10-Q 1 d194158d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

 

 

Commission File

Number

 

Exact name of registrants as specified in their charters, address of

principal executive offices and registrants’ telephone number

 

I.R.S. Employer

Identification Number

001-08489   DOMINION RESOURCES, INC.   54-1229715
000-55337   VIRGINIA ELECTRIC AND POWER COMPANY   54-0418825
001-37591   DOMINION GAS HOLDINGS, LLC   46-3639580

 

 

120 Tredegar Street

Richmond, Virginia 23219

(804) 819-2000

State or other jurisdiction of incorporation or organization of the registrants: Virginia

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Dominion Resources, Inc.    Yes  x    No  ¨                         Virginia Electric and Power Company    Yes  x    No  ¨

Dominion Gas Holdings, LLC    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Dominion Resources, Inc.    Yes  x    No  ¨                         Virginia Electric and Power Company    Yes  x    No  ¨

Dominion Gas Holdings, LLC    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Dominion Resources, Inc.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Virginia Electric and Power Company

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Dominion Gas Holdings, LLC

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Dominion Resources, Inc.    Yes  ¨    No  x                         Virginia Electric and Power Company    Yes  ¨    No  x

Dominion Gas Holdings, LLC    Yes  ¨    No  x

At April 15, 2016, the latest practicable date for determination, Dominion Resources, Inc. had 616,218,305 shares of common stock outstanding and Virginia Electric and Power Company had 274,723 shares of common stock outstanding. Dominion Resources, Inc. is the sole holder of Virginia Electric and Power Company’s common stock. Dominion Resources, Inc. holds all of the membership interests of Dominion Gas Holdings, LLC.

This combined Form 10-Q represents separate filings by Dominion Resources, Inc., Virginia Electric and Power Company and Dominion Gas Holdings, LLC. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Virginia Electric and Power Company and Dominion Gas Holdings, LLC make no representations as to the information relating to Dominion Resources, Inc.’s other operations.

VIRGINIA ELECTRIC AND POWER COMPANY AND DOMINION GAS HOLDINGS, LLC MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND ARE FILING THIS FORM 10-Q UNDER THE REDUCED DISCLOSURE FORMAT.

 

 

 


Table of Contents

COMBINED INDEX

 

         Page
Number
 
  Glossary of Terms      3   
  PART I. Financial Information   

Item 1.

  Financial Statements      6   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      72   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      83   

Item 4.

  Controls and Procedures      85   
  PART II. Other Information   

Item 1.

  Legal Proceedings      86   

Item 1A.

  Risk Factors      86   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      86   

Item 6.

  Exhibits      87   

 

2


Table of Contents

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Form 10-Q are defined below:

 

Abbreviation or Acronym

  

Definition

2013 Equity Units    Dominion’s 2013 Series A Equity Units and 2013 Series B Equity Units issued in June 2013
2014 Equity Units    Dominion’s 2014 Series A Equity Units issued in July 2014
AFUDC    Allowance for funds used during construction
AMR    Automated meter reading program deployed by East Ohio
AOCI    Accumulated other comprehensive income (loss)
AROs    Asset retirement obligations
ARP    Acid Rain Program, a market-based initiative for emissions allowance trading, established pursuant to Title IV of the CAA
Atlantic Coast Pipeline    Atlantic Coast Pipeline, LLC, a limited liability company owned by Dominion, Duke Energy Corporation, Piedmont Natural Gas Company, Inc. and AGL Resources Inc.
bcf    Billion cubic feet
Bear Garden    A 590 MW combined cycle, natural gas-fired power station in Buckingham County, Virginia
Blue Racer    Blue Racer Midstream, LLC, a joint venture between Dominion and Caiman Energy II, LLC
BREDL    Blue Ridge Environmental Defense League
CAA    Clean Air Act
CAIR    Clean Air Interstate Rule
CAISO    California independent system operator
CCR    Coal combustion residual
CEO    Chief Executive Officer
CERCLA    Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as Superfund
CFO    Chief Financial Officer
CO2    Carbon dioxide
COL    Combined Construction Permit and Operating License
Companies    Dominion, Virginia Power and Dominion Gas, collectively
Cooling degree days    Units measuring the extent to which the average daily temperature is greater than 65 degrees Fahrenheit, calculated as the difference between 65 degrees and the average temperature for that day
Cove Point    Dominion Cove Point LNG, LP
CPCN    Certificate of Public Convenience and Necessity
CSAPR    Cross State Air Pollution Rule
CWA    Clean Water Act
DCG    Dominion Carolina Gas Transmission, LLC (successor by statutory conversion to and formerly known as Carolina Gas Transmission Corporation)
DEI    Dominion Energy, Inc.
Dominion    The legal entity, Dominion Resources, Inc., one or more of its consolidated subsidiaries (other than Virginia Power and Dominion Gas) or operating segments or the entirety of Dominion Resources, Inc. and its consolidated subsidiaries
Dominion Gas    The legal entity, Dominion Gas Holdings, LLC, one or more of its consolidated subsidiaries or operating segment, or the entirety of Dominion Gas Holdings, LLC and its consolidated subsidiaries
Dominion Iroquois    Dominion Iroquois, Inc., which, as of May 2016, holds a 24.07% noncontrolling partnership interest in Iroquois
Dominion Midstream    The legal entity, Dominion Midstream Partners, LP, one or more of its consolidated subsidiaries, Cove Point Holdings, Iroquois GP Holding Company, LLC and DCG (beginning April 1, 2015), or the entirety of Dominion Midstream Partners, LP, and its consolidated subsidiaries
DRS    Dominion Resources Services, Inc.
Dth    Dekatherm
DTI    Dominion Transmission, Inc.
DVP    Dominion Virginia Power operating segment
East Ohio    The East Ohio Gas Company, doing business as Dominion East Ohio
EPA    Environmental Protection Agency
EPS    Earnings per share
FERC    Federal Energy Regulatory Commission

 

3


Table of Contents

Abbreviation or Acronym

  

Definition

Four Brothers    Four Brothers Solar, LLC, a limited liability company owned by Dominion and Four Brothers Holdings, LLC, a wholly-owned subsidiary of SunEdison
Fowler Ridge    A wind-turbine facility joint venture between Dominion and BP Wind Energy North America Inc. in Benton County, Indiana
FTRs    Financial transmission rights
GAAP    U.S. generally accepted accounting principles
Gal    Gallon
GHG    Greenhouse gas
Granite Mountain    Granite Mountain Holdings, LLC, a limited liability company owned by Dominion and Granite Mountain Renewables, LLC, a wholly-owned subsidiary of SunEdison
Greensville County    An approximately 1,588 MW proposed natural gas-fired combined-cycle power station in Greensville County, Virginia
Heating degree days    Units measuring the extent to which the average daily temperature is less than 65 degrees Fahrenheit, calculated as the difference between 65 degrees and the average temperature for that day
Hope    Hope Gas, Inc., doing business as Dominion Hope
Iron Springs    Iron Springs Holdings, LLC, a limited liability company owned by Dominion and Iron Springs Renewables, LLC, a wholly-owned subsidiary of SunEdison
Iroquois    Iroquois Gas Transmission System L.P.
ISO-NE    Independent system operator New England
June 2006 hybrids    2006 Series A Enhanced Junior Subordinated Notes due 2066
kV    Kilovolt
Liquefaction Project    A natural gas export/liquefaction facility currently under construction by Cove Point
LNG    Liquefied natural gas
MATS    Utility Mercury and Air Toxics Standard Rule
MD&A    Management’s Discussion and Analysis of Financial Condition and Results of Operations
MGD    Million gallons a day
Microsoft    The legal entity, Microsoft Corporation, one or more of its consolidated subsidiaries, or operating segments, or the entirety of Microsoft Corporation and its consolidated subsidiaries
MISO    Midcontinent Independent Transmission System Operator, Inc.
MW    Megawatt
MWh    Megawatt hour
NedPower    A wind-turbine facility joint venture between Dominion and Shell Wind Energy, Inc. in Grant County, West Virginia
NGLs    Natural gas liquids
North Carolina Commission    North Carolina Utilities Commission
NOx    Nitrogen oxide
NRC    Nuclear Regulatory Commission
NSPS    New Source Performance Standards
Ohio Commission    Public Utilities Commission of Ohio
Order 1000    Order issued by FERC adopting new requirements for electric transmission planning, cost allocation and development
PIPP    Percentage of Income Payment Plan deployed by East Ohio
PIR    Pipeline Infrastructure Replacement program deployed by East Ohio
PJM    PJM Interconnection, L.L.C.
Possum Point    Possum Point power station
ppb    Parts-per-billion
PSD    Prevention of Significant Deterioration
Questar    The legal entity, Questar Corporation, one or more of its consolidated subsidiaries, or operating segments, or the entirety of Questar Corporation and its consolidated subsidiaries
Questar Combination    Agreement and plan of merger entered on January 31, 2016 between Dominion and Questar in which Questar will become a wholly-owned subsidiary of Dominion upon closing
Regulation Act    Legislation effective July 1, 2007, that amended the Virginia Electric Utility Restructuring Act and fuel factor statute, which legislation is also known as the Virginia Electric Utility Regulation Act, as amended in 2015
REIT    Real estate investment trust

 

4


Table of Contents

Abbreviation or Acronym

  

Definition

Rider B    A rate adjustment clause associated with the recovery of costs related to the conversion of three of Virginia Power’s coal-fired power stations to biomass
Rider GV    A rate adjustment clause associated with the recovery of costs related to Greensville County
Rider R    A rate adjustment clause associated with the recovery of costs related to Bear Garden
Rider S    A rate adjustment clause associated with the recovery of costs related to the Virginia City Hybrid Energy Center
Rider T1    A rate adjustment clause to recover the difference between revenues produced from the transmission rates included in base rates, and the new total revenue requirement developed annually for the rate years effective September 1
Rider US-1    A rate adjustment clause associated with the recovery of costs related to Remington solar facility
Rider W    A rate adjustment clause associated with the recovery of costs related to Warren County
Riders C1A and C2A    Rate adjustment clauses associated with the recovery of costs related to certain demand-side management programs approved in demand-side management cases
ROE    Return on equity
RSN    Remarketable subordinated note
SEC    Securities and Exchange Commission
September 2006 hybrids    2006 Series B Enhanced Junior Subordinated Notes due 2066
SO2    Sulfur dioxide
Standard & Poor’s    Standard & Poor’s Ratings Services, a division of McGraw Hill Financial, Inc.
SunEdison    The legal entity, SunEdison, Inc., one or more of its consolidated subsidiaries (including Four Brothers Holdings, LLC, Granite Mountain Renewables, LLC and Iron Springs Renewables, LLC) or operating segments, or the entirety of SunEdison, Inc. and its consolidated subsidiaries
Terra Nova Renewable Partners    A partnership between SunEdison and institutional investors advised by J.P. Morgan Asset Management-Global Real Assets
Three Cedars    Granite Mountain and Iron Springs, collectively
TransCanada    The legal entity, TransCanada Corporation, one or more of its consolidated subsidiaries, or operating segments, or the entirety of TransCanada Corporation and its consolidated subsidiaries
UAO    Unilateral Administrative Order
VDEQ    Virginia Department of Environmental Quality
VEBA    Voluntary Employees’ Beneficiary Association
VIE    Variable interest entity
Virginia City Hybrid Energy Center    A 610 MW baseload carbon-capture compatible, clean coal powered electric generation facility in Wise County, Virginia
Virginia Commission    Virginia State Corporation Commission
Virginia Power    The legal entity, Virginia Electric and Power Company, one or more of its consolidated subsidiaries or operating segments or the entirety of Virginia Power and its consolidated subsidiaries
VOC    Volatile organic compounds
Warren County    A 1,342 MW combined-cycle, natural gas-fired power station in Warren County, Virginia

