10-Q 1 d289364d10q.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 September 30, 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 October 15, 2016, the latest practicable date for determination, Dominion Resources, Inc. had 626,750,459 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      84   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      98   

Item 4.

  Controls and Procedures      100   
  PART II. Other Information   

Item 1.

  Legal Proceedings      101   

Item 1A.

  Risk Factors      101   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      102   

Item 6.

  Exhibits      103   

 

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
2016 Equity Units    Dominion’s 2016 Series A Equity Units issued in August 2016
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 and Southern Company Gas
BACT    Best available control technology
bcf    Billion cubic feet
bcfe    Billion cubic feet equivalent
BREDL    Blue Ridge Environmental Defense League
Brunswick County    A 1,358 MW combined cycle, natural gas-fired power station in Brunswick County, Virginia
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
Contribution Agreement    Contribution, Conveyance and Assumption Agreement between Dominion and Dominion Midstream dated October 28, 2016
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.
DOE    Department of Energy
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
Dominion Questar    The legal entity, Dominion Questar Corporation (formerly known as Questar Corporation), one or more of its consolidated subsidiaries, or operating segments, or the entirety of Dominion Questar Corporation and its consolidated subsidiaries

 

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Table of Contents

Abbreviation or Acronym

  

Definition

Dominion Questar Combination    Agreement and plan of merger entered on January 31, 2016 between Dominion and Dominion Questar in which Dominion Questar became a wholly-owned subsidiary of Dominion upon closing on September 16, 2016
DRS    Dominion Resources Services, Inc.
DSM    Demand-side management
Dth    Dekatherm
DTI    Dominion Transmission, Inc.
Duke    The legal entity, Duke Energy Corporation, one or more of its consolidated subsidiaries, or operating segments, or the entirety of Duke Energy Corporation and its consolidated subsidiaries
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
Four Brothers    Four Brothers Solar, LLC, a limited liability company owned by Dominion and Four Brothers Holdings, LLC, a wholly-owned subsidiary of NRG effective November 2016
Fowler Ridge    A wind-turbine facility joint venture between Dominion and BP Wind Energy North America Inc. in Benton County, Indiana
FTA    Free Trade Agreement
FTRs    Financial transmission rights
GAAP    United States 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 NRG effective November 2016
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 NRG effective November 2016
Iroquois    Iroquois Gas Transmission System, L.P.
ISO-NE    Independent System Operator New England
July 2016 hybrids    2016 Series A Enhanced Junior Subordinated Notes due 2076
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
Local 50    International Brotherhood of Electrical Workers Local 50
Local 69    Local 69, Utility Workers Union of America, United Gas Workers
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
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
NOx    Nitrogen oxide
North Carolina Commission    North Carolina Utilities Commission
NRC    Nuclear Regulatory Commission

 

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Table of Contents

Abbreviation or Acronym

  

Definition

NRG    The legal entity, NRG Energy, Inc., one or more of its consolidated subsidiaries (including, effective November 2016, Four Brothers Holdings, LLC, Granite Mountain Renewables, LLC and Iron Springs Renewables, LLC) or operating segments, or the entirety of NRG Energy, Inc. and its consolidated subsidiaries
NSPS    New Source Performance Standards
NYSE    New York Stock Exchange
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.
ppb    Parts-per-billion
PREP    Pipeline Replacement and Expansion Program, a program of replacing, upgrading and expanding natural gas utility infrastructure deployed by Hope
PSD    Prevention of Significant Deterioration
PSMP    Pipeline Safety Management Program deployed by East Ohio
Questar Gas    Questar Gas Company
Questar Pipeline    Questar Pipeline, LLC (successor by statutory conversion to and formerly known as Questar Pipeline Company), one or more of its consolidated subsidiaries, or the entirety of Questar Pipeline, LLC and its consolidated subsidiaries
REIT    Real estate investment trust
Rider BW    A rate adjustment clause associated with the recovery of costs related to Brunswick County
Rider U    A rate adjustment clause associated with the recovery of new underground distribution facilities
Rider US-2    A rate adjustment clause associated with the recovery of costs related to Woodland, Scott Solar and Whitehouse
Riders C1A and C2A    Rate adjustment clauses associated with the recovery of costs related to certain DSM programs approved in DSM cases
ROE    Return on equity
RSN    Remarketable subordinated note
Scott Solar    An approximately 17 MW utility-scale solar power station under construction in Powhatan County, Virginia
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, through November 2016, 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
Utah Commission    Public Service Commission of Utah
VDEQ    Virginia Department of Environmental Quality
VEBA    Voluntary Employees’ Beneficiary Association
VIE    Variable interest entity
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
West Virginia Commission    Public Service Commission of West Virginia
White River Hub    White River Hub, LLC, a FERC-regulated transporter of natural gas in western Colorado
Whitehouse    An approximately 20 MW utility-scale solar power station under construction in Louisa County, Virginia
Woodland    An approximately 19 MW utility-scale solar power station under construction in Isle of Wight County, Virginia
Wyoming Commission    Wyoming Public Service Commission

 

5


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DOMINION RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
         2016             2015              2016              2015      
(millions, except per share amounts)                           

Operating Revenue

   $ 3,132      $ 2,971       $ 8,651       $ 9,127   
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating Expenses

          

Electric fuel and other energy-related purchases

     606        636         1,791         2,180   

Purchased (excess) electric capacity

     (6     75         107         259   

Purchased gas

     77        85         252         446   

Other operations and maintenance

     765        564         2,133         1,875   

Depreciation, depletion and amortization

     400        355         1,112         1,037   

Other taxes

     145        133         448         432   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total operating expenses

     1,987        1,848         5,843         6,229   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income from operations

     1,145        1,123         2,808         2,898   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other income

     63        11         189         127   

Interest and related charges

     250        230         715         674   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income from operations including noncontrolling interests before income tax expense

     958        904         2,282         2,351   

Income tax expense

     230        305         561         794   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net Income Including Noncontrolling Interests

     728        599         1,721         1,557   

Noncontrolling Interests

     38        6         55         15   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net Income Attributable to Dominion

   $ 690      $ 593       $ 1,666       $ 1,542   
  

 

 

   

 

 

    

 

 

    

 

 

 

Earnings Per Common Share

          

Net income attributable to Dominion - Basic

   $ 1.10      $ 1.00       $ 2.72       $ 2.61   

Net income attributable to Dominion - Diluted

     1.10        1.00         2.71         2.60   
  

 

 

   

 

 

    

 

 

    

 

 

 

Dividends Declared Per Common Share

   $ 0.7000      $ 0.6475       $ 2.1000       $ 1.9425   
  

 

 

   

 

 

    

 

 

    

 

 

 

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
September 30,
    Nine Months Ended
September 30,
 
         2016             2015             2016             2015      
(millions)                         

Net income including noncontrolling interests

   $ 728      $ 599      $ 1,721      $ 1,557   

Other comprehensive income (loss), net of taxes:

        

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

     14        (7     56        25   

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

     31        (59     72        (55

Changes in unrecognized pension and other postretirement benefit costs(3)

     15        (9     15        (6

Amounts reclassified to net income:

        

Net derivative gains-hedging activities(4)

     (34     (53     (141     (53

Net realized gains on investment securities(5)

     (13     (2     (23     (35

Net pension and other postretirement benefit costs(6)

     9        14        25        39   

Changes in other comprehensive income (loss) from equity method investees(7)

     —          1        (1     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     22        (115     3        (85
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income including noncontrolling interests

     750        484        1,724        1,472   

Comprehensive income attributable to noncontrolling interests

     38        6        55        15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Dominion

   $ 712      $ 478      $ 1,669      $ 1,457   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Net of $(8) million and $— million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $(34) million and $(20) million tax for the nine months ended September 30, 2016 and 2015, respectively.
(2) Net of $(18) million and $55 million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $(43) million and $50 million tax for the nine months ended September 30, 2016 and 2015, respectively.
(3) Net of $(10) million and $(9) million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $(10) million and $(6) million tax for the nine months ended September 30, 2016 and 2015, respectively.
(4) Net of $21 million and $30 million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $88 million and $34 million tax for the nine months ended September 30, 2016 and 2015, respectively.
(5) Net of $7 million and $— million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $13 million and $20 million tax for the nine months ended September 30, 2016 and 2015, respectively.
(6) Net of $(4) million and $(7) million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $(16) million and $(25) million tax for the nine months ended September 30, 2016 and 2015, respectively.
(7) Net of $— million and $(1) million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $— million tax for both the nine months ended September 30, 2016 and 2015.

