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TMCNet:  VIRGINIA ELECTRIC & POWER CO - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

[February 28, 2014]

VIRGINIA ELECTRIC & POWER CO - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) MD&A discusses Dominion's and Virginia Power's results of operations and general financial condition. MD&A should be read in conjunction with Item 1. Business and the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

CONTENTS OF MD&A MD&A consists of the following information: Ÿ Forward-Looking Statements Ÿ Accounting Matters Ÿ Dominion Ÿ Results of Operations Ÿ Segment Results of Operations Ÿ Virginia Power Ÿ Results of Operations Ÿ Segment Results of Operations Ÿ Selected Information-Energy Trading Activities Ÿ Liquidity and Capital Resources Ÿ Future Issues and Other Matters FORWARD-LOOKINGSTATEMENTS This report contains statements concerning Dominion's and Virginia Power's expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by such words as "anticipate," "estimate," "forecast," "expect," "believe," "should," "could," "plan," "may," "continue," "target" or other similar words.

Dominion and Virginia Power make forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented with the forward-looking statements themselves.

Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but are not limited to: Ÿ Unusual weather conditions and their effect on energy sales to customers and energy commodity prices; Ÿ Extreme weather events and other natural disasters, including hurricanes, high winds, severe storms, earthquakes, flooding and changes in water temperatures and availability that can cause outages and property damage to facilities; Ÿ Federal, state and local legislative and regulatory developments, including changes in federal and state tax laws and regulations; Ÿ Changes to federal, state and local environmental laws and regulations, including those related to climate change, the tightening of emission or discharge limits for GHGs and other emissions, more extensive permitting requirements and the regulation of additional substances; Ÿ Cost of environmental compliance, including those costs related to climate change; Ÿ Risks associated with the operation of nuclear facilities, including costs associated with the disposal of spent nuclear fuel, decommissioning, plant maintenance and changes in existing regulations governing such facilities; Ÿ Unplanned outages at facilities in which Dominion has an ownership interest; Ÿ Fluctuations in energy-related commodity prices and the effect these could have on Dominion's earnings and Domin- ion's and Virginia Power's liquidity position and the under- lying value of their assets; Ÿ Counterparty credit and performance risk; Ÿ Capital market conditions, including the availability of credit and the ability to obtain financing on reasonable terms; Ÿ Risks associated with Virginia Power's membership and participation in PJM, including risks related to obligations created by the default of other participants; Ÿ Fluctuations in the value of investments held in nuclear decommissioning trusts by Dominion and Virginia Power and in benefit plan trusts by Dominion; Ÿ Fluctuations in interest rates; Ÿ Changes in rating agency requirements or credit ratings and their effect on availability and cost of capital; Ÿ Changes in financial or regulatory accounting principles or policies imposed by governing bodies; Ÿ Employee workforce factors including collective bargaining agreements and labor negotiations with union employees; Ÿ Risks of operating businesses in regulated industries that are subject to changing regulatory structures; Ÿ Impacts of acquisitions, divestitures, transfers of assets to joint ventures or an MLP, and retirements of assets based on asset portfolio reviews; Ÿ Receipt of approvals for, and timing of, closing dates for acquisitions and divestitures; Ÿ The timing and execution of our MLP strategy; Ÿ Changes in rules for RTOs and ISOs in which Dominion and Virginia Power participate, including changes in rate designs, changes in FERC's interpretation of market rules and new and evolving capacity models; Ÿ Political and economic conditions, including inflation and deflation; Ÿ Domestic terrorism and other threats to the Companies' physical and intangible assets, as well as threats to cybersecurity; Ÿ Changes in demand for the Companies' services, including industrial, commercial and residential growth or decline in the Companies' service areas, changes in customer growth or usage patterns, including as a result of energy conservation programs, the availability of energy efficient devices and the use of distributed generation methods; Ÿ Additional competition in industries in which Dominion operates, including in electric markets in which Dominion's merchant generation facilities operate, and competition in the development, construction and ownership of certain electric transmission facilities in Virginia Power's service territory in connection with FERC Order 1000; Ÿ Changes in technology, particularly with respect to new, developing or alternative sources of generation and smart grid technologies; Ÿ Changes to regulated electric rates collected by Virginia Power and regulated gas distribution, transportation and storage rates, including LNG storage, collected by Dominion; Ÿ Changes in operating, maintenance and construction costs; Ÿ Timing and receipt of regulatory approvals necessary for planned construction or expansion projects; Ÿ The inability to complete planned construction, conversion or expansion projects at all, or with the outcomes or within the terms and time frames initially anticipated; Ÿ Adverse outcomes in litigation matters or regulatory proceedings; and Ÿ The impact of operational hazards and other catastrophic events.

Additionally, other risks that could cause actual results to differ from predicted results are set forth in Item 1A. Risk Factors.

36 -------------------------------------------------------------------------------- Table of Contents ACCOUNTING MATTERS Critical Accounting Policies and Estimates Dominion and Virginia Power have identified the following accounting policies, including certain inherent estimates, that as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to their financial condition or results of operations under different conditions or using different assumptions. Dominion and Virginia Power have discussed the development, selection and disclosure of each of these policies with the Audit Committees of their Boards of Directors. Virginia Power's Board of Directors also serves as its Audit Committee.

ACCOUNTING FOR REGULATED OPERATIONS The accounting for Virginia Power's regulated electric and Dominion's regulated gas operations differs from the accounting for nonregulated operations in that they are required to reflect the effect of rate regulation in their Consolidated Financial Statements. For regulated businesses subject to federal or state cost-of-service rate regulation, regulatory practices that assign costs to accounting periods may differ from accounting methods generally applied by nonregulated companies. When it is probable that regulators will permit the recovery of current costs through future rates charged to customers, these costs are deferred as regulatory assets that otherwise would be expensed by nonregulated companies. Likewise, regulatory liabilities are recognized when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for expenditures that have yet to be incurred. Generally, regulatory assets and liabilities are amortized into income over the period authorized by the regulator.

The Companies evaluate whether or not recovery of their regulatory assets through future rates is probable and make various assumptions in their analyses.

The expectations of future recovery are generally based on orders issued by regulatory commissions, legislation or historical experience, as well as discussions with applicable regulatory authorities and legal counsel. If recovery of a regulatory asset is determined to be less than probable, it will be written off in the period such assessment is made. See Notes 12 and 13 to the Consolidated Financial Statements for additional information.

ASSET RETIREMENT OBLIGATIONS Dominion and Virginia Power recognize liabilities for the expected cost of retiring tangible long-lived assets for which a legal obligation exists and the ARO can be reasonably estimated. These AROs are recognized at fair value as incurred and are capitalized as part of the cost of the related long-lived assets. In the absence of quoted market prices, the Companies estimate the fair value of their AROs using present value techniques, in which they make various assumptions including estimates of the amounts and timing of future cash flows associated with retirement activities, credit-adjusted risk free rates and cost escalation rates. The impact on measurements of new AROs or remeasurements of existing AROs, using different cost escalation rates in the future, may be significant. When the Companies revise any assumptions used to calculate the fair value of existing AROs, they adjust the carrying amount of both the ARO liability and the related long-lived asset for assets that are in service; for assets that have ceased operations, they adjust the carrying amount of the ARO liability with such changes recognized in income. The Companies accrete the ARO liability to reflect the passage of time.

In 2013, 2012 and 2011, Dominion recognized $86 million, $77 million and $84 million, respectively, of accretion, and expects to recognize $84 million in 2014. In 2013, 2012 and 2011, Virginia Power recognized $38 million, $34 million and $36 million, respectively, of accretion, and expects to recognize $39 million in 2014. Virginia Power records accretion and depreciation associated with utility nuclear decommissioning AROs as an adjustment to its regulatory liability for nuclear decommissioning.

A significant portion of the Companies' AROs relates to the future decommissioning of Dominion's merchant and Virginia Power's utility nuclear facilities. These nuclear decommissioning AROs are reported in the Dominion Generation segment. At December 31, 2013, Dominion's nuclear decommissioning AROs totaled $1.4 billion, representing approximately 86% of its total AROs. At December 31, 2013, Virginia Power's nuclear decommissioning AROs totaled $616 million, representing approximately 89% of its total AROs. Based on their significance, the following discussion of critical assumptions inherent in determining the fair value of AROs relates to those associated with the Companies' nuclear decommissioning obligations.

The Companies obtain from third-party specialists periodic site-specific base year cost studies in order to estimate the nature, cost and timing of planned decommissioning activities for their nuclear plants. These cost studies are based on relevant information available at the time they are performed; however, estimates of future cash flows for extended periods of time are by nature highly uncertain and may vary significantly from actual results. In addition, the Companies' cost estimates include cost escalation rates that are applied to the base year costs. The Companies determine cost escalation rates, which represent projected cost increases over time due to both general inflation and increases in the cost of specific decommissioning activities, for each nuclear facility.

The selection of these cost escalation rates is dependent on subjective factors which are considered to be critical assumptions.

In December 2013, Dominion and Virginia Power recorded a reduction of $129 million ($47 million of which was credited to income) and $52 million, respectively, in the nuclear decommissiong AROs for their units due to a reduction in estimated costs.

In September 2012, Dominion recorded an increase of $246 million in the nuclear decommissioning AROs for its units ($183 million of which was charged to income). The ARO revision was primarily driven by management's decision to cease operations and begin decommissioning Kewaunee in 2013. Virginia Power recorded an increase of $43 million in the nuclear decommissioning AROs for its units.

The ARO revision was driven by an increase in estimated costs.

INCOME TAXES Judgment and the use of estimates are required in developing the provision for income taxes and reporting of tax-related assets and liabilities. The interpretation of tax laws involves uncertainty, since tax authorities may interpret the laws differently. Ultimate resolution of income tax matters may result in favorable or unfavorable impacts to net income and cash flows, and adjustments to tax-related assets and liabilities could be material.

37 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Given the uncertainty and judgment involved in the determination and filing of income taxes, there are standards for recognition and measurement in financial statements of positions taken or expected to be taken by an entity in its income tax returns. Positions taken by an entity in its income tax returns that are recognized in the financial statements must satisfy a more-likely-than-not recognition threshold, assuming that the position will be examined by tax authorities with full knowledge of all relevant information. At December 31, 2013, Dominion had $222 million and Virginia Power had $39 million of unrecognized tax benefits. Changes in these unrecognized tax benefits may result from remeasurement of amounts expected to be realized, settlements with tax authorities and expiration of statutes of limitations.

Deferred income tax assets and liabilities are recorded representing future effects on income taxes for temporary differences between the bases of assets and liabilities for financial reporting and tax purposes. Dominion and Virginia Power evaluate quarterly the probability of realizing deferred tax assets by considering current and historical financial results, expectations for future taxable income and the availability of tax planning strategies that can be implemented, if necessary, to realize deferred tax assets. Failure to achieve forecasted taxable income or successfully implement tax planning strategies may affect the realization of deferred tax assets. The Companies establish a valuation allowance when it is more-likely-than-not that all or a portion of a deferred tax asset will not be realized. At December 31, 2013, Dominion had established $69 million of valuation allowances and Virginia Power had no valuation allowances.