 

5


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
             2016                      2015          
(millions, except per share amounts)              

Operating Revenue

   $ 2,921       $ 3,409   
  

 

 

    

 

 

 

Operating Expenses

     

Electric fuel and other energy-related purchases

     634         953   

Purchased electric capacity

     68         94   

Purchased gas

     119         250   

Other operations and maintenance

     703         602   

Depreciation, depletion and amortization

     351         343   

Other taxes

     164         165   
  

 

 

    

 

 

 

Total operating expenses

     2,039         2,407   
  

 

 

    

 

 

 

Income from operations

     882         1,002   
  

 

 

    

 

 

 

Other income

     54         60   

Interest and related charges

     226         223   
  

 

 

    

 

 

 

Income from operations including noncontrolling interests before income tax expense

     710         839   

Income tax expense

     179         299   
  

 

 

    

 

 

 

Net Income Including Noncontrolling Interests

     531         540   

Noncontrolling Interests

     7         4   
  

 

 

    

 

 

 

Net Income Attributable to Dominion

   $ 524       $ 536   
  

 

 

    

 

 

 

Earnings Per Common Share - Basic and Diluted

     

Net income attributable to Dominion

   $ 0.88       $ 0.91   

Dividends Declared Per Common Share

   $ 0.7000       $ 0.6475   
  

 

 

    

 

 

 

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
             2016                     2015          
(millions)             

Net income including noncontrolling interests

   $ 531      $ 540   

Other comprehensive income (loss), net of taxes:

    

Net deferred gains (losses) on derivatives-hedging activities(1)

     53        (58

Changes in unrealized net gains (losses) on investment securities(2)

     15        15   

Amounts reclassified to net income:

    

Net derivative (gains) losses-hedging activities(3)

     (63     59   

Net realized gains on investment securities(4)

     (2     (21

Net pension and other postretirement benefit costs(5)

     8        13   

Changes in other comprehensive income (loss) from equity method investees

     —          (1
  

 

 

   

 

 

 

Total other comprehensive income

     11        7   
  

 

 

   

 

 

 

Comprehensive income including noncontrolling interests

     542        547   

Comprehensive income attributable to noncontrolling interests

     7        4   
  

 

 

   

 

 

 

Comprehensive income attributable to Dominion

   $ 535      $ 543   
  

 

 

   

 

 

 

 

(1) Net of $(33) million and $41 million tax for the three months ended March 31, 2016 and 2015, respectively.
(2) Net of $(10) million and $(11) million tax for the three months ended March 31, 2016 and 2015, respectively.
(3) Net of $39 million and $(39) million tax for the three months ended March 31, 2016 and 2015, respectively.
(4) Net of $1 million and $12 million tax for the three months ended March 31, 2016 and 2015, respectively.
(5) Net of $(6) million and $(9) million tax for the three months ended March 31, 2016 and 2015, respectively.

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

         March 31,    
2016
    December 31,
2015(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 218      $ 607   

Customer receivables (less allowance for doubtful accounts of $23 and $32)

     1,175        1,200   

Other receivables (less allowance for doubtful accounts of $2 at both dates)

     153        169   

Inventories

     1,304        1,348   

Prepayments

     157        198   

Other

     704        667   
  

 

 

   

 

 

 

Total current assets

     3,711        4,189   
  

 

 

   

 

 

 

Investments

    

Nuclear decommissioning trust funds

     4,239        4,183   

Investment in equity method affiliates

     1,346        1,320   

Other

     268        271   
  

 

 

   

 

 

 

Total investments

     5,853        5,774   
  

 

 

   

 

 

 

Property, Plant and Equipment

    

Property, plant and equipment

     59,154        57,776   

Accumulated depreciation, depletion and amortization

     (16,531     (16,222
  

 

 

   

 

 

 

Total property, plant and equipment, net

     42,623        41,554   
  

 

 

   

 

 

 

Deferred Charges and Other Assets

    

Goodwill

     3,294        3,294   

Pension and other postretirement benefit assets

     978        943   

Regulatory assets

     1,977        1,865   

Other

     1,069        1,029   
  

 

 

   

 

 

 

Total deferred charges and other assets

     7,318        7,131   
  

 

 

   

 

 

 

Total assets

   $ 59,505      $ 58,648   
  

 

 

   

 

 

 

 

 

(1) Dominion’s Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

 

         March 31,    
2016
    December 31,
2015(1)
 
(millions)             

LIABILITIES AND EQUITY

    

Current Liabilities

    

Securities due within one year

   $ 1,774      $ 1,825   

Short-term debt

     3,028        3,509   

Accounts payable

     670        726   

Accrued interest, payroll and taxes

     583        515   

Other(2)

     1,463        1,544   
  

 

 

   

 

 

 

Total current liabilities

     7,518        8,119   
  

 

 

   

 

 

 

Long-Term Debt

    

Long-term debt

     20,807        20,048   

Junior subordinated notes

     1,849        1,340   

Remarketable subordinated notes

     1,530        2,080   
  

 

 

   

 

 

 

Total long-term debt

     24,186        23,468   
  

 

 

   

 

 

 

Deferred Credits and Other Liabilities

    

Deferred income taxes and investment tax credits

     7,536        7,414   

Asset retirement obligations

     1,916        1,887   

Regulatory liabilities

     2,354        2,285   

Other

     1,980        1,873   
  

 

 

   

 

 

 

Total deferred credits and other liabilities

     13,786        13,459   
  

 

 

   

 

 

 

Total liabilities

     45,490        45,046   
  

 

 

   

 

 

 

Commitments and Contingencies (see Note 15)

    

Equity

    

Common stock – no par(3)

     6,778        6,680   

Retained earnings

     6,565        6,458   

Accumulated other comprehensive loss

     (463     (474
  

 

 

   

 

 

 

Total common shareholders’ equity

     12,880        12,664   
  

 

 

   

 

 

 

Noncontrolling interests

     1,135        938   
  

 

 

   

 

 

 

Total equity

     14,015        13,602   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 59,505      $ 58,648   
  

 

 

   

 

 

 

 

(1) Dominion’s Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.
(2) See Note 3 for amounts attributable to related parties.
(3) 1 billion shares authorized; 597 million shares and 596 million shares outstanding at March 31, 2016 and December 31, 2015, respectively.

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

     Common Stock     Dominion Shareholders                    
     Shares      Amount     Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Common
Shareholders’
Equity
    Noncontrolling
Interests
    Total
Equity
 
(millions)                                            

December 31, 2015

     596       $ 6,680      $ 6,458      $ (474   $ 12,664      $ 938      $ 13,602   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income including noncontrolling interests

          524          524        7        531   

Contributions from SunEdison to Four Brothers and Three Cedars

              —          94        94   

Sale of interest in merchant solar projects

        22            22        117        139   

Purchase of Dominion Midstream common units

        (2         (2     (8     (10

Issuance of common stock

     1         75            75          75   

Dividends and distributions

          (417       (417     (10     (427

Other comprehensive income, net of tax

            11        11          11   

Other

        3            3        (3     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

March 31, 2016

     597       $ 6,778      $ 6,565      $ (463   $ 12,880      $ 1,135      $ 14,015   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

 

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Table of Contents

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Three Months Ended March 31

           2016                     2015          
(millions)             

Operating Activities

    

Net income including noncontrolling interests

   $ 531      $ 540   

Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:

    

Depreciation, depletion and amortization (including nuclear fuel)

     424        414   

Deferred income taxes and investment tax credits

     131        277   

Gains on the sale of assets and businesses

     (5     (70

Other adjustments

     (21     (40

Changes in:

    

Accounts receivable

     40        (65

Inventories

     44        148   

Deferred fuel and purchased gas costs, net

     35        (33

Accounts payable

     (37     (85

Accrued interest, payroll and taxes

     68        (15

Margin deposit assets and liabilities

     (21     111   

Other operating assets and liabilities

     3        (51
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,192        1,131   
  

 

 

   

 

 

 

Investing Activities

    

Plant construction and other property additions (including nuclear fuel)

     (1,497     (1,014

Acquisition of DCG

     —          (495

Proceeds from sales of securities

     368        337   

Purchases of securities

     (393     (304

Other

     (3     (23
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,525     (1,499
  

 

 

   

 

 

 

Financing Activities

    

Issuance (repayment) of short-term debt, net

     (481     425   

Repurchase of short-term notes

     (100     —     

Issuance of long-term debt

     1,250        —     

Repayment and repurchase of long-term debt

     (496     (3

Proceeds from sale of interest in merchant solar projects

     117        —     

Contributions from SunEdison to Four Brothers and Three Cedars

     94        —     

Issuance of common stock

     75        295   

Common dividend payments

     (417     (381

Other

     (98     (11
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (56     325   
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (389     (43

Cash and cash equivalents at beginning of period

     607        318   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 218      $ 275   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Significant noncash investing activities:

    

Accrued capital expenditures

   $ 472      $ 353   
  

 

 

   

 

 

 

The accompanying notes are an integral part of Dominion’s Consolidated Financial Statements.

