Note 5.Income Taxes

For continuing operations, including noncontrolling interests, the statutory U.S. federal income tax rate reconciles to the Companies' effective income tax rate as follows:

	Dominion Energy						Virginia Power						Dominion Energy Gas
Six Months Ended June 30,	2017			2016			2017			2016			2017			2016
U.S. statutory rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		2.8			4.3			3.7			4.0			1.5			3.8
Investment tax credits		(5.5	)		(9.9	)		(0.8	)		—			—			—
Production tax credits		(0.8	)		(0.8	)		(0.5	)		(0.6	)		—			—
State legislative change		—			(1.3	)		—			—			—			—
AFUDC - equity		(1.4	)		(0.7	)		(0.6	)		(0.7	)		(1.0	)		(0.2	)
Other, net		(2.6	)		(1.6	)		(0.1	)		0.2			—			0.1
Effective tax rate		27.5	%		25.0	%		36.7	%		37.9	%		35.5	%		38.7	%

The effective tax rates in 2017 for the Companies reflect the completion of audits by state tax authorities that resulted in the recognition of previously unrecognized tax benefits. At December 31, 2016, Virginia Power’s unrecognized tax benefits included state refund claims for open tax years through 2011. Management believed settlement of the claims, including interest thereon, within the next twelve months was remote. In June 2017, Virginia Power received and accepted a cash offer to settle the refund claims. As a result of the settlement, Virginia Power decreased its unrecognized tax benefits by $8 million, and recognized a $2 million tax benefit, which impacted its effective tax rate. Also in connection with this settlement, Virginia Power realized interest income of $11 million, which is reflected in other income in the Consolidated Statements of Income. Otherwise, at June 30, 2017, there have been no material changes in the Companies' unrecognized tax benefits or possible changes that could reasonably be expected to occur during the next twelve months. See Note 5 to the Consolidated Financial Statements in the Companies' Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of these unrecognized tax benefits.