ACCOUNTINGFOR DERIVATIVE CONTRACTS AND OTHER INSTRUMENTS AT FAIR VALUE Dominion and Virginia Power use derivative contracts such as futures, swaps, forwards, options and FTRs to manage commodity, currency exchange and financial market risks of their business operations. Derivative contracts, with certain exceptions, are reported in the Consolidated Balance Sheets at fair value.

Accounting requirements for derivatives and related hedging activities are complex and may be subject to further clarification by standard-setting bodies.

The majority of investments held in Dominion's and Virginia Power's nuclear decommissioning and Dominion's rabbi and benefit plan trust funds are also subject to fair value accounting. See Notes 6 and 21 to the Consolidated Financial Statements for further information on these fair value measurements.

Fair value is based on actively-quoted market prices, if available. In the absence of actively-quoted market prices, management seeks indicative price information from external sources, including broker quotes and industry publications. When evaluating pricing information provided by brokers and other pricing services, the Companies consider whether the broker is willing and able to trade at the quoted price, if the broker quotes are based on an active market or an inactive market and the extent to which brokers are utilizing a particular model if pricing is not readily available. If pricing information from external sources is not available, or if the Companies believe that observable pricing information is not indicative of fair value, judgment is required to develop the estimates of fair value. In those cases, the Companies must estimate prices based on available historical and near-term future price information and use of statistical methods, including regression analysis, that reflect their market assumptions.

The Companies maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

USE OF ESTIMATES IN GOODWILL IMPAIRMENTTESTING As of December 31, 2013, Dominion reported $3.1 billion of goodwill in its Consolidated Balance Sheet. A significant portion resulted from the acquisition of the former CNG in 2000.

In April of each year, Dominion tests its goodwill for potential impairment, and performs additional tests more frequently if an event occurs or circumstances change in the interim that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. The 2013, 2012 and 2011 annual tests and any interim tests did not result in the recognition of any goodwill impairment.

In general, Dominion estimates the fair value of its reporting units by using a combination of discounted cash flows and other valuation techniques that use multiples of earnings for peer group companies and analyses of recent business combinations involving peer group companies. Fair value estimates are dependent on subjective factors such as Dominion's estimate of future cash flows, the selection of appropriate discount and growth rates, and the selection of peer group companies and recent transactions. These underlying assumptions and estimates are made as of a point in time; subsequent modifications, particularly changes in discount rates or growth rates inherent in Dominion's estimates of future cash flows, could result in a future impairment of goodwill. Although Dominion has consistently applied the same methods in developing the assumptions and estimates that underlie the fair value calculations, such as estimates of future cash flows, and based those estimates on relevant information available at the time, such cash flow estimates are highly uncertain by nature and may vary significantly from actual results. If the estimates of future cash flows used in the most recent tests had been 10% lower, the resulting fair values would have still been greater than the carrying values of each of those reporting units tested, indicating that no impairment was present. See Note 11 to the Consolidated Financial Statements for additional information.

USE OF ESTIMATES IN LONG-LIVED ASSETIMPAIRMENT TESTING Impairment testing for an individual or group of long-lived assets or for intangible assets with definite lives is required when circumstances indicate those assets may be impaired. When an asset's carrying amount exceeds the undiscounted estimated future cash flows associated with the asset, the asset is considered impaired to the extent that the asset's fair value is less than its carrying amount. Performing an impairment test on long-lived assets involves judgment in areas such as identifying if circumstances indicate an impairment may exist, identifying and grouping affected assets, and developing the undiscounted and discounted estimated future cash flows (used to estimate fair value in the absence of market-based value) associated with the asset, including probability weighting such cash flows to reflect expectations about possible variations in their amounts or timing, expectations about operating the long-lived assets and the selection of an appropriate discount rate. Although cash flow estimates are based on relevant information available at the time 38 -------------------------------------------------------------------------------- Table of Contents the estimates are made, estimates of future cash flows are, by nature, highly uncertain and may vary significantly from actual results. For example, estimates of future cash flows would contemplate factors which may change over time, such as the expected use of the asset, including future production and sales levels, expected fluctuations of prices of commodities sold and consumed and expected proceeds from dispositions. See Note 6 to the Consolidated Financial Statements for a discussion of impairments related to certain long-lived assets.

EMPLOYEEBENEFIT PLANS Dominion sponsors noncontributory defined benefit pension plans and other postretirement benefit plans for eligible active employees, retirees and qualifying dependents. The projected costs of providing benefits under these plans are dependent, in part, on historical information such as employee demographics, the level of contributions made to the plans and earnings on plan assets. Assumptions about the future, including the expected long-term rate of return on plan assets, discount rates applied to benefit obligations and the anticipated rate of increase in healthcare costs and participant compensation, also have a significant impact on employee benefit costs. The impact of changes in these factors, as well as differences between Dominion's assumptions and actual experience, is generally recognized in the Consolidated Statements of Income over the remaining average service period of plan participants, rather than immediately.

The expected long-term rates of return on plan assets, discount rates and healthcare cost trend rates are critical assumptions. Dominion determines the expected long-term rates of return on plan assets for pension plans and other postretirement benefit plans by using a combination of: Ÿ Expected inflation and risk-free interest rate assumptions; Ÿ Historical return analysis to determine long term historic returns as well as historic risk premiums for various asset classes; Ÿ Expected future risk premiums, asset volatilities and correlations; Ÿ Forecasts of an independent investment advisor; Ÿ Forward-looking return expectations derived from the yield on long-term bonds and the expected long-term returns of major stock market indices; and Ÿ Investment allocation of plan assets. The strategic target asset allocation for Dominion's pension funds is 28% U.S. equity, 18% non-U.S. equity, 33% fixed income, 3% real estate and 18% other alternative investments, such as private equity investments.

Strategic investment policies are established for Dominion's prefunded benefit plans based upon periodic asset/liability studies. Factors considered in setting the investment policy include those mentioned above such as employee demographics, liability growth rates, future discount rates, the funded status of the plans and the expected long-term rate of return on plan assets.

Deviations from the plans' strategic allocation are a function of Dominion's assessments regarding short-term risk and reward opportunities in the capital markets and/or short-term market movements which result in the plans' actual asset allocations varying from the strategic target asset allocations. Through periodic rebalancing, actual allocations are brought back in line with the target. Future asset/ liability studies will focus on strategies to further reduce pension and other postretirement plan risk, while still achieving attractive levels of returns.

Dominion develops assumptions, which are then compared to the forecasts of an independent investment advisor to ensure reasonableness. An internal committee selects the final assumptions. Dominion calculated its pension cost using an expected long-term rate of return on plan assets assumption of 8.50% for 2013, 2012 and 2011. Dominion calculated its other postretirement benefit cost using an expected long-term rate of return on plan assets assumption of 7.75% for 2013, 2012 and 2011. The rate used in calculating other postretirement benefit cost is lower than the rate used in calculating pension cost because of differences in the relative amounts of various types of investments held as plan assets.

Dominion determines discount rates from analyses of AA/Aa rated bonds with cash flows matching the expected payments to be made under its plans. The discount rates used to calculate pension cost and other postretirement benefit cost ranged from 4.40% to 4.80% in 2013, and were 5.50% in 2012 and 5.90% in 2011.

Dominion selected discount rates ranging from 5.20% to 5.30%, and from 5.00% to 5.10%, for determining its December 31, 2013 projected pension, and other postretirement benefit obligations, respectively.

Dominion establishes the healthcare cost trend rate assumption based on analyses of various factors including the specific provisions of its medical plans, actual cost trends experienced and projected, and demographics of plan participants. Dominion's healthcare cost trend rate assumption as of December 31, 2013 was 7.00% and is expected to gradually decrease to 4.60% by 2062 and continue at that rate for years thereafter.

The following table illustrates the effect on cost of changing the critical actuarial assumptions previously discussed, while holding all other assumptions constant: Increase in Net Periodic Cost Change in Other Actuarial Pension Postretirement Assumption Benefits Benefits (millions, except percentages) Discount rate (0.25 )% $ 14 $ 1 Long-term rate of return on plan assets (0.25 )% 14 3 Healthcare cost trend rate 1 % N/A 16 In addition to the effects on cost, at December 31, 2013, a 0.25% decrease in the discount rate would increase Dominion's projected pension benefit obligation by $181 million and its accumulated postretirement benefit obligation by $37 million, while a 1.00% increase in the healthcare cost trend rate would increase its accumulated postretirement benefit obligation by $140 million. See Note 21 to the Consolidated Financial Statements for additional information.

REVENUE RECOGNITION-UNBILLED REVENUE Virginia Power recognizes and records revenues when energy is delivered to the customer. The determination of sales to individual customers is based on the reading of their meters, which is performed on a systematic basis throughout the month. At the end of each month, the amount of electric energy delivered to customers, but not yet billed, is estimated and recorded as 39 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued unbilled revenue. This estimate is reversed in the following month and actual revenue is recorded based on meter readings. Virginia Power's customer receivables included $395 million and $348 million of accrued unbilled revenue at December 31, 2013 and 2012, respectively.

The calculation of unbilled revenues is complex and includes numerous estimates and assumptions including historical usage, applicable customer rates, weather factors and total daily electric generation supplied, adjusted for line losses.

Changes in customer usage patterns and other factors, which are the basis for the estimates of unbilled revenues, could have a significant effect on the calculation and therefore on Virginia Power's results of operations and financial condition.

DOMINION RESULTS OFOPERATIONS Presented below is a summary of Dominion's consolidated results: Year Ended December 31, 2013 $ Change 2012 $ Change 2011 (millions, except EPS) Net Income attributable to Dominion $ 1,697 $ 1,395 $ 302 $ (1,106 ) $ 1,408 Diluted EPS 2.93 2.40 0.53 (1.92 ) 2.45 Overview 2013 VS. 2012 Net income attributable to Dominion increased by $1.4 billion primarily due to the absence of impairment and other charges recorded in 2012 related to the discontinued operations of Brayton Point and Kincaid and management's decision to cease operations and begin decommissioning Kewaunee in 2013.

2012 VS. 2011 Net income attributable to Dominion decreased by 79%. Unfavorable drivers include impairment and other charges related to the discontinued operations of Brayton Point and Kincaid and management's decision to cease operations and begin decommissioning Kewaunee in 2013. Favorable drivers include the absence of an impairment charge related to certain utility coal-fired power stations and the absence of restoration costs associated with damage caused by Hurricane Irene recorded in 2011.

Analysis of Consolidated Operations Presented below are selected amounts related to Dominion's results of operations: Year Ended December 31, 2013 $ Change 2012 $ Change 2011 (millions) Operating Revenue $ 13,120 $ 285 $ 12,835 $ (930 ) $ 13,765 Electric fuel and other energy-related purchases 3,885 240 3,645 (297 ) 3,942 Purchased electric capacity 358 (29 ) 387 (67 ) 454 Purchased gas 1,331 154 1,177 (587 ) 1,764 Net Revenue 7,546 (80 ) 7,626 21 7,605 Other operations and maintenance 2,459 (632 ) 3,091 (87 ) 3,178 Depreciation, depletion and amortization 1,208 81 1,127 109 1,018 Other taxes 563 13 550 21 529 Other income 265 42 223 45 178 Interest and related charges 877 61 816 20 796 Income tax expense 892 81 811 33 778 Loss from discontinued operations (92 ) 1,033 (1,125 ) (1,067 ) (58 ) An analysis of Dominion's results of operations follows: 2013 VS. 2012 Net Revenue decreased 1%, primarily reflecting: Ÿ A $162 million decrease in producer services primarily related to unfavorable price changes on economic hedging positions, partially offset by higher physical margins, all associated with natural gas aggregation, marketing and trading activities; Ÿ A $111 million decrease in retail energy marketing activities primarily due to the impact of lower margins on electric sales due to higher purchased power costs; and Ÿ A $98 million decrease from merchant generation operations, primarily due to lower generation output ($133 million) largely due to the May 2013 closure of Kewaunee, partially offset by higher realized prices ($35 million).