 

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VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
             2016                      2015          
(millions)              

Operating Revenue(1)

   $ 1,890       $ 2,137   
  

 

 

    

 

 

 

Operating Expenses

     

Electric fuel and other energy-related purchases(1)

     536         810   

Purchased electric capacity

     68         94   

Other operations and maintenance:

     

Affiliated suppliers

     101         75   

Other

     349         321   

Depreciation and amortization

     248         238   

Other taxes

     74         74   
  

 

 

    

 

 

 

Total operating expenses

     1,376         1,612   
  

 

 

    

 

 

 

Income from operations

     514         525   
  

 

 

    

 

 

 

Other income

     16         15   

Interest and related charges

     114         108   
  

 

 

    

 

 

 

Income before income tax expense

     416         432   

Income tax expense

     153         163   
  

 

 

    

 

 

 

Net Income

   $ 263       $ 269   
  

 

 

    

 

 

 

 

(1) See Note 17 for amounts attributable to affiliates.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

 

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VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
             2016                     2015          
(millions)             

Net income

   $ 263      $ 269   

Other comprehensive income (loss), net of taxes:

    

Net deferred losses on derivatives-hedging activities(1)

     (9     (4

Changes in unrealized net gains on nuclear decommissioning trust funds(2)

     3        1   

Amounts reclassified to net income:

    

Net derivative losses-hedging activities(3)

     —          1   

Net realized gains on nuclear decommissioning trust funds(4)

     —          (1
  

 

 

   

 

 

 

Total other comprehensive loss

     (6     (3
  

 

 

   

 

 

 

Comprehensive income

   $ 257      $ 266   
  

 

 

   

 

 

 

 

(1) Net of $5 million and $2 million million tax for the three months ended March 31, 2016 and 2015, respectively.
(2) Net of $(1) million tax for both the three months ended March 31, 2016 and 2015.
(3) Net of $— million tax for both the three months ended March 31, 2016 and 2015.
(4) Net of $— million tax for both the three months ended March 31, 2016 and 2015.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

 

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VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

         March 31,    
2016
    December 31,
2015(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 78      $ 18   

Customer receivables (less allowance for doubtful accounts of $18 and $27)

     798        822   

Other receivables (less allowance for doubtful accounts of $1 at both dates)

     95        109   

Affiliated receivables

     3        296   

Inventories (average cost method)

     833        873   

Regulatory assets

     343        326   

Other(2)

     57        60   
  

 

 

   

 

 

 

Total current assets

     2,207        2,504   
  

 

 

   

 

 

 

Investments

    

Nuclear decommissioning trust funds

     1,980        1,945   

Other

     3        3   
  

 

 

   

 

 

 

Total investments

     1,983        1,948   
  

 

 

   

 

 

 

Property, Plant and Equipment

    

Property, plant and equipment

     38,177        37,639   

Accumulated depreciation and amortization

     (11,903     (11,708
  

 

 

   

 

 

 

Total property, plant and equipment, net

     26,274        25,931   
  

 

 

   

 

 

 

Deferred Charges and Other Assets

    

Regulatory assets

     775        667   

Other(2)

     543        515   
  

 

 

   

 

 

 

Total deferred charges and other assets

     1,318        1,182   
  

 

 

   

 

 

 

Total assets

   $ 31,782      $ 31,565   
  

 

 

   

 

 

 

 

 

(1) Virginia Power’s Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.
(2) See Note 17 for amounts attributable to affiliates.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

 

 

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VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

 

         March 31,    
2016
     December 31,
2015(1)
 
(millions)              

LIABILITIES AND SHAREHOLDER’S EQUITY

     

Current Liabilities

     

Securities due within one year

   $ 25       $ 476   

Short-term debt

     1,276         1,656   

Accounts payable

     338         366   

Payables to affiliates

     102         73   

Affiliated current borrowings

     —           376   

Accrued interest, payroll and taxes

     277         190   

Other(2)

     592         593   
  

 

 

    

 

 

 

Total current liabilities

     2,610         3,730   
  

 

 

    

 

 

 

Long-Term Debt

     9,638         8,892   
  

 

 

    

 

 

 

Deferred Credits and Other Liabilities

     

Deferred income taxes and investment tax credits

     4,755         4,654   

Asset retirement obligations

     1,134         1,104   

Regulatory liabilities

     1,996         1,929   

Other(2)

     751         615   
  

 

 

    

 

 

 

Total deferred credits and other liabilities

     8,636         8,302   
  

 

 

    

 

 

 

Total liabilities

     20,884         20,924   
  

 

 

    

 

 

 

Commitments and Contingencies (see Note 15)

     

Common Shareholder’s Equity

     

Common stock – no par(3)

     5,738         5,738   

Other paid-in capital

     1,113         1,113   

Retained earnings

     4,013         3,750   

Accumulated other comprehensive income

     34         40   
  

 

 

    

 

 

 

Total common shareholder’s equity

     10,898         10,641   
  

 

 

    

 

 

 

Total liabilities and shareholder’s equity

   $ 31,782       $ 31,565   
  

 

 

    

 

 

 

 

(1) Virginia Power’s Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.
(2) See Note 17 for amounts attributable to affiliates.
(3) 500,000 shares authorized; 274,723 shares outstanding at March 31, 2016 and December 31, 2015.

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

 

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VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Three Months Ended March 31,

           2016                     2015          
(millions)             

Operating Activities

    

Net income

   $ 263      $ 269   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization (including nuclear fuel)

     294        281   

Deferred income taxes and investment tax credits

     99        67   

Other adjustments

     (8     (7

Changes in:

    

Accounts receivable

     38        (20

Affiliated receivables and payables

     322        (20

Inventories

     40        85   

Prepayments

     8        214   

Deferred fuel expenses, net

     27        (54

Accounts payable

     (3     3   

Accrued interest, payroll and taxes

     87        116   

Other operating assets and liabilities

     4        27   
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,171        961   
  

 

 

   

 

 

 

Investing Activities

    

Plant construction and other property additions

     (604     (583

Purchases of nuclear fuel

     (22     (23

Proceeds from sales of securities

     193        133   

Purchases of securities

     (201     (138

Other

     (13     (11
  

 

 

   

 

 

 

Net cash used in investing activities

     (647     (622
  

 

 

   

 

 

 

Financing Activities

    

Issuance (repayment) of short-term debt, net

     (380     227   

Repayment of affiliated current borrowings, net

     (376     (417

Issuance of long-term debt

     750        —     

Repayment of long-term debt

     (452     —     

Common dividend payments to parent

     —          (149

Other

     (6     1   
  

 

 

   

 

 

 

Net cash used in financing activities

     (464     (338
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     60        1   

Cash and cash equivalents at beginning of period

     18        15   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 78      $ 16   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Significant noncash investing activities:

    

Accrued capital expenditures

   $ 164      $ 139   
  

 

 

   

 

 

 

The accompanying notes are an integral part of Virginia Power’s Consolidated Financial Statements.

 

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DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
             2016                      2015          
(millions)              

Operating Revenue(1)

   $ 431       $ 531   
  

 

 

    

 

 

 

Operating Expenses

     

Purchased gas(1)

     34         74   

Other energy-related purchases

     3         6   

Other operations and maintenance:

     

Affiliated suppliers

     27         21   

Other

     97         53   

Depreciation and amortization

     43         51   

Other taxes

     52         55   
  

 

 

    

 

 

 

Total operating expenses

     256         260   
  

 

 

    

 

 

 

Income from operations

     175         271   
  

 

 

    

 

 

 

Other income

     6         9   

Interest and related charges

     22         17   
  

 

 

    

 

 

 

Income from operations before income taxes

     159         263   

Income tax expense

     61         102   
  

 

 

    

 

 

 

Net Income

   $ 98       $ 161   
  

 

 

    

 

 

 

 

(1) See Note 17 for amounts attributable to related parties.

The accompanying notes are an integral part of Dominion Gas’ Consolidated Financial Statements.

 

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DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
             2016                     2015          
(millions)             

Net income

   $ 98      $ 161   

Other comprehensive income (loss), net of taxes:

    

Net deferred losses on derivatives-hedging activities(1)

     (6     (4

Amounts reclassified to net income:

    

Net derivative gains-hedging activities(2)

     (2     —     

Net pension and other postretirement benefit costs(3)

     —          1   
  

 

 

   

 

 

 

Total other comprehensive loss

     (8     (3
  

 

 

   

 

 

 

Comprehensive income

   $ 90      $ 158   
  

 

 

   

 

 

 

 

(1) Net of $4 million and $2 million tax for the three months ended March 31, 2016 and 2015, respectively.
(2) Net of $2 million and $— million tax for the three months ended March 31, 2016 and 2015, respectively.
(3) Net of $(1) million tax for both the three months ended March 31, 2016 and 2015.

The accompanying notes are an integral part of Dominion Gas’ Consolidated Financial Statements.

 

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DOMINION GAS HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

         March 31,    
2016
    December 31,
2015(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 44      $ 13   

Customer receivables (less allowance for doubtful accounts of $1 at both dates)(2)

     227        219   

Other receivables (less allowance for doubtful accounts of $2 at both dates)(2)

     17        7   

Affiliated receivables

     9        98   

Inventories

     91        78   

Prepayments

     72        88   

Other(2)

     46        63   
  

 

 

   

 

 

 

Total current assets

     506        566   
  

 

 

   

 

 

 

Investments

     104        104   
  

 

 

   

 

 

 

Property, Plant and Equipment

    

Property, plant and equipment

     9,809        9,693   

Accumulated depreciation and amortization

     (2,726     (2,690
  

 

 

   

 

 

 

Total property, plant and equipment, net

     7,083        7,003   
  

 

 

   

 

 

 

Deferred Charges and Other Assets

    

Goodwill

     542        542   

Pension and other postretirement benefit assets(2)

     1,544        1,510   

Other(2)

     611        583   
  

 

 

   

 

 

 

Total deferred charges and other assets

     2,697        2,635   
  

 

 

   

 

 

 

Total assets

   $ 10,390      $ 10,308   
  

 

 

   

 

 

 

 

 

(1) Dominion Gas’ Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.
(2) See Note 17 for amounts attributable to related parties.

The accompanying notes are an integral part of Dominion Gas’ Consolidated Financial Statements.

 

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DOMINION GAS HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

 

         March 31,    
2016
    December 31,
2015(1)
 
(millions)             

LIABILITIES AND EQUITY

    

Current Liabilities

    

Securities due within one year

   $ 400      $ 400   

Short-term debt

     403        391   

Accounts payable

     167        201   

Payables to affiliates

     32        22   

Affiliated current borrowings

     40        95   

Accrued interest, payroll and taxes

     184        183   

Other(2)

     182        183   
  

 

 

   

 

 

 

Total current liabilities

     1,408        1,475   
  

 

 

   

 

 

 

Long-Term Debt

     2,871        2,869   
  

 

 

   

 

 

 

Deferred Credits and Other Liabilities

    

Deferred income taxes and investment tax credits

     2,267        2,214   

Other(2)

     436        432   
  

 

 

   

 

 

 

Total deferred credits and other liabilities

     2,703        2,646   
  

 

 

   

 

 

 

Total liabilities

     6,982        6,990   
  

 

 

   

 

 

 

Commitments and Contingencies (see Note 15)

    

Equity

    

Membership interests

     3,515        3,417   

Accumulated other comprehensive loss(2)

     (107     (99
  

 

 

   

 

 

 

Total equity

     3,408        3,318   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 10,390      $ 10,308   
  

 

 

   

 

 

 

 

(1) Dominion Gas’ Consolidated Balance Sheet at December 31, 2015 has been derived from the audited Consolidated Financial Statements at that date.
(2) See Note 17 for amounts attributable to related parties.