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)

 

          September 30,     
2016
         December 31,     
2015(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 251      $ 607   

Customer receivables (less allowance for doubtful accounts of $18 and $32)

     1,259        1,200   

Other receivables (less allowance for doubtful accounts of $3 and $2)

     133        169   

Inventories

     1,516        1,348   

Prepayments

     147        198   

Other

     493        667   
  

 

 

   

 

 

 

Total current assets

     3,799        4,189   
  

 

 

   

 

 

 

Investments

    

Nuclear decommissioning trust funds

     4,427        4,183   

Investment in equity method affiliates

     1,498        1,320   

Other

     299        271   
  

 

 

   

 

 

 

Total investments

     6,224        5,774   
  

 

 

   

 

 

 

Property, Plant and Equipment

    

Property, plant and equipment

     68,282        57,776   

Accumulated depreciation, depletion and amortization

     (19,394     (16,222
  

 

 

   

 

 

 

Total property, plant and equipment, net

     48,888        41,554   
  

 

 

   

 

 

 

Deferred Charges and Other Assets

    

Goodwill

     6,405        3,294   

Pension and other postretirement benefit assets

     1,095        943   

Regulatory assets

     2,143        1,865   

Other

     1,045        1,029   
  

 

 

   

 

 

 

Total deferred charges and other assets

     10,688        7,131   
  

 

 

   

 

 

 

Total assets

   $ 69,599      $ 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)

 

          September 30,     
2016
         December 31,     
2015(1)
 
(millions)             

LIABILITIES AND EQUITY

    

Current Liabilities

    

Securities due within one year

   $ 2,931      $ 1,825   

Short-term debt

     3,097        3,509   

Accounts payable

     685        726   

Accrued interest, payroll and taxes

     800        515   

Other(2)

     1,514        1,544   
  

 

 

   

 

 

 

Total current liabilities

     9,027        8,119   
  

 

 

   

 

 

 

Long-Term Debt

    

Long-term debt

     23,356        20,048   

Junior subordinated notes

     2,980        1,340   

Remarketable subordinated notes

     2,371        2,080   
  

 

 

   

 

 

 

Total long-term debt

     28,707        23,468   
  

 

 

   

 

 

 

Deferred Credits and Other Liabilities

    

Deferred income taxes and investment tax credits

     8,675        7,414   

Asset retirement obligations

     2,153        1,887   

Regulatory liabilities

     2,597        2,285   

Other

     2,248        1,873   
  

 

 

   

 

 

 

Total deferred credits and other liabilities

     15,673        13,459   
  

 

 

   

 

 

 

Total liabilities

     53,407        45,046   
  

 

 

   

 

 

 

Commitments and Contingencies (see Note 15)

    

Equity

    

Common stock – no par(3)

     8,592        6,680   

Retained earnings

     6,837        6,458   

Accumulated other comprehensive loss

     (471     (474
  

 

 

   

 

 

 

Total common shareholders’ equity

     14,958        12,664   
  

 

 

   

 

 

 

Noncontrolling interests

     1,234        938   
  

 

 

   

 

 

 

Total equity

     16,192        13,602   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 69,599      $ 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; 627 million shares and 596 million shares outstanding at September 30, 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
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

          1,666          1,666        55        1,721   

Contributions from SunEdison to Four Brothers and Three Cedars

              —          178        178   

Sale of interest in merchant solar projects

        22            22        117        139   

Purchase of Dominion Midstream common units

        (3         (3     (14     (17

Issuance of common stock

     31         2,079            2,079          2,079   

Stock awards (net of change in unearned compensation)

        10            10          10   

Present value of stock purchase contract payments related to RSNs

        (191         (191       (191

Dividends and distributions

          (1,287       (1,287     (39     (1,326

Other comprehensive income, net of tax

            3        3          3   

Other

        (5         (5     (1     (6
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

September 30, 2016

     627       $ 8,592      $ 6,837      $ (471   $ 14,958      $ 1,234      $ 16,192   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

Nine Months Ended September 30,

   2016     2015  
(millions)             

Operating Activities

    

Net income including noncontrolling interests

   $ 1,721      $ 1,557   

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

    

Depreciation, depletion and amortization (including nuclear fuel)

     1,325        1,250   

Deferred income taxes and investment tax credits

     481        703   

Gains on the sales of assets and equity method investment in Iroquois

     (50     (123

Other adjustments

     (78     (1

Changes in:

    

Accounts receivable

     19        229   

Inventories

     (10     (3

Deferred fuel and purchased gas costs, net

     84        70   

Prepayments

     71        45   

Accounts payable

     (89     (222

Accrued interest, payroll and taxes

     205        (13

Margin deposit assets and liabilities

     1        205   

Other operating assets and liabilities

     (294     (244
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,386        3,453   
  

 

 

   

 

 

 

Investing Activities

    

Plant construction and other property additions (including nuclear fuel)

     (4,536     (3,632

Acquisition of Dominion Questar, net of cash acquired

     (4,372     —     

Acquisition of solar development projects

     (21     (278

Acquisition of DCG

     —          (497

Proceeds from sales of securities

     1,009        937   

Purchases of securities

     (1,065     (921

Proceeds from assignments of shale development rights

     10        80   

Other

     (54     (39
  

 

 

   

 

 

 

Net cash used in investing activities

     (9,029     (4,350
  

 

 

   

 

 

 

Financing Activities

    

Repayment of short-term debt, net

     (713     (220

Issuance of short-term notes

     1,200        —     

Repayment and repurchase of short-term notes

     (600     —     

Issuance and remarketing of long-term debt

     5,730        2,262   

Repayment and repurchase of long-term debt

     (1,169     (675

Proceeds from sale of interest in merchant solar projects

     117        —     

Contributions from SunEdison to Four Brothers and Three Cedars

     178        —     

Issuance of common stock

     2,079        717   

Common dividend payments

     (1,287     (1,150

Other

     (248     (117
  

 

 

   

 

 

 

Net cash provided by financing activities

     5,287        817   
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (356     (80

Cash and cash equivalents at beginning of period

     607        318   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 251      $ 238   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Significant noncash investing and financing activities(1)(2):

    

Accrued capital expenditures

   $ 341      $ 389   

Dominion Midstream’s acquisition of a noncontrolling partnership interest in Iroquois in exchange for issuance of Dominion Midstream common units

     —          216   
  

 

 

   

 

 

 

 

(1) See Note 3 for noncash activities related to the acquisitions of Four Brothers and Three Cedars in 2015.
(2) See Note 14 for noncash activities related to the remarketing of RSNs in 2016.