These decreases were partially offset by: Ÿ A $161 million increase from electric utility operations, primarily reflecting: Ÿ An increase in sales to retail customers, primarily due to an increase in heating degree days ($112 million); and Ÿ An increase from rate adjustment clauses ($92 million); partially offset by Ÿ A decrease in ancillary revenues received from PJM ($12 million) primarily due to a decrease in net operating reserve credits; and Ÿ A $144 million increase from regulated natural gas transmission operations primarily related to the Appalachian Gateway Project that was placed into service in September 2012 ($44 million), an increase in gathering and storage services ($38 million), NGL activities primarily related to an increase in extraction and fractionation volumes ($19 million) and the Northeast Expansion Project that was placed into service in November 2012 ($16 million).

40 -------------------------------------------------------------------------------- Table of Contents Other operations and maintenance decreased 20%, primarily reflecting: Ÿ A $589 million decrease related to Kewaunee largely due to the absence of charges recorded in 2012 following management's decision to cease operations and begin decommissioning in 2013; Ÿ A $123 million decrease in certain electric transmission-related expenditures. These expenses are recovered through FERC rates; Ÿ A $54 million decrease in storm damage and service restoration costs primarily due to the absence of damage caused by late June summer storms in 2012; Ÿ A $42 million decrease in bad debt expense at regulated natural gas distribution operations primarily related to low income assistance programs.

These expenses are recovered through rates and do not impact net income; and Ÿ Increased gains from the sales of assets to Blue Racer ($32 million).

These decreases were partially offset by: Ÿ A $65 million increase primarily related to impairment charges for certain natural gas infrastructure assets; Ÿ A $46 million increase resulting from impacts of the 2013 Biennial Review Order; Ÿ A $35 million increase due to the absence of adjustments recorded in 2012 in connection with the 2012 North Carolina rate case; Ÿ A $34 million increase in PJM operating reserves and reactive service charges; and Ÿ A $26 million charge related to the expected shutdown of certain coal-fired generating units.

Other Income increased 19%, primarily due to higher realized gains (including investment income) on nuclear decommissioning trust funds ($40 million) and a gain on the sale of Dominion's 50% equity method investment in Elwood ($35 million), partially offset by a decrease in the equity component of AFUDC ($15 million) and a decrease in earnings from equity method investments ($11 million).

Income tax expenseincreased 10%, primarily reflecting higher pre-tax income in 2013 ($169 million), partially offset by an increase in renewable energy investment tax credits ($46 million) and a lower effective rate for state income taxes ($45 million).

Loss from discontinued operations primarily reflects the sale of Brayton Point and Kincaid in 2013.

2012 VS. 2011 Net Revenueincreased $21 million, primarily reflecting: Ÿ A $184 million increase from electric utility operations, primarily reflecting: Ÿ The impact of rate adjustment clauses ($138 million); Ÿ The absence of a charge recorded in 2011 based on the 2011 Biennial Review Order to refund revenues to customers ($81 million); and Ÿ A decrease in net capacity expenses ($31 million); partially offset by Ÿ The impact ($58 million) of a decrease in sales to retail customers, primarily due to a decrease in cooling and heating degree days ($184 million), partially offset by an increase in sales due to the effect of favorable economic conditions on customer usage and other factors ($126 million); Ÿ A $57 million increase in retail energy marketing activities primarily due to price risk management activities; and Ÿ A $6 million increase from regulated natural gas transmission operations, primarily due to new transportation assets placed in service.

These increases were partially offset by: Ÿ A $144 million decrease from regulated natural gas distribution operations primarily reflecting decreased rider revenue ($117 million) related to low income assistance programs; and Ÿ A $91 million decrease from merchant generation operations, primarily reflecting a decrease in realized prices ($147 million), partially offset by increased generation ($56 million).

Other operations and maintenance decreased 3%, primarily reflecting: Ÿ The absence of an impairment charge recorded in 2011 related to certain utility coal-fired generating units ($228 million); Ÿ A $117 million decrease in bad debt expense at regulated natural gas distribution operations primarily related to low income assistance programs.

These expenses are recovered through rates and do not impact net income; Ÿ The absence of restoration costs recorded in 2011 associated with damages caused by Hurricane Irene ($96 million); Ÿ An $89 million decrease attributable to increased deferrals for construction activities related to regulated operations; and Ÿ A $72 million decrease due to gains from the sale of assets to Blue Racer.

These decreases were partially offset by: Ÿ A $415 million impairment charge due to management's decision to cease operations and begin decommissioning Kewaunee in 2013; and Ÿ A $104 million increase in salaries, wages and benefits.

Depreciation, depletion and amortization increased 11%, primarily due to property additions.

Other Income increased 25%, primarily due to higher realized gains (including investment income) on nuclear decommissioning trust funds.

Loss from discontinued operations primarily reflects losses associated with Brayton Point and Kincaid, which were sold in 2013.

Outlook Dominion's strategy is to continue focusing on its regulated businesses while maintaining upside potential in well-positioned nonregulated businesses. The goals of this strategy are to provide earnings per share growth, a growing dividend and to maintain a stable credit profile. Dominion expects 80% to 90% of future earnings from its primary operating segments to come from regulated and long-term contracted businesses.

In 2014, Dominion is expected to experience an increase in net income on a per share basis as compared to 2013. Dominion's anticipated 2014 results reflect the following significant factors: Ÿ A return to normal weather in its electric utility operations; Ÿ Growth in weather-normalized electric utility sales of approximately 1.5% resulting from the recovering economy and rising energy demand; 41 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Ÿ Construction and operation of growth projects in electric utility operations and associated rate adjustment clause revenue; Ÿ Construction and operation of growth projects in gas transmission and distribution; and Ÿ A lower effective tax rate, driven primarily by renewable energy investment tax credits; partially offset by Ÿ An increase in depreciation, depletion, and amortization; Ÿ Higher operating and maintenance expenses; Ÿ Higher interest expenses driven by new debt issuances; and Ÿ A decrease due to the decision to exit the nonregulated electric retail energy marketing business.

However, if the proposed Virginia legislation for nuclear and offshore wind facilities is signed into law, Dominion would expect to experience a decrease in net income on a per share basis for 2014 as compared to 2013. See Note 13 to the Consolidated Financial Statements for additional information.

On January 2, 2013, U.S. federal legislation was enacted that provides an extension of the 50% bonus depreciation allowance for qualifying capital expenditures incurred through 2013, as discussed in Note 5 to the Consolidated Financial Statements. Dominion expects the bonus depreciation provisions to reduce income taxes otherwise payable, resulting in cash savings in 2014 of approximately $300 million.

SEGMENT RESULTS OF OPERATIONS Segment results include the impact of intersegment revenues and expenses, which may result in intersegment profit or loss. Presented below is a summary of contributions by Dominion's operating segments to net income attributable to Dominion: Year Ended December 31, 2013 2012 2011 Net Net Net Income Income Income attributable Diluted attributable Diluted attributable Diluted to Dominion EPS to Dominion EPS to Dominion EPS (millions, except EPS) DVP(1) $ 475 $ 0.82 $ 439 $ 0.77 $ 416 $ 0.72 Dominion Generation(1) 1,031 1.78 1,021 1.78 1,078 1.87 Dominion Energy 643 1.11 551 0.96 521 0.91 Primary operating segments 2,149 3.71 2,011 3.51 2,015 3.50 Corporate and Other (452 ) (0.78 ) (1,709 ) (2.98 ) (607 ) (1.05 ) Consolidated $ 1,697 $ 2.93 $ 302 $ 0.53 $ 1,408 $ 2.45 (1) Amounts have been recast to reflect nonregulated retail energy marketing operations in the Dominion Generation segment.

DVP Presented below are operating statistics related to DVP's operations: Year Ended December 31, 2013 % Change 2012 % Change 2011 Electricity delivered (million MWh) 82.4 2 % 80.8 (2 )% 82.3 Degree days: Cooling 1,645 (8 ) 1,787 (6 ) 1,899 Heating 3,651 24 2,955 (12 ) 3,354 Average electric distribution customer accounts (thousands)(1) 2,475 1 2,455 1 2,438 (1) Thirteen-month average.

Presented below, on an after-tax basis, are the key factors impacting DVP's net income contribution: 2013 VS. 2012 Increase (Decrease) Amount EPS (millions, except EPS) Regulated electric sales: Weather $ 24 $ 0.04 Other (2 ) - FERC transmission equity return 30 0.05 Storm damage and service restoration(1) (20 ) (0.03 ) Depreciation (7 ) (0.01 ) Other operations and maintenance expense 7 0.01 Other 4 0.01 Share dilution - (0.02 ) Change in net income contribution $ 36 $ 0.05 (1) Excludes restoration costs associated with damage caused by severe storms in 2012, which are reflected in the Corporate and Other segment.

2012 VS. 2011 Increase (Decrease) Amount EPS (millions, except EPS) Regulated electric sales: Weather $ (34 ) $ (0.06 ) Other 28 0.05 FERC transmission equity return 19 0.04 Storm damage and service restoration(1) 14 0.03 Other (4 ) (0.01 ) Change in net income contribution $ 23 $ 0.05 (1) Excludes restoration costs associated with damage caused by severe storms in 2012 and 2011, which are reflected in the Corporate and Other segment.

Dominion Generation Presented below are operating statistics related to Dominion Generation's operations: Year Ended December 31, 2013 % Change 2012 % Change 2011 Electricity supplied (million MWh): Utility 82.8 2 % 80.9 (2 )% 82.3 Merchant(1) 26.6 (5 ) 28.0 9 25.8 Degree days (electric utility service area): Cooling 1,645 (8 ) 1,787 (6 ) 1,899 Heating 3,651 24 2,955 (12 ) 3,354 Average retail energy marketing customer accounts (thousands)(2) 2,119 - 2,129 (1 ) 2,152 (1) Excludes 7.6 million, 12.8 million and 17.3 million MWh for 2013, 2012 and 2011, respectively, related to Kewaunee, Brayton Point, Kincaid, State Line, Salem and Dominion's equity method investment in Elwood.

(2) Thirteen-month average.

42 -------------------------------------------------------------------------------- Table of Contents Presented below, on an after-tax basis, are the key factors impacting Dominion Generation's net income contribution: 2013 VS. 2012 Increase (Decrease) Amount EPS (millions, except EPS) Merchant generation margin $ (14 ) $ (0.02 ) Regulated electric sales: Weather 44 0.08 Other (4 ) (0.01 ) Retail energy marketing operations (54 ) (0.09 ) Rate adjustment clause equity return 35 0.06 PJM ancillary services (26 ) (0.05 ) Renewable energy investment tax credits 40 0.07 Outage costs 10 0.02 Other (21 ) (0.04 ) Share dilution - (0.02 ) Change in net income contribution $ 10 $ - 2012 VS. 2011 Increase (Decrease) Amount EPS (millions, except EPS) Merchant generation margin $ (72 ) $ (0.13 ) Regulated electric sales: Weather (78 ) (0.13 ) Other 46 0.08 Retail energy marketing operations 35 0.06 Rate adjustment clause equity return 17 0.03 PJM ancillary services (27 ) (0.05 ) Net capacity expenses 19 0.04 Outage costs 10 0.02 Other (7 ) (0.01 ) Change in net income contribution $ (57 ) $ (0.09 ) Dominion Energy Presented below are selected operating statistics related to Dominion Energy's operations.