The accompanying notes are an integral part of Dominion Gas’ Consolidated Financial Statements.

 

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DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Three Months Ended March 31,

           2016                     2015          
(millions)             

Operating Activities

    

Net income

   $ 98      $ 161   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Gains on sales of assets

     (5     (70

Depreciation and amortization

     43        51   

Deferred income taxes and investment tax credits

     58        36   

Other adjustments

     —          3   

Changes in:

    

Accounts receivable

     (18     (24

Affiliated receivables and payables

     99        6   

Deferred purchased gas costs, net

     11        16   

Prepayments

     16        102   

Accounts payable

     (25     (33

Accrued interest, payroll and taxes

     1        49   

Other operating assets and liabilities

     (45     (24
  

 

 

   

 

 

 

Net cash provided by operating activities

     233        273   
  

 

 

   

 

 

 

Investing Activities

    

Plant construction and other property additions

     (161     (128

Proceeds from assignments of shale development rights

     5        27   

Other

     (2     (1
  

 

 

   

 

 

 

Net cash used in investing activities

     (158     (102
  

 

 

   

 

 

 

Financing Activities

    

Issuance of short-term debt, net

     12        280   

Repayment of affiliated current borrowings, net

     (55     (345

Distribution payments to parent

     —          (95

Other

     (1     (1
  

 

 

   

 

 

 

Net cash used in financing activities

     (44     (161
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     31        10   

Cash and cash equivalents at beginning of period

     13        9   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 44      $ 19   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Significant noncash investing and financing activities:

    

Accrued capital expenditures

   $ 36      $ 22   
  

 

 

   

 

 

 

The accompanying notes are an integral part of Dominion Gas’ Consolidated Financial Statements.

 

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations

Dominion, headquartered in Richmond, Virginia, is one of the nation’s largest producers and transporters of energy. Dominion’s operations are conducted through various subsidiaries, including Virginia Power and Dominion Gas. Virginia Power is a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and northeastern North Carolina. Dominion Gas is a holding company that conducts business activities through a regulated interstate natural gas transmission pipeline and underground storage system in the Northeast, mid-Atlantic and Midwest states, regulated gas transportation and distribution operations in Ohio, and gas gathering and processing activities primarily in West Virginia, Ohio and Pennsylvania. Dominion Gas’ principal wholly-owned subsidiaries are DTI, East Ohio and Dominion Iroquois.

Note 2. Significant Accounting Policies

As permitted by the rules and regulations of the SEC, the Companies’ accompanying unaudited Consolidated Financial Statements contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015.

In the Companies’ opinion, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly their financial position as of March 31, 2016, their results of operations and cash flows for the three months ended March 31, 2016 and 2015 and Dominion’s statement of equity for the three months ended March 31, 2016. Such adjustments are normal and recurring in nature unless otherwise noted.

The Companies make certain estimates and assumptions in preparing their Consolidated Financial Statements in accordance with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results may differ from those estimates.

The Companies’ accompanying unaudited Consolidated Financial Statements include, after eliminating intercompany transactions and balances, their accounts, those of their respective majority-owned subsidiaries and non-wholly-owned entities in which they have a controlling financial interest. For certain partnership structures, income is allocated based on the liquidation value of the underlying contractual arrangements. As of March 31, 2016, Dominion owns the general partner and 64.6% of the limited partner interests in Dominion Midstream. The public’s ownership interest in Dominion Midstream is reflected as noncontrolling interest in Dominion’s Consolidated Financial Statements. Also, as of March 31, 2016, Dominion owns 50% of the units in and consolidates Four Brothers and Three Cedars. SunEdison’s ownership interest in Four Brothers and Three Cedars, as well as Terra Nova Renewable Partners’ 33% interest in certain of Dominion’s merchant solar projects, is reflected as noncontrolling interest in Dominion’s Consolidated Financial Statements. See Note 3 for further information on transactions with SunEdison.

The results of operations for interim periods are not necessarily indicative of the results expected for the full year. Information for quarterly periods is affected by seasonal variations in sales, rate changes, electric fuel and other energy-related purchases, purchased gas expenses and other factors.

Certain amounts in the Companies’ 2015 Consolidated Financial Statements and Notes have been reclassified to conform to the 2016 presentation for comparative purposes. The reclassifications did not affect the Companies’ net income, total assets, liabilities, equity or cash flows, except for the reclassification of debt issuance costs as discussed in Note 2 to the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015.

Amounts disclosed for Dominion are inclusive of Virginia Power and/or Dominion Gas, where applicable.

Note 3. Acquisitions and Dispositions

Dominion

Proposed Acquisition of Questar

Pursuant to the terms of the Questar Combination announced in February 2016, upon closing, each share of Questar common stock issued and outstanding immediately prior to the closing will be converted automatically into the right to receive $25 in cash per share, or approximately $4.4 billion in total. In addition, Questar’s debt, which currently totals approximately $1.5 billion is expected to remain outstanding. Dominion entered into agreements with several of its lending banks pursuant to which they have unfunded financing commitments to provide a $3.9 billion acquisition facility. In connection with receipt of proceeds from Dominion’s issuance of common stock, the acquisition facility was reduced from $3.9 billion to $3.14 billion in

 

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April 2016. See Note 14 for more information. Dominion intends to permanently finance the transaction in a manner that supports its existing credit ratings targets by issuing a combination of common stock, mandatory convertibles and debt at Dominion, and indirectly through the issuance of securities at Dominion Midstream, the proceeds of which will be applied to pay Dominion for certain assets of Questar, which are, subject to relevant approvals, expected to be contributed to Dominion Midstream.

The transaction requires approval of Questar’s shareholders and clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act. In February 2016, the Federal Trade Commission granted antitrust approval of the Questar Combination under the Hart-Scott-Rodino Act. In March 2016, Questar and Dominion filed for review and approval, as required, from the Utah Public Service Commission and the Wyoming Public Service Commission, and provided information regarding the transaction to the Idaho Public Utilities Commission. The Questar Combination contains certain termination rights for both Dominion and Questar, and provides that, upon termination of the Questar Combination under specified circumstances, Dominion would be required to pay a termination fee of $154 million to Questar and Questar would be required to pay Dominion a termination fee of $99 million. Subject to receipt of Questar shareholder and any required regulatory approvals and meeting closing conditions, Dominion targets closing by the end of 2016.

Sale of Interest in Merchant Solar Projects

In September 2015, Dominion signed an agreement to sell a noncontrolling interest (consisting of 33% of the equity interests) in all of its then currently wholly-owned merchant solar projects, 24 solar projects totaling approximately 425 MW, to SunEdison. In December 2015, the sale of interest in 15 of the solar projects closed for $184 million with the sale of interest in the remaining projects completed in January 2016 for $117 million. Upon closing, SunEdison sold its interest in these projects to Terra Nova Renewable Partners. Terra Nova Renewable Partners has a future option to buy all or a portion of Dominion’s remaining 67% ownership in the projects upon the occurrence of certain events, none of which had occurred as of March 31, 2016 nor are expected to occur in the remainder of 2016.

Non-Wholly-Owned Merchant Solar Projects

Acquisitions of Four Brothers and Three Cedars

In June 2015, Dominion acquired 50% of the units in Four Brothers from SunEdison for $64 million of consideration, consisting of $2 million in cash and a $62 million payable. As of March 31, 2016, a $20 million payable is included in other current liabilities in Dominion’s Consolidated Balance Sheets. Four Brothers’ purpose is to develop and operate four solar projects located in Utah, which will produce and sell electricity and renewable energy credits. The projects are expected to cost approximately $730 million to construct, including the initial acquisition cost. Dominion is obligated to contribute $445 million of capital to fund the construction of the projects and has contributed $301 million through March 31, 2016. The facilities are expected to begin commercial operations by the end of the third quarter of 2016, with generating capacity of approximately 320 MW.

In September 2015, Dominion acquired 50% of the units in Three Cedars from SunEdison for $43 million of consideration, consisting of $6 million in cash and a $37 million payable. As of March 31, 2016, an $18 million payable is included in other current liabilities in Dominion’s Consolidated Balance Sheets. Three Cedars’ purpose is to develop and operate three solar projects located in Utah, which will produce and sell electricity and renewable energy credits. The projects are expected to cost approximately $425 million to construct. Dominion is obligated to contribute $276 million of capital to fund the construction of the projects and has contributed $144 million through March 31, 2016. The facilities are expected to begin commercial operations by the end of the third quarter of 2016, with generating capacity of approximately 210 MW.

Long-term power purchase, interconnection and operation and maintenance agreements have been executed for both Four Brothers and Three Cedars. Dominion expects to claim 99% of the federal investment tax credits on the projects.

Dominion owns 50% of the voting interests in Four Brothers and Three Cedars and has a controlling financial interest over the entities through its rights to control operations. The allocation of the $64 million purchase price for Four Brothers resulted in $89 million of property, plant and equipment and $25 million of noncontrolling interest. The allocation of the $43 million purchase price for Three Cedars resulted in $65 million of property, plant and equipment and $22 million of noncontrolling interest. The noncontrolling interest for each entity was measured at fair value using the discounted cash flow method, with the primary components of the valuation being future cash flows (both incoming and outgoing) and the discount rate. Dominion determined its discount rate based on the cost of capital a utility-scale investor would expect, as well as the cost of capital an individual project developer could achieve via a combination of non-recourse project financing and outside equity partners. The acquired assets of Four Brothers and Three Cedars are included in the Dominion Generation operating segment.

Four Brothers and Three Cedars entered into agreements with SunEdison to provide administrative and support services in connection with the construction of the projects, operation and maintenance of the facilities, and administrative and technical

 

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management services of the solar facilities. Dominion has assumed certain of these agreements from SunEdison and will provide a majority of the administrative and support services as early as May 2016. In addition, Dominion has entered into contracts with SunEdison to provide services related to construction project management and oversight. Costs related to services to be provided under these agreements were immaterial for the three months ended March 31, 2016. Subsequent to Dominion’s acquisition of Four Brothers and Three Cedars through March 31, 2016, SunEdison made contributions to Four Brothers and Three Cedars of $197 million in aggregate, which are reflected as noncontrolling interests in Dominion’s Consolidated Balance Sheets.