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

 

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Table of Contents

VIRGINIA ELECTRIC AND POWER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
           2016                 2015                  2016                  2015        
(millions)                           

Operating Revenue(1)

   $ 2,211      $ 2,058       $ 5,877       $ 6,008   
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating Expenses

          

Electric fuel and other energy-related purchases(1)

     516        554         1,527         1,861   

Purchased (excess) electric capacity

     (6     75         107         259   

Other operations and maintenance:

          

Affiliated suppliers

     73        64         238         208   

Other

     370        311         1,041         1,008   

Depreciation and amortization

     270        244         765         713   

Other taxes

     74        69         218         212   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total operating expenses

     1,297        1,317         3,896         4,261   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income from operations

     914        741         1,981         1,747   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other income

     13        13         47         49   

Interest and related charges

     118        116         345         332   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income before income tax expense

     809        638         1,683         1,464   

Income tax expense

     306        253         637         564   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net Income

   $ 503      $ 385       $ 1,046       $ 900   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(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
September 30,
    Nine Months Ended
September 30,
 
         2016             2015             2016             2015      
(millions)                         

Net income

   $ 503      $ 385      $ 1,046      $ 900   

Other comprehensive income (loss), net of taxes:

        

Net deferred losses on derivatives-hedging activities(1)

     (1     (6     (16     (3

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

     4        (11     10        (10

Amounts reclassified to net income:

        

Net derivative losses-hedging activities(3)

     —          —          —            1   

Net realized gains on nuclear decommissioning trust funds(4)

     (1     (1     (2     (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     2        (18     (8     (16
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 505      $ 367      $ 1,038      $ 884   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Net of $1 million and $3 million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $10 million and $1 million tax for the nine months ended September 30, 2016 and 2015, respectively.
(2) Net of $(2) million and $5 million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $(6) million and$5 million tax for the nine months ended September 30, 2016 and 2015, respectively.
(3) Net of $— million tax for both the three months ended September 30, 2016 and 2015, and net of $(1) million and $— million tax for the nine months ended September 30, 2016 and 2015, respectively.
(4) Net of $1 million and $2 million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $2 million and $3 million tax for the nine months ended September 30, 2016 and 2015, respectively.

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)

 

          September 30,     
2016
    December 31,
2015(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 18      $ 18   

Customer receivables (less allowance for doubtful accounts of $10 and $27)

     937        822   

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

     87        109   

Affiliated receivables

     1        296   

Inventories (average cost method)

     836        873   

Prepayments

     23        38   

Regulatory assets

     197        326   

Other(2)

     33        22   
  

 

 

   

 

 

 

Total current assets

     2,132        2,504   
  

 

 

   

 

 

 

Investments

    

Nuclear decommissioning trust funds

     2,074        1,945   

Other

     3        3   
  

 

 

   

 

 

 

Total investments

     2,077        1,948   
  

 

 

   

 

 

 

Property, Plant and Equipment

    

Property, plant and equipment

     39,428        37,639   

Accumulated depreciation and amortization

     (12,314     (11,708
  

 

 

   

 

 

 

Total property, plant and equipment, net

     27,114        25,931   
  

 

 

   

 

 

 

Deferred Charges and Other Assets

    

Regulatory assets

     897        667   

Other(2)

     527        515   
  

 

 

   

 

 

 

Total deferred charges and other assets

     1,424        1,182   
  

 

 

   

 

 

 

Total assets

   $ 32,747      $ 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)

 

          September 30,     
2016
     December 31,
2015(1)
 
(millions)              

LIABILITIES AND SHAREHOLDER’S EQUITY

     

Current Liabilities

     

Securities due within one year

   $ 679       $ 476   

Short-term debt

     965         1,656   

Accounts payable

     330         366   

Payables to affiliates

     84         73   

Affiliated current borrowings

     —           376   

Accrued interest, payroll and taxes

     321         190   

Regulatory liabilities

     75         35   

Other(2)

     690         558   
  

 

 

    

 

 

 

Total current liabilities

     3,144         3,730   
  

 

 

    

 

 

 

Long-Term Debt

     8,963         8,892   
  

 

 

    

 

 

 

Deferred Credits and Other Liabilities

     

Deferred income taxes and investment tax credits

     5,017         4,654   

Asset retirement obligations

     1,194         1,104   

Regulatory liabilities

     1,967         1,929   

Other(2)

     784         615   
  

 

 

    

 

 

 

Total deferred credits and other liabilities

     8,962         8,302   
  

 

 

    

 

 

 

Total liabilities

     21,069         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

     4,795         3,750   

Accumulated other comprehensive income

     32         40   
  

 

 

    

 

 

 

Total common shareholder’s equity

     11,678         10,641   
  

 

 

    

 

 

 

Total liabilities and shareholder’s equity

   $ 32,747       $ 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 September 30, 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)

 

Nine Months Ended September 30,

           2016                     2015          
(millions)             

Operating Activities

    

Net income

   $ 1,046      $ 900   

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

    

Depreciation and amortization (including nuclear fuel)

     903        844   

Deferred income taxes and investment tax credits

     369        9   

Other adjustments

     (15     20   

Changes in:

    

Accounts receivable

     (99     10   

Affiliated receivables and payables

     306        (33

Inventories

     37        11   

Prepayments

     15        228   

Deferred fuel expenses, net

     79        40   

Accounts payable

     4        (62

Accrued interest, payroll and taxes

     131        137   

Other operating assets and liabilities

     8        70   
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,784        2,174   
  

 

 

   

 

 

 

Investing Activities

    

Plant construction and other property additions

     (1,835     (1,840

Purchases of nuclear fuel

     (106     (100

Proceeds from sales of securities

     478        407   

Purchases of securities

     (513     (423

Other

     (11     (38
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,987     (1,994
  

 

 

   

 

 

 

Financing Activities

    

Issuance (repayment) of short-term debt, net

     (691     1   

Repayment of affiliated current borrowings, net

     (376     (427

Issuance and remarketing of long-term debt

     750        1,112   

Repayment of long-term debt

     (476     (421

Common dividend payments to parent

     —          (416

Other

     (4     (5
  

 

 

   

 

 

 

Net cash used in financing activities

     (797     (156
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     —          24   

Cash and cash equivalents at beginning of period

     18        15   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 18      $ 39   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Significant noncash investing activities:

    

Accrued capital expenditures

   $ 209      $ 139   
  

 

 

   

 

 

 

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

 

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Table of Contents

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
           2016                  2015                  2016                  2015        
(millions)                            

Operating Revenue(1)

   $ 382       $ 365       $ 1,181       $ 1,291   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Expenses

           

Purchased gas(1)

     21         8         71         103   

Other energy-related purchases

     4         4         8         17   

Other operations and maintenance:

           

Affiliated suppliers

     20         12         63         50   

Other

     113         51         268         211   

Depreciation and amortization

     55         53         150         157   

Other taxes

     36         35         127         127   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     249         163         687         665   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     133         202         494         626   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other income

     7         4         22         17   

Interest and related charges

     23         18         68         53   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations before income taxes

     117         188         448         590   

Income tax expense

     34         77         162         233   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

   $ 83       $ 111       $ 286       $ 357   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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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Table of Contents

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
           2016                 2015                 2016                 2015        
(millions)                         

Net income

   $ 83      $ 111      $ 286      $ 357   

Other comprehensive income (loss), net of taxes:

        

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

     9        3        (6     2   

Amounts reclassified to net income:

        

Net derivative gains-hedging activities(2)

     (1     (2     (3     (3

Net pension and other postretirement benefit costs(3)

     1        1        2        3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     9        2        (7     2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 92      $ 113      $ 279      $ 359   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Net of $(3) million and $(1) million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $5 million and $— million tax for the nine months ended September 30, 2016 and 2015, respectively.
(2) Net of $2 million and $1 million tax for the three months ended September 30, 2016 and 2015, respectively, and net of $2 million and $1 million tax for the nine months ended September 30, 2016 and 2015, respectively.
(3) Net of $(1) million tax for both the three months ended September 30, 2016 and 2015, and net of $(2) million and $(3) million tax for the nine months ended September 30, 2016 and 2015, respectively.