Year Ended December 31, 2013 % Change 2012 % Change 2011 Gas distribution throughput (bcf): Sales 29 12 % 26 (13 )% 30 Transportation 281 8 259 2 253 Heating degree days 5,875 18 4,986 (11 ) 5,584 Average gas distribution customer accounts (thousands)(1): Sales 246 (2 ) 251 (2 ) 256 Transportation 1,049 - 1,044 - 1,040 (1) Thirteen-month average.

Presented below, on an after-tax basis, are the key factors impacting Dominion Energy's net income contribution: 2013 VS. 2012 Increase (Decrease) Amount EPS (millions, except EPS) Weather $ 8 $ 0.01 Producer services margin(1) (37 ) (0.06 ) Gas transmission margin(2) 88 0.15 Blue Racer(3) 17 0.03 Assignment of Marcellus acreage 12 0.02 Other 4 0.01 Share dilution - (0.01 ) Change in net income contribution $ 92 $ 0.15 (1) Excludes charges incurred in 2013 associated with the ongoing exit of natural gas trading and certain energy marketing activities which are reflected in the Corporate and Other segment.

(2) Primarily reflects a full year of the Appalachian Gateway Project in service.

(3) Includes a $15 million increase in gains from the sale of assets.

2012 VS. 2011 Increase (Decrease) Amount EPS (millions, except EPS) Weather $ (5 ) $ (0.01 ) Producer services margin (13 ) (0.02 ) Gas transmission margin(1) 8 0.01 Gain from sale of assets to Blue Racer 43 0.08 Other (3 ) (0.01 ) Change in net income contribution $ 30 $ 0.05 (1) Primarily reflects placing the Appalachian Gateway Project into service.

Corporate and Other Presented below are the Corporate and Other segment's after-tax results: Year Ended December 31, 2013 2012 2011 (millions, except EPS amounts) Specific items attributable to operating segments $ (184 ) $ (1,467 ) $ (364 ) Specific items attributable to Corporate and Other segment - (5 ) 29 Total specific items (184 ) (1,472 ) (335 ) Other corporate operations (268 ) (237 ) (272 ) Total net expense $ (452 ) $ (1,709 ) $ (607 ) EPS impact $ (0.78 ) $ (2.98 ) $ (1.05 ) TOTAL SPECIFIC ITEMS Corporate and Other includes specific items attributable to Dominion's primary operating segments that are not included in profit measures evaluated by executive management in assessing those segments' performance or allocating resources among the segments. See Note 25 to the Consolidated Financial Statements for discussion of these items in more detail.

43 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued VIRGINIA POWER RESULTS OF OPERATIONS Presented below is a summary of Virginia Power's consolidated results: Year Ended December 31, 2013 $ Change 2012 $ Change 2011 (millions) Net Income $ 1,138 $ 88 $ 1,050 $ 228 $ 822 Overview 2013 VS. 2012 Net income increased by 8% primarily due to an increase in rate adjustment clause revenue, the impact of more favorable weather on utility operations, and the absence of restoration costs associated with damage caused by late June 2012 summer storms.

2012 VS. 2011 Net income increased by 28%. Favorable drivers include the absence of an impairment charge related to certain coal-fired power stations recorded in 2011, the impact of rate adjustment clauses, and the absence of restoration costs associated with damage caused by Hurricane Irene recorded in 2011. Unfavorable drivers include the impact of less favorable weather and the restoration costs associated with damage caused by severe storms.

Analysis of Consolidated Operations Presented below are selected amounts related to Virginia Power's results of operations: Year Ended December 31, 2013 $ Change 2012 $ Change 2011 (millions) Operating Revenue $ 7,295 $ 69 $ 7,226 $ (20 ) $ 7,246 Electric fuel and other energy-related purchases 2,304 (64 ) 2,368 (138 ) 2,506 Purchased electric capacity 358 (28 ) 386 (66 ) 452 Net Revenue 4,633 161 4,472 184 4,288 Other operations and maintenance 1,451 (15 ) 1,466 (277 ) 1,743 Depreciation and amortization 853 71 782 64 718 Other taxes 249 17 232 10 222 Other income 86 (10 ) 96 8 88 Interest and related charges 369 (16 ) 385 54 331 Income tax expense 659 6 653 113 540 An analysis of Virginia Power's results of operations follows: 2013 VS. 2012 Net Revenue increased 4%, primarily reflecting: Ÿ An increase in sales to retail customers, primarily due to an increase in heating degree days ($112 million); and Ÿ An increase from rate adjustment clauses ($92 million); partially offset by Ÿ A decrease in ancillary revenues received from PJM ($12 million) primarily due to a decrease in net operating reserve credits.

Other operations and maintenance decreased 1%, primarily reflecting: Ÿ A $123 million decrease in certain electric transmission-related expenditures. These expenses are recovered through FERC rates; and Ÿ A $54 million decrease in storm damage and service restoration costs primarily due to the absence of damage caused by late June summer storms in 2012.

These decreases were partially offset by: Ÿ A $46 million increase resulting from impacts of the 2013 Biennial Review Order; Ÿ A $35 million increase due to the absence of adjustments recorded in 2012 in connection with the 2012 North Carolina rate case; Ÿ A $34 million increase in PJM operating reserves and reactive service charges; Ÿ A $26 million charge related to the expected shutdown of certain coal-fired generating units; and Ÿ A $22 million increase in salaries, wages and benefits.

2012 VS. 2011 Net Revenue increased 4%, primarily reflecting: Ÿ The impact of rate adjustment clauses ($138 million); Ÿ The absence of a charge recorded in 2011 based on the 2011 Biennial Review Order to refund revenues to customers ($81 million); and Ÿ A decrease in net capacity expenses ($31 million); partially offset by Ÿ The impact ($58 million) of a decrease in sales to retail customers, primarily due to a decrease in cooling and heating degree days ($184 million), partially offset by an increase in sales due to the effect of favorable economic conditions on customer usage and other factors ($126 million).

Other operations and maintenance decreased 16%, primarily reflecting: Ÿ The absence of an impairment charge recorded in 2011 related to certain coal-fired generating units ($228 million); and Ÿ The absence of restoration costs recorded in 2011 associated with damage caused by Hurricane Irene ($96 million); partially offset by Ÿ A $64 million increase in storm damage and service restoration costs primarily due to the damage caused by severe storms in 2012.

Interest and related charges increased 16%, primarily due to the absence of the recognition of hedging gains into income in 2011, that had been deferred as regulatory liabilities, as a result of the 2011 Biennial Review Order.

Income tax expense increased 21%, primarily reflecting higher pre-tax income in 2012.

Outlook Virginia Power expects to provide growth in net income in 2014. Virginia Power's anticipated 2014 results reflect the following significant factors: Ÿ A return to normal weather; Ÿ Growth in weather-normalized electric sales of approximately 44 -------------------------------------------------------------------------------- Table of Contents 1.5% resulting from the recovering economy and rising energy demand; and Ÿ Construction and operation of growth projects and associated rate adjustment clause revenue; partially offset by Ÿ An increase in depreciation and amortization; Ÿ Higher operations and maintenance expenses; and Ÿ Higher interest expenses driven by new debt issuances.

However, if the proposed Virginia legislation for nuclear and offshore wind facilities is signed into law, Virginia Power would expect to experience a decrease in net income for 2014 as compared to 2013. See Note 13 to the Consolidated Financial Statements for additional information.

On January 2, 2013, U.S. federal legislation was enacted that provides an extension of the 50% bonus depreciation allowance for qualifying capital expenditures incurred through 2013, as discussed in Note 5 to the Consolidated Financial Statements. Virginia Power expects the bonus depreciation provisions to reduce income taxes otherwise payable, resulting in cash savings in 2014 of approximately $285 million.

SEGMENT RESULTSOF OPERATIONS Presented below is a summary of contributions by Virginia Power's operating segments to net income: Year Ended December 31, 2013 $ Change 2012 $ Change 2011 (millions) DVP $ 483 $ 35 $ 448 $ 22 $ 426 Dominion Generation 702 49 653 (11 ) 664 Primary operating segments 1,185 84 1,101 11 1,090 Corporate and Other (47 ) 4 (51 ) 217 (268 ) Consolidated $ 1,138 $ 88 $ 1,050 $ 228 $ 822 DVP Presented below are operating statistics related to Virginia Power's DVP segment: Year Ended December 31, 2013 % Change 2012 % Change 2011 Electricity delivered (million MWh) 82.4 2 % 80.8 (2 )% 82.3 Degree days (electric service area): Cooling 1,645 (8 ) 1,787 (6 ) 1,899 Heating 3,651 24 2,955 (12 ) 3,354 Average electric distribution customer accounts (thousands)(1) 2,475 1 2,455 1 2,438 (1) Thirteen-month average.

Presented below, on an after-tax basis, are the key factors impacting DVP's net income contribution: 2013 VS. 2012 Increase (Decrease) (millions, except EPS) Regulated electric sales: Weather $ 24 Other (2 ) FERC transmission equity return 30 Storm damage and service restoration(1) (20 ) Depreciation (7 ) Other operations and maintenance expense 7 Other 3 Change in net income contribution $ 35 (1) Excludes restoration costs associated with damage caused by severe storms in 2012, which are reflected in the Corporate and Other segment.

2012 VS. 2011 Increase (Decrease) (millions) Regulated electric sales: Weather $ (34 ) Other 28 FERC transmission equity return 19 Storm damage and service restoration(1) 14 Other (5 ) Change in net income contribution $ 22 (1) Excludes restoration costs associated with damage caused by severe storms in 2012 and 2011, which are reflected in the Corporate and Other segment.

Dominion Generation Presented below are operating statistics related to Virginia Power's Dominion Generation segment: Year Ended December 31, 2013 % Change 2012 % Change 2011 Electricity supplied (million MWh) 82.8 2 % 80.9 (2 )% 82.3 Degree days (electric service area): Cooling 1,645 (8 ) 1,787 (6 ) 1,899 Heating 3,651 24 2,955 (12 ) 3,354 Presented below, on an after-tax basis, are the key factors impacting Dominion Generation's net income contribution: 2013 VS. 2012 Increase (Decrease) (millions) Regulated electric sales: Weather $ 44 Other (4 ) Rate adjustment clause equity return 35 PJM ancillary services (26 ) Outage costs 15 Other (15 ) Change in net income contribution $ 49 45 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued 2012 VS. 2011 Increase (Decrease) (millions) Regulated electric sales: Weather $ (78 ) Other 46 Rate adjustment clause equity return 17 PJM ancillary services (27 ) Net capacity expenses 19 Other 12 Change in net income contribution $ (11 ) Corporate and Other Presented below are the Corporate and Other segment's after-tax results: Year Ended December 31, 2013 2012 2011 (millions) Specific items attributable to operating segments $ (47 ) $ (51 ) $ (268 ) Other corporate operations - - - Total net expense $ (47 ) $ (51 ) $ (268 ) SPECIFIC ITEMS ATTRIBUTABLE TO OPERATINGSEGMENTS Corporate and Other primarily includes specific items attributable to Virginia Power's primary operating segments that are not included in profit measures evaluated by executive management in assessing the segments' performance or allocating resources among the segments. See Note 25 to the Consolidated Financial Statements for a discussion of these items.