In April 2016, SunEdison filed for Chapter 11 bankruptcy; however, this is not expected to have a material adverse effect on Dominion, Four Brothers or Three Cedars.

Acquisition of DCG

In January 2015, Dominion completed the acquisition of 100% of the equity interests of DCG from SCANA Corporation for $497 million in cash, as adjusted for working capital. DCG owns and operates nearly 1,500 miles of FERC-regulated interstate natural gas pipeline in South Carolina and southeastern Georgia. This acquisition supports Dominion’s natural gas expansion into the Southeast. The allocation of the purchase price resulted in $277 million of net property, plant and equipment, $250 million of goodwill, of which approximately $225 million is expected to be deductible for income tax purposes, and $38 million of regulatory liabilities. The goodwill reflects the value associated with enhancing Dominion’s regulated gas position, economic value attributable to future expansion projects as well as increased opportunities for synergies. The acquired assets of DCG are included in the Dominion Energy operating segment.

On March 24, 2015, DCG converted to a limited liability company under the laws of South Carolina and changed its name from Carolina Gas Transmission Corporation to DCG. On April 1, 2015, Dominion contributed 100% of the issued and outstanding membership interests of DCG to Dominion Midstream in exchange for total consideration of $501 million, as adjusted for working capital. Total consideration to Dominion consisted of the issuance of a two-year, $301 million senior unsecured promissory note payable by Dominion Midstream at an annual interest rate of 0.6%, and 5,112,139 common units, valued at $200 million, representing limited partner interests in Dominion Midstream. The number of units was based on the volume weighted average trading price of Dominion Midstream’s common units for the ten trading days prior to April 1, 2015, or $39.12 per unit. Since Dominion consolidates Dominion Midstream for financial reporting purposes, this transaction was eliminated upon consolidation and did not impact Dominion’s financial position or cash flows.

Dominion Gas

Assignments of Shale Development Rights

In December 2013, Dominion Gas closed an agreement with a natural gas producer to convey over time approximately 79,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields. The agreement provided for payments to Dominion Gas, subject to customary adjustments, of up to approximately $200 million over a period of nine years, and an overriding royalty interest in gas produced from the acreage. In March 2015, Dominion Gas and the natural gas producer closed on an amendment to the agreement, which included the immediate conveyance of approximately 9,000 acres of Marcellus Shale development rights and a two year extension of the term of the original agreement. The conveyance of development rights resulted in the recognition of $43 million ($27 million after-tax) of previously deferred revenue to operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income. At March 31, 2016, deferred revenue totaled $36 million. In April 2016, Dominion Gas and the natural gas producer closed on an amendment to the agreement, which included the immediate conveyance of a 32% partial interest in the remaining approximately 70,000 acres. This conveyance will result in the recognition of the remaining $36 million ($22 million after-tax) of previously deferred revenue to operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income.

In March 2015, Dominion Gas conveyed to a natural gas producer approximately 11,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields and received proceeds of $27 million and an overriding royalty interest in gas produced from the acreage. This transaction resulted in a $27 million ($16 million after-tax) gain, included in other operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income.

In November 2014, Dominion Gas closed on an agreement with a natural gas producer to convey over time approximately 24,000 acres of Marcellus Shale development rights underneath one of its natural gas storage fields. In connection with that agreement, in January 2016, Dominion Gas conveyed approximately 2,000 acres of Marcellus Shale development rights and received proceeds of $5 million and an overriding royalty interest in gas produced from the acreage. This transaction resulted in a $5 million ($3 million after-tax) gain, included in other operations and maintenance expense in Dominion Gas’ Consolidated Statements of Income.

 

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Note 4. Operating Revenue

The Companies’ operating revenue consists of the following:

 

    

Three Months Ended

March 31,

 
             2016                      2015          
(millions)              

Dominion

     

Electric sales:

     

Regulated

   $ 1,842       $ 2,112   

Nonregulated

     389         406   

Gas sales:

     

Regulated

     65         116   

Nonregulated

     118         208   

Gas transportation and storage

     415         471   

Other

     92         96   
  

 

 

    

 

 

 

Total operating revenue

   $ 2,921       $ 3,409   
  

 

 

    

 

 

 

Virginia Power

     

Regulated electric sales

   $ 1,842       $ 2,112   

Other

     48         25   
  

 

 

    

 

 

 

Total operating revenue

   $ 1,890       $ 2,137   
  

 

 

    

 

 

 

Dominion Gas

     

Gas sales:

     

Regulated

   $ 29       $ 57   

Nonregulated

     1         3   

Gas transportation and storage

     351         412   

NGL revenue

     17         29   

Other

     33         30   
  

 

 

    

 

 

 

Total operating revenue

   $ 431       $ 531   
  

 

 

    

 

 

 

Note 5. Income Taxes

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

 

     Dominion     Virginia Power     Dominion Gas  

Three Months Ended March 31,

       2016             2015             2016             2015             2016             2015      

U.S. statutory rate

     35.0     35.0     35.0     35.0     35.0     35.0

Increases (reductions) resulting from:

            

State taxes, net of federal benefit

     4.3        2.9        4.2        3.8        3.9        4.0   

Investment tax credits

     (10.9     (0.8     (1.3     —          —          —     

Production tax credits

     (0.8     (0.8     (0.6     (0.4     —          —     

Other, net

     (2.4     (0.6     (0.6     (0.7     (0.1     (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

     25.2     35.7     36.7     37.7     38.8     38.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of March 31, 2016, there have been no material changes in the Companies’ unrecognized tax benefits or possible changes that could reasonably be expected to occur during the next twelve months. See Note 5 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015 for a discussion of these unrecognized tax benefits.

 

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Note 6. Earnings Per Share

The following table presents the calculation of Dominion’s basic and diluted EPS:

 

    

Three Months Ended

March 31,

 
             2016                      2015          
(millions, except EPS)              

Net income attributable to Dominion

   $ 524       $ 536   
  

 

 

    

 

 

 

Average shares of common stock outstanding – Basic

     596.6         587.9   

Net effect of dilutive securities(1)

     1.6         2.0   
  

 

 

    

 

 

 

Average shares of common stock outstanding – Diluted

     598.2         589.9   
  

 

 

    

 

 

 

Earnings Per Common Share – Basic and Diluted

   $ 0.88       $ 0.91   
  

 

 

    

 

 

 

 

(1) Dilutive securities consist primarily of the 2013 Equity Units. See Note 14 in this report and Note 17 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015 for more information.

The 2014 Equity Units are potentially dilutive securities but were excluded from the calculation of diluted EPS for the three months ended March 31, 2016 and 2015, as the dilutive stock price threshold was not met.

Note 7. Accumulated Other Comprehensive Income

Dominion

The following table presents Dominion’s changes in AOCI by component, net of tax:

 

     Deferred Gains
and Losses on
Derivatives-
Hedging
Activities
    Unrealized
Gains and
Losses on
Investment

     Securities     
    Unrecognized
Pension and
Other
Postretirement
Benefit Costs
    Other
Comprehensive
Income (Loss)
From Equity
Method
Investee
        Total      
(millions)                               

Three Months Ended March 31, 2016

          

Beginning balance

   $ (176   $ 504      $ (797   $ (5   $ (474

Other comprehensive income before reclassifications: gains (losses)

     53        15        —          —          68   

Amounts reclassified from AOCI(1): (gains) losses

     (63     (2     8        —          (57
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (10     13        8        —          11   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ (186   $ 517      $ (789   $ (5   $ (463
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended March 31, 2015

          

Beginning balance

   $ (178   $ 548      $ (782   $ (4   $ (416

Other comprehensive income before reclassifications: gains (losses)

     (58     15        —          (1     (44

Amounts reclassified from AOCI(1): (gains) losses

     59        (21     13        —          51   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     1        (6     13        (1     7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ (177   $ 542      $ (769   $ (5   $ (409
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) See table below for details about these reclassifications.

The following table presents Dominion’s reclassifications out of AOCI by component:

 

Details About AOCI Components

  

Amounts Reclassified
From AOCI

   

Affected Line Item in the Consolidated

Statements of Income

(millions)           

Three Months Ended March 31, 2016

    

Deferred (gains) and losses on derivatives-hedging activities:

    

Commodity contracts

   $ (114   Operating revenue
     6      Purchased gas
     3      Electric fuel and other energy-related purchases

Interest rate contracts

     3      Interest and related charges
  

 

 

   
     (102  

Tax

     39      Income tax expense
  

 

 

   
   $ (63  
  

 

 

   

 

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Details About AOCI Components

  

Amounts Reclassified
From AOCI

   

Affected Line Item in the Consolidated

Statements of Income

(millions)           

Unrealized (gains) and losses on investment securities:

    

Realized (gain) loss on sale of securities

   $ (10   Other income

Impairment

     7      Other income
  

 

 

   
     (3  

Tax

     1      Income tax expense
   $ (2  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Prior service (credit) costs

   $ (3   Other operations and maintenance

Actuarial (gains) losses

     17      Other operations and maintenance
  

 

 

   
     14     

Tax

     (6   Income tax expense
  

 

 

   
   $ 8     
  

 

 

   

Three Months Ended March 31, 2015

    

Deferred (gains) and losses on derivatives-hedging activities:

    

Commodity contracts

   $ 92      Operating revenue
     5      Purchased gas
     (1   Electric fuel and other energy-related purchases

Interest rate contracts

     2      Interest and related charges
  

 

 

   
     98     

Tax

     (39   Income tax expense
  

 

 

   
   $ 59     
  

 

 

   

Unrealized (gains) and losses on investment securities:

    

Realized (gain) loss on sale of securities

   $ (39   Other income

Impairment

     6      Other income
  

 

 

   
     (33  

Tax

     12      Income tax expense
  

 

 

   
   $ (21  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Prior service (credit) costs

   $ (3   Other operations and maintenance

Actuarial (gains) losses

     25      Other operations and maintenance
  

 

 

   
     22     

Tax

     (9   Income tax expense
  

 

 

   
   $ 13     
  

 

 

   

 

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Table of Contents

Dominion Gas

The following table presents Dominion Gas’ changes in AOCI by component, net of tax:

 

     Deferred Gains
and Losses on
Derivatives-
Hedging Activities
     Unrecognized
Pension and
Other
Postretirement
Benefit Costs
         Total      

(millions)

        

Three Months Ended March 31, 2016

        

Beginning balance

   $ (17    $ (82    $ (99

Other comprehensive income before reclassifications: gains (losses)

     (6      —           (6

Amounts reclassified from AOCI(1): (gains) losses

     (2      —           (2
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive loss

     (8      —           (8
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (25    $ (82    $ (107
  

 

 

    

 

 

    

 

 

 

Three Months Ended March 31, 2015

        

Beginning balance

   $ (20    $ (66    $ (86

Other comprehensive income before reclassifications: gains (losses)

     (4      —           (4

Amounts reclassified from AOCI(1): (gains) losses

     —           1         1   
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     (4      1         (3
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (24    $ (65    $ (89
  

 

 

    

 

 

    

 

 

 

 

(1) See table below for details about these reclassifications.