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

 

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Table of Contents

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     September 30,
2016
    December 31,
2015(1)
 
(millions)             

ASSETS

    

Current Assets

    

Cash and cash equivalents

   $ 8      $ 13   

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

     158        219   

Other receivables (less allowance for doubtful accounts of $1 and $2)(2)

     12        7   

Affiliated receivables

     5        98   

Inventories

     94        78   

Prepayments

     73        88   

Other(2)

     55        63   
  

 

 

   

 

 

 

Total current assets

     405        566   
  

 

 

   

 

 

 

Investments

     98        104   
  

 

 

   

 

 

 

Property, Plant and Equipment

    

Property, plant and equipment

     10,259        9,693   

Accumulated depreciation and amortization

     (2,808     (2,690
  

 

 

   

 

 

 

Total property, plant and equipment, net

     7,451        7,003   
  

 

 

   

 

 

 

Deferred Charges and Other Assets

    

Goodwill

     542        542   

Pension and other postretirement benefit assets(2)

     1,613        1,510   

Other(2)

     634        583   
  

 

 

   

 

 

 

Total deferred charges and other assets

     2,789        2,635   
  

 

 

   

 

 

 

Total assets

   $ 10,743      $ 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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Table of Contents

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED BALANCE SHEETS—(Continued)

(Unaudited)

 

     September 30,
2016
    December 31,
2015(1)
 
(millions)             

LIABILITIES AND EQUITY

    

Current Liabilities

    

Securities due within one year

   $ 400      $ 400   

Short-term debt

     60        391   

Accounts payable

     124        201   

Payables to affiliates

     20        22   

Affiliated current borrowings

     —          95   

Accrued interest, payroll and taxes

     176        183   

Other(2)

     162        183   
  

 

 

   

 

 

 

Total current liabilities

     942        1,475   
  

 

 

   

 

 

 

Long-Term Debt

     3,545        2,869   
  

 

 

   

 

 

 

Deferred Credits and Other Liabilities

    

Deferred income taxes and investment tax credits

     2,414        2,214   

Other(2)

     395        432   
  

 

 

   

 

 

 

Total deferred credits and other liabilities

     2,809        2,646   
  

 

 

   

 

 

 

Total liabilities

     7,296        6,990   
  

 

 

   

 

 

 

Commitments and Contingencies (see Note 15)

    

Equity

    

Membership interests

     3,553        3,417   

Accumulated other comprehensive loss(2)

     (106     (99
  

 

 

   

 

 

 

Total equity

     3,447        3,318   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 10,743      $ 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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Table of Contents

DOMINION GAS HOLDINGS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Nine Months Ended September 30,

           2016                     2015          
(millions)             

Operating Activities

    

Net income

   $ 286      $ 357   

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

    

Gains on the sales of assets and equity method investment in Iroquois

     (50     (123

Depreciation and amortization

     150        157   

Deferred income taxes and investment tax credits

     204        75   

Other adjustments

     3        4   

Changes in:

    

Accounts receivable

     56        150   

Affiliated receivables and payables

     91        (22

Deferred purchased gas costs, net

     7        19   

Prepayments

     15        145   

Accounts payable

     (76     (112

Accrued interest, payroll and taxes

     (7     (45

Other operating assets and liabilities

     (176     (109
  

 

 

   

 

 

 

Net cash provided by operating activities

     503        496   
  

 

 

   

 

 

 

Investing Activities

    

Plant construction and other property additions

     (610     (514

Proceeds from sale of equity method investment in Iroquois

     7        —     

Proceeds from assignments of shale development rights

     10        80   

Other

     (10     (5
  

 

 

   

 

 

 

Net cash used in investing activities

     (603     (439
  

 

 

   

 

 

 

Financing Activities

    

Issuance (repayment) of short-term debt, net

     (331     382   

Issuance of long-term debt

     680        —     

Repayment of affiliated current borrowings, net

     (95     (186

Distribution payments to parent

     (150     (244

Other

     (9     —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     95        (48
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (5     9   

Cash and cash equivalents at beginning of period

     13        9   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 8      $ 18   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Significant noncash investing activities:

    

Accrued capital expenditures

   $ 42      $ 46   
  

 

 

   

 

 

 

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. In August 2016, DTI transferred its gathering and processing facilities to Dominion Gathering and Processing, Inc., a newly-formed wholly-owned subsidiary of Dominion Gas. See Note 3 for a description of operations acquired in the Dominion Questar Combination.

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 September 30, 2016, their results of operations for the three and nine months ended September 30, 2016 and 2015, their cash flows for the nine months ended September 30, 2016 and 2015 and Dominion’s changes in equity for the nine months ended September 30, 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 September 30, 2016, Dominion owns the general partner and 65.0% 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 September 30, 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 Dominion 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

Acquisition of Dominion Questar

In September 2016, Dominion completed the Dominion Questar Combination and Dominion Questar became a wholly-owned subsidiary of Dominion. Dominion Questar is a Rockies-based integrated natural gas company that operates approximately

 

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3,400 miles of gas transmission pipeline, 27,500 miles of gas distribution pipeline and 56 bcf of gas storage. Additionally, Dominion Questar develops and produces natural gas from cost-of-service reserves for its retail distribution customers. The Dominion Questar Combination provides Dominion with pipeline infrastructure that provides a principal source of gas supply to Western states. Dominion Questar’s regulated businesses will also provide further balance between Dominion’s electric and gas operations.

In accordance with the terms of the Dominion Questar Combination, at closing, each share of issued and outstanding Dominion Questar common stock was converted into the right to receive $25.00 per share in cash. The total consideration was $4.4 billion based on 175.5 million shares of Dominion Questar outstanding at closing.

Dominion financed the Dominion Questar Combination through the: (1) August 2016 issuance of $1.4 billion of 2016 Equity Units, (2) August 2016 issuance of $1.3 billion of senior notes, (3) September 2016 borrowing of $1.2 billion under a private placement term loan agreement and (4) $500 million of the proceeds from the April 2016 issuance of common stock. See Note 14 for more information.

Purchase Price Allocation

Dominion Questar’s assets acquired and liabilities assumed were measured at estimated fair value at the closing date and are included in the Dominion Energy operating segment. The majority of Dominion Questar’s operations are subject to the rate-setting authority of FERC, the Utah Commission and/or the Wyoming Commission and therefore are accounted for pursuant to ASC 980, Regulated Operations. The fair values of Dominion Questar’s assets and liabilities subject to rate-setting and cost recovery provisions provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base. As such, the fair values of these assets and liabilities equal their carrying values. Accordingly, neither the assets and liabilities acquired, nor the pro forma financial information, reflect any adjustments related to these amounts.

The fair value of Dominion Questar’s assets acquired and liabilities assumed that are not subject to the rate-setting provisions discussed above was determined using the income approach. In addition, the fair value of Dominion Questar’s 50% interest in White River Hub, accounted for under the equity method, was determined using the market approach and income approach. The valuations are considered Level 3 fair value measurements due to the use of significant judgmental and unobservable inputs, including projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows and future market prices.

The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was recognized as goodwill at the closing date. The goodwill reflects the value associated with enhancing Dominion’s regulated portfolio of businesses, including the expected increase in demand for low-carbon, natural gas-fired generation in the Western states and the expected continued growth of rate-regulated businesses located in a defined service area with a stable regulatory environment. The goodwill recognized is not deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill.

The table below shows the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at closing. The allocation is subject to change during the remainder of the measurement period, which ends one year from the closing date, as additional information is obtained about the facts and circumstances that existed at the closing date. Any material adjustments to provisional amounts identified during the measurement period will be recognized and disclosed in the reporting period in which the adjustment amounts are determined.