SELECTED INFORMATION-ENERGY TRADING ACTIVITIES Dominion engages in energy trading, marketing and hedging activities to complement its businesses and facilitate its price risk management activities.

As part of these operations, Dominion enters into contracts for purchases and sales of energy-related commodities, including electricity, natural gas and other energy-related products. Settlements of contracts may require physical delivery of the underlying commodity or cash settlement. Dominion also enters into contracts with the objective of benefiting from changes in prices. For example, after entering into a contract to purchase a commodity, Dominion typically enters into a sales contract, or a combination of sales contracts, with quantities and delivery or settlement terms that are identical or very similar to those of the purchase contract. When the purchase and sales contracts are settled either by physical delivery of the underlying commodity or by net cash settlement, Dominion may receive a net cash margin (a realized gain), or may pay a net cash margin (a realized loss). Dominion continually monitors its contract positions, considering location and timing of delivery or settlement for each energy commodity in relation to market price activity.

A summary of the changes in the unrealized gains and losses recognized for Dominion's energy-related derivative instruments held for trading purposes follows: Amount (millions) Net unrealized gain at December 31, 2012 $ 78 Contracts realized or otherwise settled during the period (64 ) Change in unrealized gains and losses (100 ) Net unrealized loss at December 31, 2013 $ (86 ) The balance of net unrealized gains and losses recognized for Dominion's energy-related derivative instruments held for trading purposes at December 31, 2013, is summarized in the following table based on the approach used to determine fair value: Maturity Based on Contract Settlement or Delivery Date(s) 2019 and Sources of Fair Value 2014 2015-2016 2017-2018 thereafter Total (millions) Prices actively quoted-Level 1(1) $ - $ - $ - $ - $ - Prices provided by other external sources-Level 2(2) (41 ) (23 ) - - (64 ) Prices based on models and other valuation methods-Level 3(3) (7 ) (10 ) (5 ) - (22 ) Total $ (48 ) $ (33 ) $ (5 ) $ - $ (86 ) (1) Values represent observable unadjusted quoted prices for traded instruments in active markets.

(2) Values with inputs that are observable directly or indirectly for the instrument, but do not qualify for Level 1.

(3) Values with a significant amount of inputs that are not observable for the instrument.

LIQUIDITY AND CAPITAL RESOURCES Dominion and Virginia Power depend on both internal and external sources of liquidity to provide working capital and as a bridge to long-term debt financings. Short-term cash requirements not met by cash provided by operations are generally satisfied with proceeds from short-term borrowings. Long-term cash needs are met through issuances of debt and/or equity securities.

At December 31, 2013, Dominion had $1.6 billion of unused capacity under its credit facilities, including $407 million of unused capacity under joint credit facilities available to Virginia Power. See additional discussion below under Credit Facilities and Short-Term Debt.

A summary of Dominion's cash flows is presented below: Year Ended December 31, 2013 2012 2011 (millions) Cash and cash equivalents at beginning of year $ 248 $ 102 $ 62 Cash flows provided by (used in): Operating activities 3,433 4,137 2,983 Investing activities (3,458 ) (3,840 ) (3,321 ) Financing activities 93 (151 ) 378 Net increase in cash and cash equivalents 68 146 40 Cash and cash equivalents at end of year $ 316 $ 248 $ 102 46 -------------------------------------------------------------------------------- Table of Contents A summary of Virginia Power's cash flows is presented below: Year Ended December 31, 2013 2012 2011 (millions) Cash and cash equivalents at beginning of year $ 28 $ 29 $ 5 Cash flows provided by (used in): Operating activities 2,329 2,706 2,024 Investing activities (2,601 ) (2,282 ) (1,947 ) Financing activities 260 (425 ) (53 ) Net increase (decrease) in cash and cash equivalents (12 ) (1 ) 24 Cash and cash equivalents at end of year $ 16 $ 28 $ 29 Operating Cash Flows In 2013, net cash provided by Dominion's operating activities decreased by $704 million, primarily due to lower deferred fuel cost recoveries in its Virginia jurisdiction, higher net margin collateral requirements, and lower margins from retail energy marketing activities and merchant generation operations. The decrease was partially offset by lower rate refund payments and higher margins from regulated natural gas transmission operations.

In 2013, net cash provided by Virginia Power's operating activities decreased by $377 million, primarily due to lower deferred fuel cost recoveries in its Virginia jurisdiction, higher income tax payments and net changes in other working capital items; partially offset by lower rate refund payments and the impact of favorable weather.

Dominion believes that its operations provide a stable source of cash flow to contribute to planned levels of capital expenditures and maintain or grow the dividend on common shares. In 2013, Dominion's Board of Directors affirmed the dividend policy it set in December 2012 for a target payout ratio of 65-70%, and established an annual dividend rate for 2014 of $2.40 per share of common stock, a 6.7% increase over the 2013 rate. In January 2014, Dominion's Board of Directors declared dividends payable March 20, 2014 of 60 cents per share of common stock. Declarations of dividends are subject to further Board of Directors approval. Virginia Power believes that its operations provide a stable source of cash flow to contribute to planned levels of capital expenditures and provide dividends to Dominion.

The Companies' operations are subject to risks and uncertainties that may negatively impact the timing or amounts of operating cash flows, and which are discussed in Item 1A. Risk Factors.

CREDIT RISK Dominion's exposure to potential concentrations of credit risk results primarily from its energy marketing and price risk management activities. Presented below is a summary of Dominion's credit exposure as of December 31, 2013 for these activities. Gross credit exposure for each counterparty is calculated as outstanding receivables plus any unrealized on- or off-balance sheet exposure, taking into account contractual netting rights.

Gross Net Credit Credit Credit Exposure Collateral Exposure (millions) Investment grade(1) $ 100 $ - $ 100 Non-investment grade(2) 4 - 4 No external ratings: Internally rated-investment grade(3) 67 - 67 Internally rated-non-investment grade(4) 92 - 92 Total $ 263 $ - $ 263 (1) Designations as investment grade are based upon minimum credit ratings assigned by Moody's and Standard & Poor's. The five largest counterparty exposures, combined, for this category represented approximately 20% of the total net credit exposure.

(2) The five largest counterparty exposures, combined, for this category represented approximately 1% of the total net credit exposure.

(3) The five largest counterparty exposures, combined, for this category represented approximately 15% of the total net credit exposure.

(4) The five largest counterparty exposures, combined, for this category represented approximately 14% of the total net credit exposure.

Virginia Power's exposure to potential concentrations of credit risk results primarily from sales to wholesale customers and was not considered material at December 31, 2013.

Investing Cash Flows In 2013, net cash used in Dominion's investing activities decreased by $382 million, primarily due to the proceeds from the sale of Brayton Point, Kincaid and equity method investment in Elwood and lower restricted cash reimbursements for the purpose of funding certain qualifying construction projects.

In 2013, net cash used in Virginia Power's investing activities increased by $319 million, primarily due to higher capital expenditures.

Financing Cash Flows and Liquidity Dominion and Virginia Power rely on capital markets as significant sources of funding for capital requirements not satisfied by cash provided by their operations. As discussed in Credit Ratings, the Companies' ability to borrow funds or issue securities and the return demanded by investors are affected by credit ratings. In addition, the raising of external capital is subject to certain regulatory requirements, including registration with the SEC for certain issuances and, in the case of Virginia Power, approval by the Virginia Commission.

Each of the Companies currently meets the definition of a well-known seasoned issuer under SEC rules governing the registration, communications and offering processes under the Securities Act of 1933. The rules provide for a streamlined shelf registration process to provide registrants with timely access to capital.

This allows the Companies to use automatic shelf registration statements to register any offering of securities, other than those for exchange offers or business combination transactions.

47 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued In 2013, net cash provided by Dominion's financing activities was $93 million as compared to net cash used in financing activities of $151 million in 2012, primarily reflecting higher net debt issuances, partially offset by the acquisition of the Juniper noncontrolling interest in Fairless and higher common dividend payments. See Note 15 to the Consolidated Financial Statements for more information.

In 2013, net cash provided by Virginia Power's financing activities was $260 million compared to net cash used in financing activities of $425 million in 2012, primarily reflecting higher net debt issuances.

CREDIT FACILITIES AND SHORT-TERM DEBT Dominion and Virginia Power use short-term debt to fund working capital requirements and as a bridge to long-term debt financings. The levels of borrowing may vary significantly during the course of the year, depending upon the timing and amount of cash requirements not satisfied by cash from operations. In addition, Dominion utilizes cash and letters of credit to fund collateral requirements. Collateral requirements are impacted by commodity prices, hedging levels, Dominion's credit ratings and the credit quality of its counterparties.

In connection with commodity hedging activities, the Companies are required to provide collateral to counterparties under some circumstances. Under certain collateral arrangements, the Companies may satisfy these requirements by electing to either deposit cash, post letters of credit or, in some cases, utilize other forms of security. From time to time, the Companies vary the form of collateral provided to counterparties after weighing the costs and benefits of various factors associated with the different forms of collateral. These factors include short-term borrowing and short-term investment rates, the spread over these short-term rates at which the Companies can issue commercial paper, balance sheet impacts, the costs and fees of alternative collateral postings with these and other counterparties and overall liquidity management objectives.

DOMINION Commercial paper and letters of credit outstanding, as well as capacity available under credit facilities, were as follows: Outstanding Outstanding Facility Facility Commercial Letters of Capacity December 31, 2013 Limit Paper Credit Available (millions) Joint revolving credit facility(1) $ 3,000 $ 1,927 $ - $ 1,073 Joint revolving credit facility(2) 500 - 11 489 Total $ 3,500 $ 1,927 (3) $ 11 $ 1,562 (1) Effective September 2013, the maturity date was extended from September 2017 to September 2018. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion of letters of credit.

(2) Effective September 2013, the maturity date for $400 million of the $500 million committed capacity was extended from September 2017 to September 2018. Also effective September 2013, the maturity date for the remaining $100 million was extended from September 2016 to September 2018. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances.

(3) The weighted-average interest rate of the outstanding commercial paper supported by Dominion's credit facilities was 0.33% at December 31, 2013.

VIRGINIA POWER Virginia Power's short-term financing is supported by two joint revolving credit facilities with Dominion. These credit facilities are being used for working capital, as support for the combined commercial paper programs of Dominion and Virginia Power and for other general corporate purposes.

Virginia Power's share of commercial paper and letters of credit outstanding, as well as its capacity available under its joint credit facilities with Dominion, were as follows: Facility Outstanding Outstanding Sub-limit Facility Commercial Letters of Capacity December 31, 2013 Sub-limit Paper Credit Available (millions)Joint revolving credit facility(1) $ 1,000 $ 842 $ - $ 158 Joint revolving credit facility(2) 250 - 1 249 Total $ 1,250 $ 842 (3) $ 1 $ 407 (1) Effective September 2013, the maturity date was extended from September 2017 to September 2018. This credit facility can be used to support bank borrowings and the issuance of commercial paper, as well as to support up to $1.5 billion (or the sub-limit, whichever is less) of letters of credit.