The following table presents Dominion Gas’ reclassifications out of AOCI by component:

 

Details About AOCI Components

  

Amounts Reclassified
From AOCI

   

Affected Line Item in the Consolidated

Statements of Income

(millions)           

Three Months Ended March 31, 2016

    

Deferred (gains) and losses on derivatives-hedging activities:

    

Commodity contracts

   $ (4   Operating revenue
  

 

 

   
     (4  

Tax

     2      Income tax expense
  

 

 

   
   $ (2  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Actuarial (gains) losses

   $ 1      Other operations and maintenance
  

 

 

   
     1     

Tax

     (1   Income tax expense
  

 

 

   
   $ —       
  

 

 

   

Three Months Ended March 31, 2015

    

Unrecognized pension and other postretirement benefit costs:

    

Actuarial (gains) losses

   $ 2      Other operations and maintenance
  

 

 

   
     2     

Tax

     (1   Income tax expense
  

 

 

   
   $ 1     
  

 

 

   

Note 8. Fair Value Measurements

The Companies’ fair value measurements are made in accordance with the policies discussed in Note 6 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015. See Note 9 in this report for further information about the Companies’ derivatives and hedge accounting activities.

 

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The Companies enter into certain physical and financial forwards, futures, options and swaps, which are considered Level 3 as they have one or more inputs that are not observable and are significant to the valuation. The discounted cash flow method is used to value Level 3 physical and financial forwards and futures contracts. An option model is used to value Level 3 physical and financial options. The discounted cash flow model for forwards and futures calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return, and credit spreads. The option model calculates mark-to-market valuations using variations of the Black-Scholes option model. The inputs into the models are the forward market prices, implied price volatilities, risk-free rate of return, the option expiration dates, the option strike prices, the original sales prices, and volumes. For Level 3 fair value measurements, forward market prices, credit spreads and implied price volatilities are considered unobservable. The unobservable inputs are developed and substantiated using historical information, available market data, third-party data, and statistical analysis. Periodically, inputs to valuation models are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third-party pricing sources.

The following table presents Dominion’s quantitative information about Level 3 fair value measurements at March 31, 2016. The range and weighted average are presented in dollars for market price inputs and percentages for credit spreads and price volatility.

 

     Fair Value
(millions)
    

Valuation Techniques

  

Unobservable Input

   Range     Weighted
Average(1)
 

Assets

             

Physical and financial forwards and futures:

             

Natural gas(2)

   $ 115       Discounted cash flow    Market price (per Dth) (3)      (2) - 6        —     
         Credit spread (4)      1% - 7     3

FTRs

     4       Discounted cash flow    Market price (per MWh) (3)      (5) - 7        1   

Physical and financial options:

             

Natural gas

     5       Option model    Market price (per Dth) (3)      1 - 6        3   
         Price volatility (5)      18% - 59     22
  

 

 

            

Total assets

   $ 124              
  

 

 

            

Liabilities

             

Physical and financial forwards and futures:

             

Natural gas(2)

   $ 7       Discounted cash flow    Market price (per Dth) (3)      (1) - 3        2   

FTRs

     6       Discounted cash flow    Market price (per MWh) (3)      (3) - 5        1   

Physical and financial options:

             

Natural gas

     2       Option model    Market price (per Dth) (3)      1 - 4        2   
         Price volatility (5)      26% - 59     38
  

 

 

            

Total liabilities

   $ 15              
  

 

 

            

 

(1) Averages weighted by volume.
(2) Includes basis.
(3) Represents market prices beyond defined terms for Levels 1 and 2.
(4) Represents credit spreads unrepresented in published markets.
(5) Represents volatilities unrepresented in published markets.

 

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Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:

 

Significant Unobservable Inputs

  

Position

  

Change to Input

  

Impact on Fair

Value Measurement

Market price    Buy    Increase (decrease)    Gain (loss)
Market price    Sell    Increase (decrease)    Loss (gain)
Price volatility    Buy    Increase (decrease)    Gain (loss)
Price volatility    Sell    Increase (decrease)    Loss (gain)
Credit spread    Asset    Increase (decrease)    Loss (gain)

Recurring Fair Value Measurements

Dominion

The following table presents Dominion’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:

 

         Level 1              Level 2              Level 3              Total      
(millions)                            

At March 31, 2016

           

Assets

           

Derivatives:

           

Commodity

   $ 1       $ 245       $ 124       $ 370   

Interest rate

     —           31         —           31   

Investments(1):

           

Equity securities:

           

U.S.:

           

Large cap

     2,571         —           —           2,571   

Other

     5         —           —           5   

REIT

     67         —           —           67   

Non-U.S.:

           

Large cap

     9         —           —           9   

Fixed income:

           

Corporate debt instruments

     —           464         —           464   

U.S. Treasury securities and agency debentures

     451         219         —           670   

State and municipal

     —           372         —           372   

Other

     —           99         —           99   

Cash equivalents and other

     6         1         —           7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 3,110       $ 1,431       $ 124       $ 4,665   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 124       $ 15       $ 139   

Interest rate

     —           291         —           291   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 415       $ 15       $ 430   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015

           

Assets

           

Derivatives:

           

Commodity

   $ 1       $ 249       $ 114       $ 364   

Interest rate

     —           24         —           24   

 

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Table of Contents
         Level 1              Level 2              Level 3              Total      

Investments(1):

           

Equity securities:

           

U.S.:

           

Large cap

     2,547         —           —           2,547   

Other

     5         —           —           5   

REIT

     63         —           —           63   

Non-U.S.:

           

Large cap

     10         —           —           10   

Fixed income:

           

Corporate debt instruments

     —           437         —           437   

U.S. Treasury securities and agency debentures

     458         201         —           659   

State and municipal

     —           376         —           376   

Other

     —           100         —           100   

Cash equivalents and other

     2         2         —           4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 3,086       $ 1,389       $ 114       $ 4,589   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 141       $ 19       $ 160   

Interest rate

     —           183         —           183   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 324       $ 19       $ 343   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes investments held in the nuclear decommissioning and rabbi trusts.

The following table presents the net change in Dominion’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:

 

    

Three Months Ended

March 31,

 
             2016                      2015          
(millions)              

Beginning balance

   $ 95       $ 107   

Total realized and unrealized gains (losses):

     

Included in earnings

     (7      15   

Included in other comprehensive income (loss)

     3         (11

Included in regulatory assets/liabilities

     17         (24

Settlements

     8         (14

Transfers out of Level 3

     (7      3   
  

 

 

    

 

 

 

Ending balance

   $ 109       $ 76   
  

 

 

    

 

 

 

The following table presents Dominion’s classification of gains and losses included in earnings in the Level 3 fair value category. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three months ended March 31, 2016 and 2015.

 

     Operating
Revenue
     Electric Fuel
and Other
Energy-
Related

Purchases
         Total      
(millions)       

Three Months Ended March 31, 2016

        

Total gains (losses) included in earnings

   $ —         $ (7    $ (7

Three Months Ended March 31, 2015

        

Total gains (losses) included in earnings

     2         13         15   

 

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Virginia Power

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at March 31, 2016. The range and weighted average are presented in dollars for market price inputs and percentages for credit spreads and price volatility.

 

     Fair Value
(millions)
    

Valuation Techniques

  

Unobservable Input

   Range     Weighted
Average(1)
 

Assets

             

Physical and financial forwards and futures:

             

FTRs

   $ 4       Discounted cash flow    Market price (per MWh) (3)      (5) - 7        1   

Natural gas(2)

     111       Discounted cash flow    Market price (per Dth) (3)      (2) - 6        —     
         Credit spread (4)      1% - 7     3

Physical and financial options:

             

Natural gas

     1       Option model    Market price (per Dth) (3)      2 - 6        3   
         Price volatility (5)      18% - 29     21
  

 

 

            

Total assets

   $ 116              
  

 

 

            

Liabilities

             

Physical and financial forwards and futures:

             

FTRs

   $ 6       Discounted cash flow    Market price (per MWh) (3)      (3) - 5        1   
  

 

 

            

Total liabilities

   $ 6              
  

 

 

            

 

(1) Averages weighted by volume.
(2) Includes basis.
(3) Represents market prices beyond defined terms for Levels 1 and 2.
(4) Represents credit spreads unrepresented in published markets.
(5) Represents volatilities unrepresented in published markets.

Sensitivity of the fair value measurements to changes in the significant unobservable inputs is as follows:

 

Significant Unobservable Inputs

  

Position

  

Change to Input

  

Impact on Fair

Value Measurement

Market price    Buy    Increase (decrease)    Gain (loss)
Market price    Sell    Increase (decrease)    Loss (gain)
Credit spread    Asset    Increase (decrease)    Loss (gain)
Price volatility    Buy    Increase (decrease)    Gain (loss)
Price volatility    Sell    Increase (decrease)    Loss (gain)

The following table presents Virginia Power’s assets and liabilities that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:

 

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Table of Contents
         Level 1              Level 2              Level 3              Total      
(millions)                            

At March 31, 2016

           

Assets

           

Derivatives:

           

Commodity

   $ —         $ 14       $ 116       $ 130   

Interest rate

     —           8         —           8   

Investments(1):

           

Equity securities:

           

U.S. large cap

     1,113         —           —           1,113   

REIT

     67         —           —           67   

Fixed income:

           

Corporate debt instruments

     —           250         —           250   

U.S. Treasury securities and agency debentures

     164         99         —           263   

State and municipal

     —           173         —           173   

Other

     —           46         —           46   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,344       $ 590       $ 116       $ 2,050   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 24       $ 6       $ 30   

Interest rate

     —           144         —           144   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 168       $ 6       $ 174   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015

           

Assets

           

Derivatives:

           

Commodity

   $ —         $ 13       $ 101       $ 114   

Interest rate

     —           13         —           13   

Investments(1):

           

Equity securities:

           

U.S. large cap

     1,100         —           —           1,100   

REIT

     63         —           —           63   

Fixed income:

           

Corporate debt instruments

     —           238         —           238   

U.S. Treasury securities and agency debentures

     180         79         —           259   

State and municipal

     —           175         —           175   

Other

     —           34         —           34   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,343       $ 552       $ 101       $ 1,996   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 19       $ 8       $ 27   

Interest rate

     —           59         —           59   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 78       $ 8       $ 86   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes investments held in the nuclear decommissioning and rabbi trusts.