 

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Table of Contents
     Amount  
(millions)       

Total current assets

   $ 224   

Investments(1)

     58   

Property, plant and equipment(2)

     4,120   

Goodwill

     3,111   

Total deferred charges and other assets, excluding goodwill

     75   
  

 

 

 

Total Assets

     7,588   
  

 

 

 

Total current liabilities(3)

     791   

Long-term debt(4)

     963   

Deferred income taxes

     798   

Regulatory liabilities

     259   

Asset retirement obligations

     160   

Other deferred credits and other liabilities(5)

     220   
  

 

 

 

Total Liabilities

     3,191   
  

 

 

 

Total estimated purchase price

   $ 4,397   
  

 

 

 

 

(1) Includes $40 million for an equity method investment in White River Hub. The fair value adjustment on the equity method investment in White River Hub is considered to be equity method goodwill and is not amortized.
(2) Nonregulated property, plant and equipment, excluding land, will be depreciated over remaining useful lives primarily ranging from 9 to 18 years.
(3) Includes $301 million of short-term debt, of which $24 million is outstanding at September 30, 2016, as well as a $250 million short-term note which matures in February 2017 and bears interest at a variable rate.
(4) Unsecured senior notes have maturities which range from 2017 to 2048 and bear interest at rates from 2.98% to 7.20%.
(5) Includes a $35 million capital lease obligation with undiscounted future minimum lease payments of $1 million remaining in 2016, $4 million per year for 2017 through 2020, and $37 million in total thereafter.

Regulatory Matters

The transaction required approval of Dominion Questar’s shareholders, clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act and approval from both the Utah Commission and the Wyoming Commission. In February 2016, the Federal Trade Commission granted antitrust approval of the Dominion Questar Combination under the Hart-Scott-Rodino Act. In May 2016, Dominion Questar’s shareholders voted to approve the Dominion Questar Combination. In August 2016 and September 2016, approvals were granted by the Utah Commission and the Wyoming Commission, respectively. Information regarding the transaction was also provided to the Idaho Public Utilities Commission, who acknowledged the Dominion Questar Combination in October 2016, and directed Dominion Questar to notify the Idaho Public Utilities Commission when it makes filings with the Utah Commission.

Approval of the Dominion Questar Combination in Utah and Wyoming was conditioned upon Dominion agreeing to the following:

 

    Dominion will contribute $75 million toward the funding of Dominion Questar’s qualified and non-qualified defined-benefit pension plans and its other post-employment benefit plans within six months of the closing date. This contribution is expected to be made during the fourth quarter of 2016.

 

    Dominion committed to increasing Dominion Questar’s historical level of corporate contributions to charities by $1 million per year for at least five years.

 

    Questar Gas withdrew its general rate case filed in July 2016 with the Utah Commission and agreed to not file a general rate case with the Utah Commission to adjust its base distribution non-gas rates prior to July 2019, unless otherwise ordered by the Utah Commission. In addition, Questar Gas agreed not to file a general rate case with the Wyoming Commission with a requested rate effective date earlier than January 2020. This does not impact Questar Gas’s ability to adjust rates through various riders.

Results of Operations and Pro Forma Information

The impact of the Dominion Questar Combination on Dominion’s operating revenue and net income attributable to Dominion in the Consolidated Statements of Income for both the three and nine months ended September 30, 2016, was an increase of $23 million and $5 million, respectively.

Dominion incurred transaction and transition costs, of which $40 million and $47 million was recorded in other operations and maintenance expense for the three and nine months ended September 30, 2016, respectively, and $13 million was recorded in interest and related charges for both the three and nine months ended September 30, 2016, in Dominion’s Consolidated Statements of Income. These costs consist of the amortization of financing costs, the charitable contribution commitment described above, employee-related expenses, professional fees, and other miscellaneous costs.

 

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The following unaudited pro forma financial information reflects the consolidated results of operations of Dominion assuming the Dominion Questar Combination had taken place on January 1, 2015. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of the combined company.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2016(1)      2015      2016(1)      2015  
(millions, except EPS)                            

Operating Revenue

   $ 3,261       $ 3,113       $ 9,410       $ 9,897   

Net income attributable to Dominion

     732         626         1,835         1,700   

Earnings Per Common Share – Basic

   $ 1.17       $ 1.05       $ 2.99       $ 2.88   

Earnings Per Common Share – Diluted

   $ 1.17       $ 1.05       $ 2.99       $ 2.87   

 

(1) Amounts include adjustments for non-recurring costs directly related to the Dominion Questar Combination.

Anticipated Contribution of Questar Pipeline to Dominion Midstream

In October 2016, Dominion entered into the Contribution Agreement under which Dominion will contribute Questar Pipeline to Dominion Midstream. Upon closing of the agreement, expected by the end of 2016, Dominion Midstream will become owner of all of the issued and outstanding membership interests of Questar Pipeline in exchange for consideration consisting of Dominion Midstream common and convertible preferred units with a combined value between $400 million and $725 million and cash between $565 million and $890 million, $300 million of which is considered a debt-financed distribution, for a total of $1.3 billion. In addition, under the terms of the Contribution Agreement, Dominion Midstream will repurchase approximately 6,657,000 common units from Dominion, and will repay its $301 million promissory note to Dominion. The cash proceeds from these transactions will be utilized to repay the $1.2 billion private placement term loan agreement borrowed in September 2016. Since Dominion consolidates Dominion Midstream for financial reporting purposes, the transactions associated with the Contribution Agreement will be eliminated upon consolidation and will not impact Dominion’s financial position or cash flows.

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 September 30, 2016, a $7 million payable is included in other current liabilities in Dominion’s Consolidated Balance Sheets. Four Brothers’ purpose is to operate four solar projects located in Utah, which produce and sell electricity and renewable energy credits. The facilities began commercial operations during the third quarter of 2016, with generating capacity of approximately 320 MW, at a cost of approximately $670 million.

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 September 30, 2016, a $4 million payable is included in other current liabilities in Dominion’s Consolidated Balance Sheets. Three Cedars’ purpose is to operate three solar projects located in Utah, which produce and sell electricity and renewable energy credits. The facilities began commercial operations during the third quarter of 2016, with generating capacity of approximately 210 MW, at a cost of approximately $450 million.

The Four Brothers and Three Cedars facilities operate under long-term power purchase, interconnection and operation and maintenance agreements. Dominion will 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.

 

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Dominion has assumed the majority of the agreements to provide administrative and support services in connection with construction of the projects, operations and maintenance of the facilities and technical management services of the solar facilities. Costs related to services to be provided under these agreements were immaterial for the nine months ended September 30, 2016. Subsequent to Dominion’s acquisition of Four Brothers and Three Cedars, SunEdison made contributions to Four Brothers and Three Cedars of $281 million in aggregate through September 30, 2016, which are reflected as noncontrolling interests in Dominion’s Consolidated Balance Sheets.

In November 2016, NRG acquired the 50% of units in Four Brothers and Three Cedars previously held by SunEdison.

Wholly-Owned Merchant Solar Projects

The following table presents significant completed acquisitions of wholly-owned merchant solar projects by Dominion in the nine months ended September 30, 2015. Long-term power purchase, interconnection and operation and maintenance agreements have been executed for all of the projects. Dominion has claimed federal investment tax credits on the projects. These projects are included in the Dominion Generation operating segment.

 

Completed Acquisition Date

  

Seller

  Number
of
Projects
 

Project
Location

 

Project Name

  Initial
Acquisition
Cost
(millions)(1)
    Project
Cost
(millions)(2)
    Date of
Commercial
Operations
  MW
Capacity
 

April 2015

   EC&R NA Solar PV, LLC   1   California   Alamo   $ 66      $ 66      May 2015     20   

April 2015

   EDF Renewable Development, Inc.   3   California   Cottonwood(3)     106        106      May 2015     24   

June 2015

   EDF Renewable Development, Inc.   1   California   Catalina 2     68        68      July 2015     18   

July 2015

   SunPeak Solar, LLC   1   California   Imperial Valley 2     42        71      August 2015     20   

 

(1) The purchase price was primarily allocated to Property, Plant and Equipment.
(2) Includes acquisition cost.
(3) One of the projects, Marin Carport, began commercial operations in 2016.

In August 2016, Dominion entered into an agreement to acquire 100% of the equity interests of two solar projects in California from Solar Frontier Americas Holding, LLC for approximately $128 million in cash. The acquisition is expected to close prior to both projects commencing operations, which is expected by the end of 2017. The projects are expected to cost approximately $130 million once constructed, including the initial acquisition cost, and to generate approximately 50 MW combined.