Virginia Power's current sub-limit under this credit facility can be increased or decreased multiple times per year.

(2) Effective September 2013, the maturity date for $400 million of the $500 million committed capacity was extended from September 2017 to September 2018. Also effective September 2013, the maturity date for the remaining $100 million was extended from September 2016 to September 2018. This credit facility can be used to support bank borrowings, commercial paper and letter of credit issuances. Virginia Power's current sub-limit under this credit facility can be increased or decreased multiple times per year.

(3) The weighted-average interest rate of the outstanding commercial paper supported by these credit facilities was 0.33% at December 31, 2013.

In addition to the credit facility commitments mentioned above, Virginia Power also has a $120 million credit facility. Effective September 2013, the maturity date was extended from September 2017 to September 2018. As of December 31, 2013, this facility supports approximately $119 million of certain variable rate tax-exempt financings of Virginia Power.

SHORT-TERM NOTES In November and December 2012, Dominion issued $250 million and $150 million, respectively, of private placement short-term notes that matured and were repaid in November 2013 and bore interest at a variable rate. The proceeds were used for general corporate purposes.

In November 2013, Dominion issued $400 million of private placement short-term notes that mature in November 2014 and bear interest at a variable rate. The proceeds were used for general corporate purposes.

48 -------------------------------------------------------------------------------- Table of Contents LONG-TERM DEBT During 2013, Dominion and Virginia Power issued the following long-term debt: Issuing Type Principal Rate Maturity Company (millions)Remarketable subordinated notes $ 550 1.18 % 2019 Dominion Remarketable subordinated notes 550 1.07 % 2021 Dominion Senior notes 250 1.20 % 2018 Virginia Power Senior notes 500 2.75 % 2023 Virginia Power Senior notes 500 4.00 % 2043 Virginia Power Senior notes 585 4.65 % 2043 Virginia Power Total notes issued $ 2,935 In March 2013, Virginia Power redeemed the $50 million 2.5% IDA of the Town of Louisa, Virginia Solid Waste and Sewage Disposal Revenue Bonds, Series 2001A, that would have otherwise matured in March 2031. In February 2014, Virginia Power provided notice to redeem the $10 million 2.5% and the $30 million 2.5% IDA of the Town of Louisa, Virginia Solid Waste and Sewage Disposal Revenue Bonds, Series 1997A and 2000A, that would otherwise mature in April 2022 and September 2030, respectively. The bonds will be redeemed on April 1, 2014 at the amount of principal then outstanding plus accrued interest. At December 31, 2013, the bonds were included in securities due within one year in Virginia Power's Consolidated Balance Sheets.

In connection with the sale of Kincaid, in May 2013, Kincaid redeemed its 7.33% senior secured bonds due June 2020 with an outstanding principal amount of approximately $145 million. The bonds were redeemed for approximately $185 million, including a make-whole premium and accrued interest.

In connection with the sale of Brayton Point, Brayton Point provided notice of defeasance for three series of MDFA tax-exempt bonds, totaling approximately $257 million in outstanding principal amount, that would have otherwise matured in 2036 through 2042. In June 2013, Brayton Point delivered approximately $284 million to fund an irrevocable trust for the purpose of paying maturing principal and interest due through and including the earliest redemption dates of the bonds in 2016 and 2019. The bonds are no longer included in Dominion's Consolidated Balance Sheet.

In June 2013, Brayton Point obtained bondholder consent and entered into a supplement to the Loan and Trust Agreement for approximately $75 million of variable rate MDFA Solid Waste Disposal Revenue Bonds, Series 2010B due 2041. The supplement and associated assignment agreement changed the sole obligor under the bonds from Brayton Point to Dominion; the bonds continue to be included in Dominion's Consolidated Balance Sheet.

Dominion Gas issued $1.2 billion principal amount of unsecured senior notes in a private placement in October 2013 and will be the primary financing entity for Dominion's regulated natural gas businesses. Dominion Gas used the proceeds from this offering to acquire intercompany long-term notes from Dominion and to repay a portion of its intercompany revolving credit agreement balances with Dominion.

During 2013, Dominion and Virginia Power repaid and repurchased $1.5 billion and $470 million, respectively, of long-term debt and notes payable.

ISSUANCE OF COMMONSTOCK AND OTHER EQUITY SECURITIES Dominion maintains Dominion Direct® and a number of employee savings plans through which contributions may be invested in Dominion's common stock. These shares may either be newly issued or purchased on the open market with proceeds contributed to these plans. In January 2012, Dominion began issuing new common shares for these direct stock purchase plans. In January 2014, Dominion began purchasing its common stock on the open market for these plans.

During 2013, Dominion issued approximately 5.4 million shares of common stock through various programs. Dominion received cash proceeds of $279 million from the issuance of 4.7 million of such shares through Dominion Direct and employee savings plans.

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. Dominion entered into four separate Sales Agency Agreements to effect sales under the program. However, with the exception of issuing approximately $317 million in equity through employee savings plans, direct stock purchase and dividend reinvestment plans, converted securities and other employee and director benefit plans, Dominion did not issue common stock in 2013.

In June 2013, Dominion issued equity units, initially in the form of Corporate Units. Each Corporate Unit consists of a stock purchase contract and 1/20 interest in a RSN issued by Dominion. The stock purchase contracts obligate the holders to purchase shares of Dominion common stock at a future settlement date. See Note 17 to the Consolidated Financial Statements for a description of common stock to be issued by Dominion.

In 2013, Virginia Power did not issue any shares of its common stock to Dominion.

REPURCHASE OF COMMON STOCK Dominion did not repurchase any shares in 2013 and does not plan to repurchase shares during 2014, except for shares tendered by employees to satisfy tax withholding obligations on vested restricted stock and purchases of common stock on the open market in 2014 for direct stock purchase plans, which do not count against its stock repurchase authorization.

BORROWINGS FROM PARENT Virginia Power has the ability to borrow funds from Dominion under both short-term and long-term borrowing arrangements. Virginia Power's short-term demand note borrowings from Dominion were $97 million at December 31, 2013.

There were no long-term borrowings from Dominion at December 31, 2013. At December 31, 2013, Virginia Power's nonregulated subsidiaries had no borrowings under the Dominion money pool.

CREDIT RATINGS Credit ratings are intended to provide banks and capital market participants with a framework for comparing the credit quality of securities and are not a recommendation to buy, sell or hold 49 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued securities. Dominion and Virginia Power believe that their current credit ratings provide sufficient access to the capital markets. However, disruptions in the banking and capital markets not specifically related to Dominion and Virginia Power may affect their ability to access these funding sources or cause an increase in the return required by investors. The Companies' credit ratings affect their liquidity, cost of borrowing under credit facilities and collateral posting requirements under commodity contracts, as well as the rates at which they are able to offer their debt securities.

Both quantitative (financial strength) and qualitative (business or operating characteristics) factors are considered by the credit rating agencies in establishing an individual company's credit rating. Credit ratings should be evaluated independently and are subject to revision or withdrawal at any time by the assigning rating organization. The credit ratings for Dominion and Virginia Power are affected by each company's financial profile, mix of regulated and nonregulated businesses and respective cash flows, changes in methodologies used by the rating agencies and event risk, if applicable, such as major acquisitions or dispositions.

In October 2013, Standard & Poor's affirmed Dominion's corporate credit rating of A- but lowered the rating for Dominion's senior unsecured debt securities to BBB+ from A- to reflect greater structural subordination at Dominion due to new debt at Dominion Gas. Dominion cannot predict with certainty the potential impact the lowered rating could have on its cost of borrowing.

Credit ratings as of February 24, 2014 follow: Standard Fitch Moody's & Poor's Dominion Senior unsecured debt securities BBB+ Baa2 BBB+ Junior subordinated debt securities BBB- Baa3 BBB Enhanced junior subordinated notes BBB- Baa3 BBB Commercial paper F2 P-2 A-2 Virginia Power Mortgage bonds A Aa3 A Senior unsecured (including tax-exempt) debt securities A- A2 A- Junior subordinated debt securities BBB A3 BBB Preferred stock BBB Baa1 BBB Commercial paper F2 P-1 A-2 As of February 24, 2014, Fitch, Moody's and Standard & Poor's maintained a stable outlook for their respective ratings of Dominion and Virginia Power.

A downgrade in an individual company's credit rating would not necessarily restrict its ability to raise short-term and long-term financing as long as its credit rating remains investment grade, but it could result in an increase in the cost of borrowing. Dominion and Virginia Power work closely with Fitch, Moody's and Standard & Poor's with the objective of maintaining their current credit ratings. The Companies may find it necessary to modify their business plans to maintain or achieve appropriate credit ratings and such changes may adversely affect growth and EPS.

Debt Covenants As part of borrowing funds and issuing debt (both short-term and long-term) or preferred securities, Dominion and Virginia Power must enter into enabling agreements. These agreements contain covenants that, in the event of default, could result in the acceleration of principal and interest payments; restrictions on distributions related to capital stock, including dividends, redemptions, repurchases, liquidation payments or guarantee payments; and in some cases, the termination of credit commitments unless a waiver of such requirements is agreed to by the lenders/security holders. These provisions are customary, with each agreement specifying which covenants apply. These provisions are not necessarily unique to Dominion and Virginia Power.

Some of the typical covenants include: Ÿ The timely payment of principal and interest; Ÿ Information requirements, including submitting financial reports filed with the SEC and information about changes in Dominion's and Virginia Power's credit ratings to lenders; Ÿ Performance obligations, audits/inspections, continuation of the basic nature of business, restrictions on certain matters related to merger or consolidation, and restrictions on disposition of all or substantially all assets; Ÿ Compliance with collateral minimums or requirements related to mortgage bonds; and Ÿ Limitations on liens.

Dominion and Virginia Power are required to pay annual commitment fees to maintain their credit facilities. In addition, their credit agreements contain various terms and conditions that could affect their ability to borrow under these facilities. They include maximum debt to total capital ratios and cross-default provisions.

As of December 31, 2013, the calculated total debt to total capital ratio, pursuant to the terms of the agreements, was as follows: Company Maximum Allowed Ratio Actual Ratio(1) Dominion 65 % 58 % Virginia Power 65 % 47 % (1) Indebtedness as defined by the bank agreements excludes junior subordinated and remarketable subordinated notes reflected as long-term debt as well as AOCI reflected as equity in the Consolidated Balance Sheets.

These provisions apply separately to Dominion and Virginia Power.

If Dominion or Virginia Power or any of either company's material subsidiaries fails to make payment on various debt obligations in excess of $100 million, the lenders could require that company to accelerate its repayment of any outstanding borrowings under the credit facility and the lenders could terminate their commitment to lend funds to that company. Accordingly, any default by Dominion will not affect the lenders' commitment to Virginia Power. However, any default by Virginia Power would affect the lenders' commitment to Dominion under the joint credit agreements.

Dominion executed RCCs in connection with its issuance of the following hybrid securities: Ÿ June 2006 hybrids; Ÿ September 2006 hybrids; and Ÿ June 2009 hybrids.

See Note 17 to the Consolidated Financial Statements for terms of the RCCs.