 

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Table of Contents

The following table presents the net change in Virginia Power’s assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:

 

    

Three Months Ended

March 31,

 
             2016                      2015          
(millions)              

Beginning balance

   $ 93       $ 102   

Total realized and unrealized gains (losses):

     

Included in earnings

     (8      14   

Included in regulatory assets/liabilities

     17         (24

Settlements

     8         (14
  

 

 

    

 

 

 

Ending balance

   $ 110       $ 78   
  

 

 

    

 

 

 

The gains and losses included in earnings in the Level 3 fair value category were classified in electric fuel and other energy-related purchases in Virginia Power’s Consolidated Statements of Income for the three months ended March 31, 2016 and 2015. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three months ended March 31, 2016 and 2015.

Dominion Gas

The following table presents Dominion Gas’ assets and liabilities for derivatives that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions:

 

         Level 1              Level 2              Level 3              Total      
(millions)       

At March 31, 2016

  

Assets

  

Commodity

   $ —         $ 6       $ —         $ 6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ —         $ 6       $ —         $ 6   

Liabilities

  

Interest rate

   $ —         $ 23       $ —         $ 23   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 23       $ —         $ 23   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015

  

Assets

  

Commodity

   $ —         $ 5       $ 6       $ 11   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ —         $ 5       $ 6       $ 11   

Liabilities

  

Interest rate

   $ —         $ 14       $ —         $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 14       $ —         $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the net change in Dominion Gas’ assets and liabilities for derivatives measured at fair value on a recurring basis and included in the Level 3 fair value category:

 

    

Three Months Ended

March 31,

 
             2016                      2015          
(millions)              

Beginning balance

   $ 6       $ 2   

Total realized and unrealized gains (losses):

     

Included in earnings

     —           1   

Included in other comprehensive income (loss)

     2         (11

Settlements

     —           (1

Transfers out of Level 3

     (8      9   
  

 

 

    

 

 

 

Ending balance

   $ —         $ —     
  

 

 

    

 

 

 

 

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Table of Contents

The gains and losses included in earnings in the Level 3 fair value category were classified in operating revenue in Dominion Gas’ Consolidated Statements of Income for the three months ended March 31, 2016 and 2015. There were no unrealized gains or losses included in earnings in the Level 3 fair value category relating to assets/liabilities still held at the reporting date for the three months ended March 31, 2016 and 2015.

Fair Value of Financial Instruments

Substantially all of the Companies’ financial instruments are recorded at fair value, with the exception of the instruments described below, which are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of cash and cash equivalents, restricted cash (which is recorded in other current assets), customer and other receivables, short-term debt, affiliated current borrowings, payables to affiliates and accounts payable are representative of fair value because of the short-term nature of these instruments. For the Companies’ financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:

 

    March 31, 2016     December 31, 2015  
    Carrying
      Amount      
    Estimated
Fair
Value(1)
    Carrying
      Amount      
    Estimated
Fair
Value(1)
 
(millions)                        

Dominion

       

Long-term debt, including securities due within one year(2)

  $ 22,581      $ 24,443      $ 21,873      $ 23,210   

Junior subordinated notes(3)

    1,849        1,696        1,340        1,192   

Remarketable subordinated notes(3)

    1,530        1,647        2,080        2,129   
 

 

 

   

 

 

   

 

 

   

 

 

 

Virginia Power

       

Long-term debt, including securities due within one year(3)

  $ 9,663      $ 11,020      $ 9,368      $ 10,400   
 

 

 

   

 

 

   

 

 

   

 

 

 

Dominion Gas

       

Long-term debt, including securities due within one year(3)

  $ 3,271      $ 3,375      $ 3,269      $ 3,299   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issues with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value.
(2) Carrying amount includes amounts which represent the unamortized debt issuance costs, discount and/or premium. At March 31, 2016 and December 31, 2015, includes the valuation of certain fair value hedges associated with fixed rate debt of $19 million and $7 million, respectively.
(3) Carrying amount includes amounts which represent the unamortized debt issuance costs, discount and/or premium.

Note 9. Derivatives and Hedge Accounting Activities

The Companies’ accounting policies and objectives and strategies for using derivative instruments are discussed in Note 2 to the Consolidated Financial Statements in the Companies’ Annual Report on Form 10-K for the year ended December 31, 2015. See Note 8 in this report for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on the Companies’ Consolidated Balance Sheets. Dominion’s derivative contracts include both over-the-counter transactions and those that are executed on an exchange or other trading platform (exchange contracts) and centrally cleared. Dominion Gas’ and Virginia Power’s derivative contracts consist of over-the-counter transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a counterparty. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Certain over-the-counter and exchange contracts contain contractual rights of setoff through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.

In general, most over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral for over-the-counter and exchange contracts include cash, letters of credit, and in some cases other forms of security, none of which are subject to restrictions. Cash collateral is used in the table below to offset derivative assets and liabilities. Certain accounts receivable and accounts payable recognized on the Companies’ Consolidated Balance Sheets, as well as letters of credit and other forms of security, all of which are not included in the tables below, are subject to offset under master netting or similar arrangements and would reduce the net exposure.

 

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Dominion

Balance Sheet Presentation

The tables below present Dominion’s derivative asset and liability balances by type of financial instrument, before and after the effects of offsetting:

 

     March 31, 2016      December 31, 2015  
     Gross
Amounts of
Recognized
Assets
     Gross
Amounts
Offset in the
Consolidated
Balance Sheet
     Net Amounts of
Assets
Presented in the
Consolidated
Balance Sheet
     Gross
Amounts of
Recognized
Assets
     Gross
Amounts
Offset in the
Consolidated
Balance Sheet
     Net Amounts of
Assets Presented
in the
Consolidated
Balance Sheet
 

(millions)

        

Interest rate contracts:

              

Over-the-counter

   $ 31       $ —         $ 31       $ 24       $ —         $ 24   

Commodity contracts:

              

Over-the-counter

     244         —           244         217         —           217   

Exchange

     119         —           119         138         —           138   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives, subject to a master netting or similar arrangement

     394         —           394         379         —           379   

Total derivatives, not subject to a master netting or similar arrangement

     7         —           7         9         —           9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 401       $ —         $ 401       $ 388       $ —         $ 388   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

            March 31, 2016                    December 31, 2015         
            Gross Amounts Not Offset
in the Consolidated
Balance Sheet
                   Gross Amounts Not Offset
in the Consolidated Balance
Sheet
        
     Net Amounts of
Assets Presented
in the
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Received
     Net
Amounts
     Net Amounts of
Assets Presented
in the
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Received
     Net
Amounts
 

(millions)

                       

Interest rate contracts:

                       

Over-the-counter

   $ 31       $ 19       $ —         $ 12       $ 24       $ 22       $ —         $ 2   

Commodity contracts:

                    

Over-the-counter

     244         20         —           224         217         37         —           180   

Exchange

     119         84         —           35         138         82         —           56   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 394       $ 123       $ —         $ 271       $ 379       $ 141       $ —         $ 238   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     March 31, 2016      December 31, 2015  
     Gross
Amounts of
Recognized
Liabilities
     Gross
Amounts
Offset in the
Consolidated
Balance Sheet
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
     Gross
Amounts of
Recognized
Liabilities
     Gross
Amounts
Offset in the
Consolidated
Balance Sheet
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
 

(millions)

        

Interest rate contracts:

              

Over-the-counter

   $ 291       $ —         $ 291       $ 183       $ —         $ 183   

Commodity contracts:

              

Over-the-counter

     48         —           48         70         —           70   

Exchange

     84         —           84         82         —           82   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives, subject to a master netting or similar arrangement

     423         —           423         335         —           335   

Total derivatives, not subject to a master netting or similar arrangement

     7         —           7         8         —           8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 430       $ —         $ 430       $ 343       $ —         $ 343   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

            March 31, 2016                    December 31, 2015         
            Gross Amounts Not Offset
in the Consolidated
Balance Sheet
                   Gross Amounts Not Offset
in the Consolidated Balance
Sheet
        
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Paid
     Net
Amounts
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Paid
     Net
Amounts
 

(millions)

                       

Interest rate contracts:

                       

Over-the-counter

   $ 291       $ 19       $ —         $ 272       $ 183       $ 22       $ —         $ 161   

Commodity contracts:

                       

Over-the-counter

     48         20         —           28         70         37         —           33   

Exchange

     84         84         —           —           82         82         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 423       $ 123       $ —         $ 300       $ 335       $ 141       $ —         $ 194   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Volumes

The following table presents the volume of Dominion’s derivative activity at March 31, 2016. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.

 

     Current      Noncurrent  

Natural Gas (bcf):

     

Fixed price(1)

     99         29   

Basis

     229         591   

Electricity (MWh):

     

Fixed price

     13,212,481         1,940,000   

FTRs

     14,308,210         —     

Capacity (MW)

     3,050         —     

Liquids (Gal)(2)

     76,692,000         —     

Interest rate

   $ 2,200,000,000       $ 3,100,000,000   

 

(1) Includes options.
(2) Includes NGLs and oil.