In August 2016, Dominion entered into an agreement to acquire 100% of the equity interests of four solar projects in Virginia from Virginia Solar, LLC. The acquisition is expected to close during the fourth quarter of 2016, prior to the projects commencing operations by the end of 2017, for an amount to be determined based on the costs incurred through closing. The projects are expected to cost approximately $160 million once constructed, including the initial acquisition cost, and to generate approximately 80 MW combined.

In September 2016, Dominion entered into an agreement to acquire 100% of the equity interests of a solar project in Virginia from Community Energy Solar, LLC. The acquisition is expected to close during the first quarter of 2017, prior to the project commencing operations by the end of 2017, for an amount to be determined based on the costs incurred through closing. The project is expected to cost approximately $210 million once constructed, including the initial acquisition cost, and to generate approximately 100 MW.

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, including projects discussed in the table above. 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 September 30, 2016 nor are expected to occur in the remainder of 2016.

 

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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 on 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. 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 resulted in the recognition of the remaining $35 million ($21 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 September 2015, Dominion Gas closed on an agreement with a natural gas producer to convey approximately 16,000 acres of Utica and Point Pleasant Shale development rights underneath one of its natural gas storage fields. The agreement provided for a payment to Dominion Gas, subject to customary adjustments, of $52 million and an overriding royalty interest in gas produced from the acreage. In September 2015, Dominion Gas received proceeds of $52 million associated with the conveyance of the acreage, resulting in a $52 million ($29 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. Also in connection with that agreement, in July 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. These gains are 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
September 30,
     Nine Months Ended
September 30,
 
           2016                  2015                  2016                  2015        
(millions)                            

Dominion

           

Electric sales:

           

Regulated

   $ 2,147       $ 2,020       $ 5,707       $ 5,911   

Nonregulated

     399         388         1,123         1,145   

Gas sales:

           

Regulated

     46         21         137         168   

Nonregulated

     87         66         259         361   

Gas transportation and storage

     378         365         1,162         1,221   

Other

     75         111         263         321   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating revenue

   $ 3,132       $ 2,971       $ 8,651       $ 9,127   
  

 

 

    

 

 

    

 

 

    

 

 

 

Virginia Power

           

Regulated electric sales

   $ 2,147       $ 2,020       $ 5,707       $ 5,911   

Other

     64         38         170         97   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating revenue

   $ 2,211       $ 2,058       $ 5,877       $ 6,008   
  

 

 

    

 

 

    

 

 

    

 

 

 

Dominion Gas

           

Gas sales:

           

Regulated

   $ 28       $ 9       $ 69       $ 87   

Nonregulated

     1         1         8         5   

Gas transportation and storage

     303         302         955         1,035   

NGL revenue

     19         20         45         71   

Other

     31         33         104         93   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating revenue

   $ 382       $ 365       $ 1,181       $ 1,291   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 5. Income Taxes

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

 

     Dominion     Virginia Power     Dominion Gas  

Nine Months Ended September 30,

       2016             2015             2016             2015             2016             2015      

United States statutory rate

     35.0     35.0     35.0     35.0     35.0     35.0

Increases (reductions) resulting from:

            

State taxes, net of federal benefit

     3.7        4.0        3.9        4.2        0.8        4.1   

Investment tax credits

     (10.4     (3.5     —          —          —          —     

Production tax credits

     (0.8     (0.8     (0.5     (0.5     —          —     

State legislative change

     (0.8     (0.2     —          —          —          —     

Other, net

     (2.1     (0.7     (0.5     (0.2     0.4        0.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

     24.6     33.8     37.9     38.5     36.2     39.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In 2016, Dominion’s effective tax rate reflects $23 million of previously unrecognized tax benefits resulting from a settlement with a tax authority ($12 million) and a legislative change ($11 million). The settlement is also reflected in Dominion Gas’ 2016 effective tax rate. Otherwise, as of September 30, 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.

 

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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
September 30,
     Nine Months Ended
September 30,
 
           2016                  2015                  2016                  2015        
(millions, except EPS)                            

Net income attributable to Dominion

   $ 690       $ 593       $ 1,666       $ 1,542   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average shares of common stock outstanding – Basic

     625.9         594.6         612.8         591.3   

Net effect of dilutive securities(1)

     0.1         0.9         1.0         1.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average shares of common stock outstanding – Diluted

     626.0         595.5         613.8         592.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings Per Common Share – Basic

   $ 1.10       $ 1.00       $ 2.72       $ 2.61   

Earnings Per Common Share – Diluted

   $ 1.10       $ 1.00       $ 2.71       $ 2.60   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Dilutive securities consist primarily of the 2013 Equity Units for the nine months ended September 30, 2016 and the three and nine months ended September 30, 2015. 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 and 2016 Equity Units are potentially dilutive securities but were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2016 and 2015, as the dilutive stock price threshold was not met.

 

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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 September 30, 2016

          

Beginning balance

   $ (241   $ 535      $ (781   $ (6   $ (493

Other comprehensive income before reclassifications: gains

     14        31        15        —          60   

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

     (34     (13     9        —          (38
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (20     18        24        —          22   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ (261   $ 553      $ (757   $ (6   $ (471
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended September 30, 2015

          

Beginning balance

   $ (146   $ 519      $ (754   $ (5   $ (386

Other comprehensive income before reclassifications: gains (losses)

     (7     (59     (9     1        (74

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

     (53     (2     14        —          (41
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (60     (61     5        1        (115
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ (206   $ 458      $ (749   $ (4   $ (501
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2016

          

Beginning balance

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

Other comprehensive income before reclassifications: gains (losses)

     56        72        15        (1     142   

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

     (141     (23     25        —          (139
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (85     49        40        (1     3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ (261   $ 553      $ (757   $ (6   $ (471
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2015

          

Beginning balance

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

Other comprehensive income before reclassifications: gains (losses)

     25        (55     (6     —          (36

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

     (53     (35     39        —          (49
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (28     (90     33        —          (85
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ (206   $ 458      $ (749   $ (4   $ (501
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 September 30, 2016

    

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

    

Commodity contracts

   $ (64   Operating revenue
     1      Purchased gas
     1      Electric fuel and other energy-related purchases

Interest rate contracts

     10      Interest and related charges

Foreign currency contracts

     (3   Other income
  

 

 

   
     (55  

Tax

     21      Income tax expense
  

 

 

   
   $ (34  
  

 

 

   

 

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Table of Contents

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

   $ (25   Other income

Impairment

     5      Other income
  

 

 

   
     (20  

Tax

     7      Income tax expense
  

 

 

   
   $ (13  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Prior service (credit) costs

   $ (4   Other operations and maintenance

Actuarial (gains) losses

     17      Other operations and maintenance
  

 

 

   
     13     

Tax

     (4   Income tax expense
  

 

 

   
   $ 9     
  

 

 

   

Three Months Ended September 30, 2015

    

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

    

Commodity contracts

   $ (87   Operating revenue
     2      Purchased gas

Interest rate contracts

     2      Interest and related charges
  

 

 

   
     (83  

Tax

     30      Income tax expense
  

 

 

   
   $ (53  
  

 

 

   

Unrealized (gains) and losses on investment securities:

    

Realized (gain) loss on sale of securities

   $ (18   Other income

Impairment

     16      Other income
  

 

 

   
     (2  

Tax

     —        Income tax expense
  

 

 

   
   $ (2  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Prior service (credit) costs

   $ (3   Other operations and maintenance

Actuarial (gains) losses

     24      Other operations and maintenance
  

 

 

   
     21     

Tax

     (7   Income tax expense
  

 

 

   
   $ 14     
  

 

 

   

Nine Months Ended September 30, 2016

    

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

    

Commodity contracts

   $ (266   Operating revenue
     9      Purchased gas
     8      Electric fuel and other energy-related purchases

Interest rate contracts

     21      Interest and related charges

Foreign currency contracts

     (1   Other income
  

 