50 -------------------------------------------------------------------------------- Table of Contents At December 31, 2013, the termination dates and covered debt under the RCCs associated with Dominion's hybrids were as follows: RCC Termination Designated Covered Debt Hybrid Date Under RCC June 2006 hybrids 6/30/2036 September 2006 hybrids September 2006 hybrids 9/30/2036 June 2006 hybrids June 2009 hybrids 6/15/2034 (1) 2008 Series B Senior Notes, 7.0% due 2038 (1) Automatically extended, as set forth in the RCC, for additional quarterly periods, to the extent the maturity date is extended.

Dominion and Virginia Power monitor the debt covenants on a regular basis in order to ensure that events of default will not occur. As of December 31, 2013, there have been no events of default under or changes to Dominion's or Virginia Power's debt covenants.

Virginia Power Mortgage Supplement Substantially all of Virginia Power's property is subject to the lien of the Indenture of Mortgage securing its First and Refunding Mortgage Bonds. In July 2012, Virginia Power entered into a supplement to the indenture in order to amend various of its terms and conditions and to incorporate certain new provisions. The supplement reduces Virginia Power's overall compliance responsibilities associated with the indenture by limiting the maximum principal amount of bonds that may be outstanding under the indenture to $10 million unless otherwise provided in a further supplement, and by modifying or eliminating altogether certain compliance requirements while there are no bonds outstanding. The supplement also provides Virginia Power with flexibility to determine when or if certain newly or recently acquired properties will be pledged as collateral under the indenture. There were no bonds outstanding as of December 31, 2013; however, by leaving the indenture open, Virginia Power expects to retain the flexibility to issue mortgage bonds in the future.

Dividend Restrictions The Virginia Commission may prohibit any public service company, including Virginia Power, from declaring or paying a dividend to an affiliate if found to be detrimental to the public interest. At December 31, 2013, the Virginia Commission had not restricted the payment of dividends by Virginia Power.

Certain agreements associated with Dominion's and Virginia Power's credit facilities contain restrictions on the ratio of debt to total capitalization.

These limitations did not restrict Dominion's or Virginia Power's ability to pay dividends or receive dividends from their subsidiaries at December 31, 2013.

See Note 17 to the Consolidated Financial Statements for a description of potential restrictions on dividend payments by Dominion in connection with the deferral of interest payments on junior subordinated notes and equity units, initially in the form of corporate units, which information is incorporated herein by reference.

Future Cash Payments for Contractual Obligations and Planned Capital Expenditures CONTRACTUAL OBLIGATIONS Dominion and Virginia Power are party to numerous contracts and arrangements obligating them to make cash payments in future years. These contracts include financing arrangements such as debt agreements and leases, as well as contracts for the purchase of goods and services and financial derivatives. Presented below is a table summarizing cash payments that may result from contracts to which Dominion and Virginia Power are parties as of December 31, 2013. For purchase obligations and other liabilities, amounts are based upon contract terms, including fixed and minimum quantities to be purchased at fixed or market-based prices. Actual cash payments will be based upon actual quantities purchased and prices paid and will likely differ from amounts presented below.

The table excludes all amounts classified as current liabilities in the Consolidated Balance Sheets, other than current maturities of long-term debt, interest payable and certain derivative instruments. The majority of Dominion's and Virginia Power's current liabilities will be paid in cash in 2014.

2015- 2017- 2019 and Dominion 2014 2016 2018 thereafter Total (millions) Long-term debt(1) $ 1,505 $ 2,731 $ 2,728 $ 13,878 $ 20,842 Interest payments(2) 1,006 1,855 1,593 13,280 17,734 Leases(3) 63 111 80 87 341 Purchase obligations(4): Purchased electric capacity for utility operations 336 569 263 163 1,331 Fuel commitments for utility operations 776 831 238 323 2,168 Fuel commitments for nonregulated operations 68 143 183 168 562 Pipeline transportation and storage 97 113 75 240 525 Energy commodity purchases for resale(5) 307 45 29 190 571 Other(6) 1,495 1,686 90 15 3,286 Other long-term liabilities(7): Financial derivative-commodities(5) 126 24 2 - 152 Other contractual obligations(8) 64 95 2 - 161 Total cash payments $ 5,843 $ 8,203 $ 5,283 $ 28,344 $ 47,673 (1) Based on stated maturity dates rather than the earlier redemption dates that could be elected by instrument holders.

(2) Includes interest payments over the terms of the debt and payments on related stock purchase contracts. Interest is calculated using the applicable interest rate or forward interest rate curve at December 31, 2013 and outstanding principal for each instrument with the terms ending at each instrument's stated maturity. See Note 17 to the Consolidated Financial Statements. Does not reflect Dominion's ability to defer interest and stock purchase contract payments on junior subordinated notes or RSNs and equity units, initially in the form of Corporate Units.

(3) Primarily consists of operating leases.

(4) Amounts exclude open purchase orders for services that are provided on demand, the timing of which cannot be determined.

(5) Represents the summation of settlement amounts, by contracts, due from Dominion if all physical or financial transactions among its counterparties and Dominion were liquidated and terminated.

(6) Includes capital, operations, and maintenance commitments.

(7) Excludes regulatory liabilities, AROs and employee benefit plan obligations, which are not contractually fixed as to timing and amount. See Notes 12, 14 and 21 to the Consolidated Financial Statements. Due to uncertainty about the timing and amounts that will ultimately be paid, 51 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued $160 million of income taxes payable associated with unrecognized tax benefits are excluded. Deferred income taxes are also excluded since cash payments are based primarily on taxable income for each discrete fiscal year. See Note 5 to the Consolidated Financial Statements.

(8) Includes interest rate swap agreements.

2015- 2017- 2019 and Virginia Power 2014 2016 2018 thereafter Total (millions) Long-term debt(1) $ 58 $ 687 $ 1,529 $ 5,769 $ 8,043 Interest payments(2) 386 744 671 4,857 6,658 Leases(3) 27 47 31 27 132 Purchase obligations(4): Purchased electric capacity for utility operations 336 569 263 163 1,331 Fuel commitments for utility operations 776 831 238 323 2,168 Transportation and storage 34 59 50 222 365 Other(5) 353 26 4 10 393 Total cash payments(6) $ 1,970 $ 2,963 $ 2,786 $ 11,371 $ 19,090 (1) Based on stated maturity dates rather than the earlier redemption dates that could be elected by instrument holders.

(2) Includes interest payments over the terms of the debt. Interest is calculated using the applicable interest rate or forward interest rate curve at December 31, 2013 and outstanding principal for each instrument with the terms ending at each instrument's stated maturity. See Note 17 to the Consolidated Financial Statements.

(3) Primarily consists of operating leases.

(4) Amounts exclude open purchase orders for services that are provided on demand, the timing of which cannot be determined.

(5) Includes capital, operations, and maintenance commitments.

(6) Excludes regulatory liabilities, AROs and employee benefit plan contributions that are not contractually fixed as to timing and amount. See Notes 12, 14 and 21 to the Consolidated Financial Statements. Due to uncertainty about the timing and amounts that will ultimately be paid, $28 million of income taxes payable associated with unrecognized tax benefits are excluded. Deferred income taxes are also excluded since cash payments are based primarily on taxable income for each discrete fiscal year. See Note 5 to the Consolidated Financial Statements.

PLANNED CAPITAL EXPENDITURES Dominion's planned capital expenditures are expected to total approximately $5.6 billion, $4.6 billion and $4.2 billion in 2014, 2015 and 2016, respectively.

Dominion's expenditures are expected to include construction and expansion of electric generation and natural gas transmission, distribution and storage facilities, construction improvements and expansion of electric transmission and distribution assets, purchases of nuclear fuel and the planned construction of the Cove Point liquefaction project in Maryland.

Virginia Power's planned capital expenditures are expected to total approximately $3.0 billion, $2.5 billion and $2.3 billion in 2014, 2015 and 2016, respectively. Virginia Power's expenditures are expected to include construction and expansion of electric generation facilities, construction improvements and expansion of electric transmission and distribution assets and purchases of nuclear fuel.

Dominion and Virginia Power expect to fund their capital expenditures with cash from operations and a combination of securities issuances and short-term borrowings. Planned capital expenditures include capital projects that are subject to approval by regulators and the respective company's Board of Directors.

Based on available generation capacity and current estimates of growth in customer demand, Virginia Power will need additional generation in the future.

See DVP, Dominion Generation and Dominion Energy-Properties in Item 1. Business for a discussion of Dominion's and Virginia Power's expansion plans.

These estimates are based on a capital expenditures plan reviewed and endorsed by Dominion's Board of Directors in late 2013 and are subject to continuing review and adjustment and actual capital expenditures may vary from these estimates. The Companies may also choose to postpone or cancel certain planned capital expenditures in order to mitigate the need for future debt financings and equity issuances.

Use of Off-Balance Sheet Arrangements GUARANTEES Dominion primarily enters into guarantee arrangements on behalf of its consolidated subsidiaries. These arrangements are not subject to the provisions of FASB guidance that dictate a guarantor's accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others. See Note 22 to the Consolidated Financial Statements for additional information, which information is incorporated herein by reference.

FUTURE ISSUESAND OTHER MATTERS See Item 1. Business and Notes 13 and 22 to the Consolidated Financial Statements for additional information on various environmental, regulatory, legal and other matters that may impact future results of operations, financial condition, and/or cash flows.

Environmental Matters Dominion and Virginia Power are subject to costs resulting from a number of federal, state and local laws and regulations designed to protect human health and the environment. These laws and regulations affect future planning and existing operations. They can result in increased capital, operating and other costs as a result of compliance, remediation, containment and monitoring obligations.

ENVIRONMENTAL PROTECTIONAND MONITORING EXPENDITURES Dominion incurred approximately $182 million, $189 million and $184 million of expenses (including depreciation) during 2013, 2012, and 2011 respectively, in connection with environmental protection and monitoring activities and expects these expenses to be approximately $174 million and $182 million in 2014 and 2015, respectively. In addition, capital expenditures related to environmental controls were $64 million, $213 million, and $403 million for 2013, 2012 and 2011, respectively. These expenditures are expected to be approximately $107 million and $83 million for 2014 and 2015, respectively.

Virginia Power incurred approximately $150 million, $120 million and $129 million of expenses (including depreciation) during 2013, 2012 and 2011, respectively, in connection with environmental protection and monitoring activities and expects these expenses to be approximately $146 million and $155 million in 2014 and 2015, respectively. In addition, capital 52 -------------------------------------------------------------------------------- Table of Contents expenditures related to environmental controls were $44 million, $34 million and $77 million for 2013, 2012 and 2011, respectively. These expenditures are expected to be approximately $89 million and $71 million for 2014 and 2015, respectively.

FUTURE ENVIRONMENTAL REGULATIONS Air The CAA is a comprehensive program utilizing a broad range of regulatory tools to protect and preserve the nation's air quality. At a minimum, delegated states are required to establish regulatory programs to address all requirements of the CAA. However, states may choose to develop regulatory programs that are more restrictive. Many of Dominion's and Virginia Power's facilities are subject to the CAA's permitting and other requirements.

In December 2012, the EPA issued a final rule that set a more stringent annual air quality standard for fine particulate matter. The EPA is expected to complete final air quality designations by December 2014. States will have until 2020 to meet the revised standard. The extent to which a revised particulate matter standard will impact Dominion is uncertain at this time, but is not expected to be material.