 

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Ineffectiveness and AOCI

For the three months ended March 31, 2016 and 2015, gains or losses on hedging instruments determined to be ineffective and amounts excluded from the assessment of effectiveness were not material. Amounts excluded from the assessment of effectiveness include gains or losses attributable to changes in the time value of options and changes in the differences between spot prices and forward prices.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Dominion’s Consolidated Balance Sheet at March 31, 2016:

 

     AOCI
After-Tax
     Amounts Expected to be
Reclassified to Earnings
During the Next 12 Months
After-Tax
     Maximum Term  
(millions)                     

Commodities:

        

Gas

   $ (7    $ (7      24 months   

Electricity

     120         119         21 months   

Other

     4         4         12 months   

Interest rate

     (303      (15      384 months   
  

 

 

    

 

 

    

Total

   $ (186    $ 101      
  

 

 

    

 

 

    

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

 

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Table of Contents

Fair Value and Gains and Losses on Derivative Instruments

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

 

     Fair Value –
Derivatives under
Hedge

Accounting
     Fair Value –
Derivatives not under
Hedge

Accounting
     Total Fair Value  
(millions)                     

At March 31, 2016

        

ASSETS

        

Current Assets

        

Commodity

   $ 96       $ 148       $ 244   

Interest rate

     16         —           16   
  

 

 

    

 

 

    

 

 

 

Total current derivative assets(1)

     112         148         260   
  

 

 

    

 

 

    

 

 

 

Noncurrent Assets

        

Commodity

     3         123         126   

Interest rate

     15         —           15   
  

 

 

    

 

 

    

 

 

 

Total noncurrent derivative assets(2)

     18         123         141   
  

 

 

    

 

 

    

 

 

 

Total derivative assets

   $ 130       $ 271       $ 401   
  

 

 

    

 

 

    

 

 

 

LIABILITIES

        

Current Liabilities

        

Commodity

   $ 26       $ 96       $ 122   

Interest rate

     148         —           148   
  

 

 

    

 

 

    

 

 

 

Total current derivative liabilities(3)

     174         96         270   
  

 

 

    

 

 

    

 

 

 

Noncurrent Liabilities

        

Commodity

     1         16         17   

Interest Rate

     143         —           143   
  

 

 

    

 

 

    

 

 

 

Total noncurrent derivative liabilities(4)

     144         16         160   
  

 

 

    

 

 

    

 

 

 

Total derivative liabilities

   $ 318       $ 112       $ 430   
  

 

 

    

 

 

    

 

 

 

At December 31, 2015

        

ASSETS

        

Current Assets

        

Commodity

   $ 101       $ 151       $ 252   

Interest rate

     3         —           3   
  

 

 

    

 

 

    

 

 

 

Total current derivative assets(1)

     104         151         255   
  

 

 

    

 

 

    

 

 

 

Noncurrent Assets

        

Commodity

     3         109         112   

Interest rate

     21         —           21   
  

 

 

    

 

 

    

 

 

 

Total noncurrent derivative assets(2)

     24         109         133   
  

 

 

    

 

 

    

 

 

 

Total derivative assets

   $ 128       $ 260       $ 388   
  

 

 

    

 

 

    

 

 

 

LIABILITIES

        

Current Liabilities

        

Commodity

   $ 32       $ 116       $ 148   

Interest rate

     164         —           164   
  

 

 

    

 

 

    

 

 

 

Total current derivative liabilities(3)

     196         116         312   
  

 

 

    

 

 

    

 

 

 

Noncurrent Liabilities

        

Commodity

     —           12         12   

Interest rate

     19         —           19   
  

 

 

    

 

 

    

 

 

 

Total noncurrent derivative liabilities(4)

     19         12         31   
  

 

 

    

 

 

    

 

 

 

Total derivative liabilities

   $ 215       $ 128       $ 343   
  

 

 

    

 

 

    

 

 

 

 

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(1) Current derivative assets are presented in other current assets in Dominion’s Consolidated Balance Sheets.
(2) Noncurrent derivative assets are presented in other deferred charges and other assets in Dominion’s Consolidated Balance Sheets.
(3) Current derivative liabilities are presented in other current liabilities in Dominion’s Consolidated Balance Sheets.
(4) Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in Dominion’s Consolidated Balance Sheets.

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

 

Derivatives in Cash Flow Hedging Relationships

   Amount of Gain
(Loss) Recognized
in AOCI on
Derivatives (Effective
Portion) (1)
     Amount of Gain
(Loss) Reclassified
From AOCI to

Income
     Increase
(Decrease) in
Derivatives
Subject to
Regulatory
Treatment(2)
 
(millions)                     

Three Months Ended March 31, 2016

        

Derivative type and location of gains (losses):

        

Commodity:

        

Operating revenue

      $ 114      

Purchased gas

        (6   

Electric fuel and other energy-related purchases

        (3   
  

 

 

    

 

 

    

 

 

 

Total commodity

   $ 173       $ 105       $ —     
  

 

 

    

 

 

    

 

 

 

Interest rate(3)

     (87      (3      (133
  

 

 

    

 

 

    

 

 

 

Total

   $ 86       $ 102       $ (133
  

 

 

    

 

 

    

 

 

 

Three Months Ended March 31, 2015

        

Derivative type and location of gains (losses):

        

Commodity:

        

Operating revenue

      $ (92   

Purchased gas

        (5   

Electric fuel and other energy-related purchases

        1      
  

 

 

    

 

 

    

 

 

 

Total commodity

   $ (41    $ (96    $ 3   
  

 

 

    

 

 

    

 

 

 

Interest rate(3)

     (58      (2      (49
  

 

 

    

 

 

    

 

 

 

Total

   $ (99    $ (98    $ (46
  

 

 

    

 

 

    

 

 

 

 

(1) Amounts deferred into AOCI have no associated effect in Dominion’s Consolidated Statements of Income.
(2) Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in Dominion’s Consolidated Statements of Income.
(3) Amounts recorded in Dominion’s Consolidated Statements of Income are classified in interest and related charges.

 

     Amount of Gain (Loss) Recognized
in Income on Derivatives(1)
 
    

Three Months Ended

March 31,

 

Derivatives Not Designated as Hedging Instruments

   2016      2015  
(millions)              

Derivative type and location of gains (losses):

     

Commodity:

     

Operating revenue

   $ 2       $     3   

Purchased gas

     —           (2

Electric fuel and other energy-related purchases

     (23      6   
  

 

 

    

 

 

 

Total

   $ (21    $ 7   
  

 

 

    

 

 

 

 

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

 

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Table of Contents

Virginia Power

Balance Sheet Presentation

The tables below present Virginia Power’s derivative asset and liability balances by type of financial instrument, before and after the effects of offsetting:

 

     March 31, 2016      December 31, 2015  
     Gross
Amounts of
Recognized
Assets
     Gross
Amounts
Offset in the
Consolidated
Balance Sheet
     Net Amounts of
Assets
Presented in the
Consolidated
Balance Sheet
     Gross
Amounts of
Recognized
Assets
     Gross
Amounts
Offset in the
Consolidated
Balance Sheet
     Net Amounts of
Assets Presented
in the
Consolidated
Balance Sheet
 

(millions)

        

Interest rate contracts:

                 

Over-the-counter

   $ 8       $ —         $ 8       $ 13       $ —         $ 13   

Commodity contracts:

              

Over-the-counter

     115         —           115         101         —           101   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives, subject to a master netting or similar arrangement

     123         —           123         114         —           114   

Total derivatives, not subject to a master netting or similar arrangement

     15         —           15         13         —           13   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 138       $ —         $ 138       $ 127       $ —         $ 127   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

          March 31, 2016                 December 31, 2015        
          Gross Amounts Not Offset
in the Consolidated
Balance Sheet
                Gross Amounts Not Offset
in the Consolidated
Balance Sheet
       
    Net Amounts of
Assets Presented
in the
Consolidated
Balance Sheet
    Financial
Instruments
    Cash
Collateral
Received
    Net
Amounts
    Net Amounts of
Assets Presented
in the
Consolidated
Balance Sheet
    Financial
Instruments
    Cash
Collateral
Received
    Net
Amounts
 
(millions)                        

Interest rate contracts:

             

Over-the-counter

  $ 8      $ 3      $ —        $ 5      $ 13      $ 10      $ —        $ 3   

Commodity contracts:

               

Over-the-counter

    115        4        —          111        101        3        —          98   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 123      $ 7      $ —        $ 116      $ 114      $ 13      $ —        $ 101   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     March 31, 2016      December 31, 2015  
     Gross
Amounts of
Recognized
Liabilities
     Gross
Amounts
Offset in the
Consolidated
Balance Sheet
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
     Gross
Amounts of
Recognized
Liabilities
     Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
 

(millions)

        

Interest rate contracts:

                 

Over-the-counter

   $ 144       $ —         $ 144       $ 59       $ —         $ 59   

Commodity contracts:

              

Over-the-counter

     15         —           15         5         —           5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives, subject to a master netting or similar arrangement

     159         —           159         64         —           64   

Total derivatives, not subject to a master netting or similar arrangement

     15         —           15         22         —           22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 174       $ —         $ 174       $ 86       $ —         $ 86   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
            March 31, 2016                    December 31, 2015         
            Gross Amounts Not Offset
in the Consolidated
Balance Sheet
                   Gross Amounts Not Offset
in the Consolidated
Balance Sheet
        
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Paid
     Net
Amounts
     Net Amounts of
Liabilities
Presented in the
Consolidated
Balance Sheet
     Financial
Instruments
     Cash
Collateral
Paid
     Net
Amounts
 
(millions)                                                        

Interest rate contracts:

                       

Over-the-counter

   $ 144       $ 3       $ —         $ 141       $ 59       $ 10       $ —         $ 49   

Commodity contracts:

                       

Over-the-counter

     15         4         —           11         5         3         —           2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 159       $ 7       $ —         $ 152       $ 64       $ 13       $ —         $ 51   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Volumes

The following table presents the volume of Virginia Power’s derivative activity at March 31, 2016. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions, except in the case of offsetting transactions, for which they represent the absolute value of the net volume of their long and short positions.

 

     Current      Noncurrent  

Natural Gas (bcf):

     

Fixed price(1)

     36         17   

Basis

     106         545   

Electricity (MWh):

     

FTRs

     11,952,866         —     

Capacity (MW)

     3,050         —     

Interest rate

   $ 700,000,000       $ 1,100,000,000   

 

(1) Includes options.

Ineffectiveness and AOCI

For the three months ended March 31, 2016 and 2015, gains or losses on hedging instruments determined to be ineffective were not material.

The following table presents selected information related to gains (losses) on cash flow hedges included in AOCI in Virginia Power’s Consolidated Balance Sheet at March 31, 2016:

 

     AOCI
After-Tax
     Amounts Expected to be
Reclassified to Earnings
During the Next 12 Months
After-Tax
     Maximum Term  
(millions)                     

Interest rate

   $ (15      (1      384 months   
  

 

 

    

 

 

    

Total

   $ (15    $ (1   
  

 

 

    

 

 

    

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

 

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Table of Contents

Fair Value and Gains and Losses on Derivative Instruments

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

 

     Fair Value –
Derivatives under
Hedge
Accounting
     Fair Value –
Derivatives not under
Hedge

Accounting
     Total Fair Value  
(millions)                     

At March 31, 2016

        

ASSETS

        

Current Assets

        

Commodity

   $ —         $ 17       $ 17   

Interest rate

     8         —           8   
  

 

 

    

 

 

    

 

 

 

Total current derivative assets(1)

     8         17         25   
  

 

 

    

 

 

    

 

 

 

Noncurrent Assets

        

Commodity

     —           113         113   
  

 

 

    

 

 

    

 

 

 

Total noncurrent derivative assets(2)

     —           113         113   
  

 

 

    

 

 

    

 

 

 

Total derivative assets

   $ 8       $ 130       $ 138   
  

 

 

    

 

 

    

 

 

 

LIABILITIES

        

Current Liabilities

        

Commodity

   $ —         $ 20       $ 20   

Interest rate

     40         —           40   
  

 

 

    

 

 

    

 

 

 

Total current derivative liabilities(3)

     40