 

   
     (229  

Tax

     88      Income tax expense
  

 

 

   
   $ (141  
  

 

 

   

Unrealized (gains) and losses on investment securities:

    

Realized (gain) loss on sale of securities

   $ (55   Other income

Impairment

     19      Other income
  

 

 

   
     (36  

Tax

     13      Income tax expense
  

 

 

   
   $ (23  
  

 

 

   

 

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Table of Contents

Details About AOCI Components

   Amounts Reclassified
From AOCI
   

Affected Line Item in the Consolidated

Statements of Income

(millions)           

Unrecognized pension and other postretirement benefit costs:

    

Prior service (credit) costs

   $ (11   Other operations and maintenance

Actuarial (gains) losses

     52      Other operations and maintenance
  

 

 

   
     41     

Tax

     (16   Income tax expense
  

 

 

   
   $ 25     
  

 

 

   

Nine Months Ended September 30, 2015

    

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

    

Commodity contracts

   $ (103   Operating revenue
     9      Purchased gas

Interest rate contracts

     7      Interest and related charges
  

 

 

   
     (87  

Tax

     34      Income tax expense
  

 

 

   
   $ (53  
  

 

 

   

Unrealized (gains) and losses on investment securities:

    

Realized (gain) loss on sale of securities

   $ (82   Other income

Impairment

     27      Other income
  

 

 

   
     (55  

Tax

     20      Income tax expense
  

 

 

   
   $ (35  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Prior service (credit) costs

   $ (9   Other operations and maintenance

Actuarial (gains) losses

     73      Other operations and maintenance
  

 

 

   
     64     

Tax

     (25   Income tax expense
  

 

 

   
   $ 39     
  

 

 

   

 

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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 September 30, 2016

        

Beginning balance

   $ (34    $ (81    $ (115

Other comprehensive income before reclassifications: gains

     9         —           9   

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

     (1      1         —     
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income

     8         1         9   
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (26    $ (80    $ (106
  

 

 

    

 

 

    

 

 

 

Three Months Ended September 30, 2015

        

Beginning balance

   $ (22    $ (64    $ (86

Other comprehensive income before reclassifications: gains

     3         —           3   

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

     (2      1         (1
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income

     1         1         2   
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (21    $ (63    $ (84
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2016

        

Beginning balance

   $ (17    $ (82    $ (99

Other comprehensive income before reclassifications: losses

     (6      —           (6

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

     (3      2         (1
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     (9      2         (7
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (26    $ (80    $ (106
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2015

        

Beginning balance

   $ (20    $ (66    $ (86

Other comprehensive income before reclassifications: gains

     2         —           2   

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

     (3      3         —     
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income (loss)

     (1      3         2   
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (21    $ (63    $ (84
  

 

 

    

 

 

    

 

 

 

 

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

 

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Table of Contents

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 September 30, 2016

    

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

    

Commodity contracts

   $ (1   Operating revenue

Interest rate contracts

     1      Interest and related charges

Foreign currency contracts

     (3   Other income
  

 

 

   
     (3  

Tax

     2      Income tax expense
  

 

 

   
   $ (1  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Actuarial (gains) losses

   $ 2      Other operations and maintenance
  

 

 

   
     2     

Tax

     (1   Income tax expense
  

 

 

   
   $ 1     
  

 

 

   

Three Months Ended September 30, 2015

    

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

    

Commodity contracts

   $ (3   Operating revenue
  

 

 

   
     (3  

Tax

     1      Income tax expense
  

 

 

   
   $ (2  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Actuarial (gains) losses

   $ 2      Other operations and maintenance
  

 

 

   
     2     

Tax

     (1   Income tax expense
  

 

 

   
   $ 1     
  

 

 

   

Nine Months Ended September 30, 2016

    

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

    

Commodity contracts

   $ (6   Operating revenue

Interest rate contracts

     2      Interest and related charges

Foreign currency contracts

     (1   Other income
  

 

 

   
     (5  

Tax

     2      Income tax expense
  

 

 

   
   $ (3  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Actuarial (gains) losses

   $ 4      Other operations and maintenance
  

 

 

   
     4     

Tax

     (2   Income tax expense
  

 

 

   
   $ 2     
  

 

 

   

Nine Months Ended September 30, 2015

    

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

    

Commodity contracts

   $ (4   Operating revenue
  

 

 

   
     (4  

Tax

     1      Income tax expense
  

 

 

   
   $ (3  
  

 

 

   

Unrecognized pension and other postretirement benefit costs:

    

Actuarial (gains) losses

   $ 6      Other operations and maintenance
  

 

 

   
     6     

Tax

     (3   Income tax expense
  

 

 

   
   $ 3     
  

 

 

   

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.

Dominion and Dominion Gas apply fair value measurements to foreign currency swaps used to manage the foreign currency exchange rate risk related to interest and principal payments denominated in foreign currencies. These swaps are designated as cash flow hedges for accounting purposes and are categorized as Level 2.

 

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Table of Contents

The inputs and assumptions used in measuring the fair value for foreign currency swaps include the following:

 

    Foreign currency forward exchange rates

 

    Credit quality of counterparties and the Companies

 

    Notional value

 

    Credit enhancements

 

    Time value

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, and risk-free rate of return. 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, 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 September 30, 2016. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility.

 

     Fair Value
(millions)
    

Valuation Techniques

  

Unobservable Input

   Range     Weighted
Average(1)
 

Assets

             

Physical and financial forwards and futures:

             

Natural gas(2)

   $ 85       Discounted cash flow    Market price (per Dth)(3)      (2) - 7        —     

FTRs

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

Physical and financial options:

             

Natural gas

     4       Option model    Market price (per Dth)(3)      2 - 7        3   
         Price volatility(4)      19% - 46     24
  

 

 

            

Total assets

   $ 96              
  

 

 

            

Liabilities

             

Physical and financial forwards and futures:

             

Natural gas(2)

   $ 4       Discounted cash flow    Market price (per Dth)(3)      (2) - 4        1   

FTRs

     2       Discounted cash flow    Market price (per MWh)(3)      (11) - 6        1   

Physical and financial options:

             

Natural gas

     1       Option model    Market price (per Dth)(3)      2 - 4        3   
         Price volatility(4)      30% - 46     38
  

 

 

            

Total liabilities

   $ 7              
  

 

 

            

 

(1) Averages weighted by volume.
(2) Includes basis.
(3) Represents market prices beyond defined terms for Levels 1 and 2.
(4) 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)
Price volatility    Buy    Increase (decrease)    Gain (loss)
Price volatility    Sell    Increase (decrease)    Loss (gain)

 

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Table of Contents

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 September 30, 2016

           

Assets

           

Derivatives:

           

Commodity

   $ —         $ 172       $ 96       $ 268   

Interest rate

     —           19         —           19   

Foreign currency

     —           8         —           8   

Investments(1):

           

Equity securities:

           

United States:

           

Large cap

     2,712         —           —           2,712   

REIT

     67         —           —           67   

Other

     6         —           —           6   

Non-United States:

           

Large cap

     10         —           —           10   

Fixed income:

           

Corporate debt instruments

     —           518         —           518   

United States Treasury securities and agency debentures

     438         231         —           669   

State and municipal

     —           372         —           372   

Other

     —           109         —           109   

Cash equivalents and other

     8         —           —           8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 3,241       $ 1,429       $ 96       $ 4,766   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 104       $ 7       $ 111   

Interest rate

     —           307         —           307   

Foreign currency

     —           4         —           4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 415       $ 7       $ 422   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

At December 31, 2015

           

Assets

           

Derivatives:

           

Commodity

   $ 1       $ 249       $ 114       $ 364   

Interest rate

     —           24         —           24   

Investments(1):

           

Equity securities:

           

United States:

           

Large cap

     2,547         —           —           2,547   

REIT

     63         —           —           63   

Other

     5         —           —           5   

Non-United States:

           

Large cap

     10         —           —           10   

Fixed income:

           

Corporate debt instruments

     —           437         —           437   

United States 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
September 30,
     Nine Months Ended
September 30,
 
           2016                  2015                  2016                  2015        
(millions)                            

Beginning balance

   $ 124       $ 71       $ 95       $ 107   

Total realized and unrealized gains (losses):

           

Included in earnings

     (7      (9      (23      1   

Included in other comprehensive income (loss)

     —           5         2         (7

Included in regulatory assets/liabilities

     (37      47         (5      18   

Settlements

     9         10         27         1   

Transfers out of Level 3

     —           (1      (7      3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 89       $ 123       $ 89       $ 123   
  

 

 

    

 

 

    

 

 

    

 

 

 

The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date

   $ —         $ 1       $ —         $ 1   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents Dominion’s classification of gains and losses included in earnings in the Level 3 fair value category.