The EPA has finalized rules establishing a new 1-hour NAAQS for NO2 and a new 1-hour NAAQS for SO2, which could require additional NOX and SO2 controls in certain areas where the Companies operate. Until the states have developed implementation plans for these standards, the impact on Dominion's or Virginia Power's facilities that emit NOX and SO2 is uncertain.

In January 2010, the EPA also proposed a new, more stringent NAAQS for ozone and had planned to finalize the rule in 2011. In September 2011, the EPA announced a delay from 2011 to 2014 of the rulemaking, therefore NOx controls that may have been required by the rulemaking have also been delayed. In the interim, the EPA is proceeding with implementation of the current ozone standard and made final attainment/nonattainment designations in May 2012. Several Dominion electric generating facilities are located in areas impacted by this standard. Until the states have developed implementation plans for the new NOx, SO2 and ozone standards, it is not possible to determine the impact on Dominion's or Virginia Power's facilities that emit NOX and SO2. The Companies cannot currently predict with certainty whether or to what extent the new rules will ultimately require additional controls, however, if significant expenditures are required, it could adversely affect Dominion's results of operations, and Dominion's and Virginia Power's cash flows.

In June 2005, the EPA finalized amendments to the Regional Haze Rule, also known as the Clean Air Visibility Rule. The rule requires the states to implement Best Available Retrofit Technology requirements for sources to address impacts to visual air quality through regional haze state implementation plans, but allows other alternative options. The EPA is in the process of completing rulemakings on regional haze state implementation plans. Although Dominion and Virginia Power anticipate that the emission reductions achieved through compliance with other CAA-required programs will generally address this rule, additional emission reduction requirements may be imposed on the Companies' facilities.

Water The CWA is a comprehensive program requiring a broad range of regulatory tools including a permit program to authorize and regulate discharges to surface waters with strong enforcement mechanisms. Dominion and Virginia Power must comply with applicable aspects of the CWA programs at their operating facilities. In July 2004, the EPA published regulations under CWA Section 316(b) that govern existing utilities that employ a cooling water intake structure and that have flow levels exceeding a minimum threshold. In April 2008, the U.S.

Supreme Court granted an industry request to review the question of whether Section 316(b) authorizes the EPA to compare costs with benefits in determining the best technology available for minimizing "adverse environmental impact" at cooling water intake structures. The U.S. Supreme Court ruled in April 2009 that the EPA has the authority to consider costs versus environmental benefits in selecting the best technology available for reducing impacts of cooling water intakes at power stations. It is currently unknown how the EPA will interpret the ruling in its ongoing rulemaking activity addressing cooling water intakes as well as how the states will implement this decision. In April 2011, the EPA published the proposed rule related to Section 316(b) in the Federal Register, and agreed to publish a final rule no later than July 27, 2012. The EPA has delayed the final rule on five separate occasions and has most recently announced that a final rule will be issued no later than April 2014.

The rule in its proposed form seeks to establish a uniform national standard for impingement, but forgoes the creation of a single technology standard for entrainment. Instead, the EPA proposes to delegate entrainment technology decisions to state regulators. State regulators are to make case-by-case entrainment technology determinations after an examination of nine facility-specific factors, including a social cost-benefit test.

The proposed rule governs all electric generating stations with water withdrawals above two MGD, with a heightened entrainment analysis for those facilities over 125 MGD. Under this proposal, Dominion has 16 facilities that may be subject to these proposed regulations. If finalized as proposed, Dominion anticipates that it will have to install impingement control technologies at many of these stations that have once-through cooling systems. Dominion and Virginia Power cannot estimate the need or potential for entrainment controls under the proposed rule as these decisions will be made on a case-by-case basis after a thorough review of detailed biological, technology, cost and benefit studies. However, the impacts of this proposed rule may be material to the Companies' results of operations, financial condition and/or cash flows.

In June 2013, the EPA issued a proposed rule to revise the Effluent Limitations Guidelines for the Steam Electric Power Generating Category. The proposed rule establishes updated standards for wastewater discharges at coal, oil, gas, and nuclear steam generating stations. Affected facilities could be required to convert from wet to dry coal ash management, improve existing wastewater treatment systems and/or install new wastewater treatment technologies in order to meet the new discharge limits. The EPA is subject to a consent decree requiring that it take final action on the proposed rule by May 22, 2014.

Dominion and Virginia Power currently cannot predict with certainty the direct or indirect financial impact on operations from these rule 53 -------------------------------------------------------------------------------- Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued revisions, but believes the expenditures to comply with any new requirements could be material.

Solid and Hazardous Waste In June 2010, the EPA proposed federal regulations under the RCRA for management of coal combustion by-products generated by power plants. The EPA is considering two possible options for the regulation of coal combustion by-products, both of which fall under the RCRA. Under the first proposal, the EPA would classify these by-products as special wastes subject to regulation under subtitle C, the hazardous waste provisions of the RCRA, when destined for disposal at landfills or surface impoundments. Under the second proposal, the EPA would regulate coal combustion by-products under subtitle D of the RCRA, the section for non-hazardous wastes. While the Companies cannot currently predict the outcome of this matter, regulation under either option will affect Dominion's and Virginia Power's onsite disposal facilities and coal combustion by-product management practices, and potentially require material investments.

Climate Change Legislation and Regulation Some regions and states in which Dominion and Virginia Power operate have already adopted or may adopt GHG emission reduction programs. Any of these new or contemplated regulations may affect capital costs, or create significant permitting delays, for new or modified facilities that emit GHGs.

In December 2009, the governors of 11 Northeast and mid-Atlantic states, including Connecticut, Maryland, Massachusetts, New York, Pennsylvania, and Rhode Island (RGGI states plus Pennsylvania) signed a memorandum of understanding committing their states toward developing a low carbon fuel standard to reduce GHG emissions from vehicles. The memorandum of understanding established a process to develop a regional framework by 2011 and examine the economic impacts of a low carbon fuel standard program. Although economic studies and policy options were examined in 2011, a definitive framework has yet to be established.

Dodd-Frank Act The Dodd-Frank Act was enacted into law in July 2010 in an effort to improve regulation of financial markets. The Dodd-Frank Act includes provisions that will require certain over-the-counter derivatives, or swaps, to be centrally cleared and executed through an exchange or other approved trading platform.

Non-financial entities that use swaps to hedge or mitigate commercial risk, often referred to as end users, can choose to exempt their hedging transactions from these clearing and exchange trading requirements. Final rules for the over-the-counter derivative-related provisions of the Dodd-Frank Act will continue to be established through the ongoing rulemaking process of the applicable regulators, including rules regarding margin requirements for non-cleared swaps. If, as a result of the rulemaking process, Dominion's or Virginia Power's derivative activities are not exempted from the clearing, exchange trading or margin requirements, the Companies could be subject to higher costs, including from higher margin requirements, for their derivative activities. In addition, implementation of, and compliance with, the swaps provisions of the Dodd-Frank Act by the Companies' counterparties could result in increased costs related to the Companies' derivative activities. Due to the ongoing rulemaking process, the Companies are currently unable to assess the potential impact of the Dodd-Frank Act's derivative-related provisions on their financial condition, results of operations or cash flows.

Cove Point Dominion is pursuing a liquefaction project at Cove Point, which would enable the facility to liquefy domestically-produced natural gas and export it as LNG.

The project is expected to cost between approximately $3.4 billion and $3.8 billion, exclusive of financing costs. Subject to environmental review by FERC and final FERC and Maryland Commission approval, the Cove Point facility is authorized to export at a rate of 770 million cubic feet of natural gas per day for a period of 20 years. In 2011, Cove Point requested authorization from the DOE to export LNG to countries that have a free trade agreement requiring trade in natural gas with the U.S. as well as countries that do not have such a free trade agreement. In October 2011, Cove Point received authorization from the DOE to export LNG to free trade agreement countries. In September 2013, the DOE conditionally authorized Dominion to export LNG from Cove Point to non-free trade agreement countries.

In April 2013, Cove Point filed with FERC for permission to build liquefaction and other facilities related to the export of natural gas. Also in April 2013, Cove Point filed an application with the Maryland Commission for a CPCN to authorize the construction of an electric generating station needed to power the proposed liquefaction equipment.

In April 2013, Dominion announced it had fully subscribed the capacity of the project with signed 20-year terminal service agreements. Pacific Summit Energy, LLC, a U.S. affiliate of Japanese trading company Sumitomo Corporation, and GAIL Global (USA) LNG LLC, a U.S. affiliate of GAIL (India) Ltd., have each contracted for half of the capacity. Dominion also announced it had awarded its engineering, procurement and construction contract for new liquefaction facilities to IHI/Kiewit Cove Point, a joint venture between IHI E&C International Corporation and Kiewit Energy Company, following completion of the front-end engineering and design work. Following receipt of regulatory and other approvals, construction of liquefaction facilities could begin in 2014 with an in-service date in late 2017.

Cove Point has historically operated as an LNG import facility, under various long-term import contracts. Since 2010, Dominion has renegotiated certain existing LNG import contracts in a manner that will result in a significant reduction in pipeline and storage capacity utilization and associated anticipated revenues during the period from 2017 through 2028. Such amendments created the opportunity for Dominion to explore the Cove Point liquefaction project, which, assuming it becomes operational, will extend the economic life of Cove Point and contribute to Dominion's overall growth plan. In total, these renegotiations reduced expected annual revenues from the import-related contracts by approximately $150 million annually from 2017 through 2028, partially offset by approximately $50 million of additional revenues in the years 2013 through 2017.

Dominion is party to an agreement with the Sierra Club restricting activities on portions of the Cove Point property. In May 2012, in response to claims by the Sierra Club, Cove Point filed a complaint for declaratory judgment to confirm its right to 54 -------------------------------------------------------------------------------- Table of Contents construct the project. In January 2013, a Maryland circuit court issued declaratory judgment confirming Cove Point's right to build liquefaction facilities. In February 2013, the Sierra Club filed a notice of appeal with the Maryland Court of Special Appeals. In March 2013, Cove Point filed a petition with the Maryland Court of Appeals, the highest appellate court in Maryland, requesting that the Court of Appeals take the appeal directly thus bypassing the intermediate appellate court. In April 2013, the Maryland Court of Appeals denied the petition, and the appeal remains with the Maryland Court of Special Appeals. In January 2014, oral arguments were held in the Maryland Court of Special Appeals. This case is pending. Dominion believes that the agreement with the Sierra Club permits it to locate, construct and operate a liquefaction plant at the Cove Point facility.

Undergrounding Legislation Legislation has been proposed which would provide for the recovery of costs, subject to approval by the Virginia Commission, for Virginia Power to move approximately 4,000 miles of electric distribution lines underground. The program, designed to reduce restoration outage time, has an annual investment cap of approximately $175 million and is expected to be implemented over the next decade.

Electric Transmission System Security Plan Over the next 5 to 10 years, Virginia Power plans to increase transmission substation physical security and to invest in a new system operations center. Virginia Power expects to invest $300 million - $500 million during that time to strengthen its electrical system to better protect critical equipment, enhance its spare equipment process, and create multiple levels of security.

Solar Facilities Dominion plans to expand its fleet of contracted solar facilities over the next 24 months by approximately 250 MW. Dominion is currently in active discussions with multiple parties for facilities expected to be placed into service in 2014 and 2015.

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