual non-fuel base revenues based on an authorized ROE of 10.2%, and a $14 million decrease in annual base fuel revenues for a combined total base revenue increase of $22 million. These rate changes became effective on January 1, 2013 and were appealed to the North Carolina Supreme Court by multiple parties. In June 2014, the Supreme Court of North Carolina issued an opinion reversing the portion of the North Carolina Commission’s December 2012 order from Virginia Power’s 2012 base rate case approving a 10.2% ROE for Virginia Power, and remanding the case to the North Carolina Commission for additional findings of fact in light of a 2013 opinion issued after the North Carolina Commission’s order. This case is pending.

Ohio Regulation

PIR Program

In 2008, East Ohio began PIR, aimed at replacing more than 20% of its pipeline. In May 2014, PIR cost recovery rates became effective as approved by the Ohio Commission in April 2014. The approval includes a revenue requirement of $89 million, which represents an approximately $22 million increase over the previous year.

AMR Program

In 2007, East Ohio began installing automated meter reading technology for its 1.2 million customers in Ohio. In May 2014, AMR cost recovery rates became effective as approved by the Ohio Commission in April 2014. The approval includes a revenue requirement of $8 million, which represents an approximately $3 million increase over the previous year.

House Bill 95

Ohio enacted utility reform legislation under House Bill 95, which became effective in September 2011. This law updates natural gas legislation by enabling gas companies to include more up-to-date cost levels when filing rate cases. It also allows gas companies to seek approval of capital expenditure plans under which gas companies can recognize carrying costs on associated capital investments placed in service and can defer the carrying costs plus depreciation and property tax expenses for recovery from ratepayers in the future.

In July 2014, the Ohio Commission approved East Ohio’s application requesting authority to implement a capital expenditure program for 2014 capital expenditures totaling $110 million.

PIPP Plus Program

Under the Ohio PIPP Plus Program, eligible customers can make reduced payments based on their ability to pay their bill. The difference between the customer’s total bill and the PIPP payment plan amount is deferred and collected under the PIPP Rider in accordance with the rules of the Ohio Commission. In July 2014, East Ohio’s annual update of the PIPP Rider was automatically approved by the Ohio Commission after a 45-day waiting period from the date of the filing. The increased rider rate reflects the refund over the next year of an over-recovery of accumulated arrearages of approximately $82 million as of March 31, 2014, net of projected deferred program costs of approximately $96 million for the period from April 2014 through June 2015.

UEX Rider

East Ohio has approval for a UEX Rider through which it recovers the bad debt expense of most customers not participating in the PIPP Plus Program. The UEX Rider is adjusted annually to achieve dollar for dollar recovery of East Ohio’s actual write-offs of uncollectible amounts. In July 2014, the Ohio Commission approved a decrease to East Ohio’s UEX Rider, which reflects the elimination of the over-recovered balance of accumulated bad debt expense of approximately $8 million as of March 31, 2014, and recovery of prospective bad debt expense projected to total approximately $25 million for the twelve-month period from April 2014 to March 2015.