 

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     Operating
Revenue
     Electric Fuel
and Other
Energy-
Related

Purchases
        Total      
(millions)                    

Three Months Ended September 30, 2016

       

Total gains (losses) included in earnings

   $ —         $ (7   $ (7
  

 

 

    

 

 

   

 

 

 

Three Months Ended September 30, 2015

       

Total gains (losses) included in earnings

   $ —         $ (9   $ (9

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date

     —           1        1   
  

 

 

    

 

 

   

 

 

 

Nine Months Ended September 30, 2016

       

Total gains (losses) included in earnings

   $ —         $ (23   $ (23
  

 

 

    

 

 

   

 

 

 

Nine Months Ended September 30, 2015

       

Total gains (losses) included in earnings

   $ 2       $ (1   $ 1   

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets/liabilities still held at the reporting date

     1         —          1   

Virginia Power

The following table presents Virginia Power’s quantitative information about Level 3 fair value measurements at September 30, 2016. The range and weighted average are presented in dollars for market price inputs and percentages for price volatility.

 

     Fair Value
(millions)
    

Valuation Techniques

  

Unobservable Input

   Range     Weighted
Average(1)
 

Assets

             

Physical and financial forwards and futures:

             

Natural gas(2)

   $ 81       Discounted cash flow    Market price (per Dth)(3)      (2) - 7        —     

FTRs

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

Physical and financial options:

             

Natural gas

     2       Option model    Market price (per Dth)(3)      2 - 7        3   
         Price volatility(4)      19% - 33     24

Total assets

   $ 90              
  

 

 

            

Liabilities

             

Physical and financial forwards and futures:

             

FTRs

   $ 2       Discounted cash flow    Market price (per MWh)(3)      (11) - 6        1   
  

 

 

            

Total liabilities

   $ 2              
  

 

 

            

 

(1) Averages weighted by volume.
(2) Includes basis.
(3) Represents market prices beyond defined terms for Levels 1 and 2.
(4) 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)
Price volatility    Buy    Increase (decrease)    Gain (loss)
Price volatility    Sell    Increase (decrease)    Loss (gain)

 

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Table of Contents

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:

 

     Level 1      Level 2      Level 3      Total  
(millions)                            

At September 30, 2016

           

Assets

           

Derivatives:

           

Commodity

   $ —         $ 26       $ 90       $ 116   

Interest rate

     —           2         —           2   

Investments(1):

           

Equity securities:

           

United States large cap

     1,183         —           —           1,183   

REIT

     67         —           —           67   

Fixed income:

           

Corporate debt instruments

     —           298         —           298   

United States Treasury securities and agency debentures

     144         107         —           251   

State and municipal

     —           174         —           174   

Other

     —           29         —           29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,394       $ 636       $ 90       $ 2,120   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivatives:

           

Commodity

   $ —         $ 22       $ 2       $ 24   

Interest rate

     —           267         —           267   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 289       $ 2       $ 291   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015

           

Assets

           

Derivatives:

           

Commodity

   $ —         $ 13       $ 101       $ 114   

Interest rate

     —           13         —           13   

Investments(1):

           

Equity securities:

           

United States large cap

     1,100         —           —           1,100   

REIT

     63         —           —           63   

Fixed income:

           

Corporate debt instruments

     —           238         —           238   

United States 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
September 30,
     Nine Months Ended
September 30,
 
           2016                  2015                  2016                  2015        
(millions)                            

Beginning balance

   $ 125       $ 73       $ 93       $ 102   

Total realized and unrealized gains (losses):

           

Included in earnings

     (7      (10      (24      (1

Included in regulatory assets/liabilities

     (37      47         (5      18   

Settlements

     7         10         24         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 88       $ 120       $ 88       $ 120   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 and nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 2016

  

Assets

  

Commodity

   $ —         $ 6       $ —         $ 6   

Foreign currency

     —           8         —           8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ —         $ 14       $ —         $ 14   

Liabilities

  

Commodity

   $ —         $ 2       $ —         $ 2   

Foreign currency

     —           4         —           4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 6       $ —         $ 6   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2015

  

Assets

  

Commodity

   $ —         $ 5       $ 6       $ 11   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ —         $ 5       $ 6       $ 11   

Liabilities

  

Interest rate

   $ —         $ 14       $ —         $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —         $ 14       $ —         $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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
September 30,
     Nine Months Ended
September 30,
 
           2016                  2015                  2016                  2015        
(millions)                            

Beginning balance

   $ —         $ (1    $ 6       $ 2   

Total realized and unrealized gains (losses):

  

Included in earnings

     —           —           —           1   

Included in other comprehensive income (loss)

     —           5         2         (7

Settlements

     —           —           —           (1

Transfers out of Level 3

     —           —           (8      9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ —         $ 4       $ —         $ 4   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 nine months ended September 30, 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 and nine months ended September 30, 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, customer, affiliated, 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:

 

     September 30, 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)

   $ 26,287       $ 29,077       $ 21,873       $ 23,210   

Junior subordinated notes(3)

     2,980         3,030         1,340         1,192   

Remarketable subordinated notes(3)

     2,371         2,392         2,080         2,129   
  

 

 

    

 

 

    

 

 

    

 

 

 

Virginia Power

           

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

   $ 9,642       $ 11,259       $ 9,368       $ 10,400   
  

 

 

    

 

 

    

 

 

    

 

 

 

Dominion Gas

           

Long-term debt, including securities due within one year(4)

   $ 3,945       $ 4,139       $ 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, and foreign currency remeasurement adjustments. At September 30, 2016 and December 31, 2015, includes the valuation of certain fair value hedges associated with fixed rate debt of $14 million and $7 million, respectively.
(3) Carrying amount includes amounts which represent the unamortized debt issuance costs, discount and/or premium.
(4) Carrying amount includes amounts which represent the unamortized debt issuance costs, discount and/or premium, and foreign currency remeasurement adjustments.

Note 9. Derivatives and Hedge Accounting Activities

The Companies’ accounting policies, 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

 

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Table of Contents

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.

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:

 

     September 30, 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)                     

Commodity contracts:

                 

Over-the-counter

   $ 173       $ —         $ 173       $ 217       $ —         $ 217   

Exchange

     88         —           88         138         —           138   

Interest rate contracts:

        

Over-the-counter

     19         —           19         24         —           24   

Foreign currency contracts:

                 

Over-the-counter

     8         —           8                 —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives, subject to a master netting or similar arrangement

     288         —           288         379         —           379   

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

     7         —           7         9         —           9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 295       $ —         $ 295       $ 388       $ —         $ 388   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
            September 30, 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)                            

Commodity contracts:

                    

Over-the-counter

   $ 173       $ 20       $ —         $ 153       $ 217       $ 37       $ —         $ 180   

Exchange

     88         63         —           25         138         82         —           56   

Interest rate contracts:

                    

Over-the-counter

     19         10         —           9         24         22         —           2   

Foreign currency contracts:

                    

Over-the-counter

     8         4         —           4         —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 288       $ 97       $ —         $ 191