(1)	The 2017 Tax Reform Act impact for Dominion Energy Gas includes an expense of $8 million for the year ended December 31, 2018 and a benefit of $93 million for the year ended December 31, 2017 arising from discontinued operations.

The 2017 Tax Reform Act reduced the statutory federal income tax rate to 21% beginning in January 2018. Accordingly, current and deferred income taxes are recorded at the new 21% rate.

In 2019, the Dominion Energy Gas Restructuring caused changes in tax status at certain of its subsidiaries. The impacts of the changes in tax status decreased deferred income tax expense by $48 million at Dominion Energy and Dominion Energy Gas. In addition, Dominion Energy recognized a taxable gain resulting from the sale of a 25% noncontrolling interest in Cove Point. The direct tax effects of the transactions included a provision for current income taxes ($362 million) and an offsetting benefit for deferred income taxes ($147 million) and were charged to common shareholders’ equity. The utilization of $208 million federal tax credit carryforwards offsetting a portion of the federal tax liability from the transaction were also charged to common shareholders’ equity. In total, the taxes recorded in common shareholders’ equity resulting from this transaction were $215 million.

In 2018, Dominion Energy had less than $1 million of state deferred income tax expense as a result of the reversal of deferred taxes upon the sale of its interest in Blue Racer and Fairless and Manchester. Dominion Energy’s current federal income taxes primarily include the recognition of a $47 million benefit related to a carryback claim for specified liability losses involving prior tax years.

In 2017, the accounting for the reduction in the corporate income tax rate decreased deferred income tax expense by $851 million at Dominion Energy, $93 million at Virginia Power and $246 million for Dominion Energy Gas for the year ending December 31, 2017. The decrease in deferred income taxes at Dominion Energy primarily relates to the remeasurement of deferred taxes on nonregulated operations and includes the effects at Virginia Power and Dominion Energy Gas. Virginia Power and Dominion Energy Gas have certain regulatory assets and liabilities that have not yet been charged or returned to customers through rates, or on which they do not earn a return, including unrecognized pension and other postretirement benefits. The remeasurement of the deferred taxes on these regulatory balances was charged

to continuing operations in 2017. For ratemaking purposes, Dominion Energy Gas’ subsidiary DETI follows the cash method on pension contributions. Deferred taxes recorded on pension balances as required by GAAP are not included as a component of rates and therefore the remeasurement of these deferred taxes were charged to continuing operations in 2017.

Discontinued Operations—Dominion Energy Gas

Tax expense reported in discontinued operations for the period ended November 6, 2019 was $33 million. Tax expense reported in discontinued operations for years ended December 31, 2018 and 2017 at Dominion Energy Gas was less than $1 million and $91 million, respectively. Tax expense for discontinued operations included benefits of utilizing an immaterial amount of operating loss carryforwards in 2018 and $5 million in 2017.

Continuing Operations

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


	Dominion Energy									Virginia Power									Dominion Energy Gas
Year Ended December 31,	2019			2018			2017			2019			2018			2017			2019			2018			2017
U.S. statutory rate		21.0	%		21.0	%		35.0	%		21.0	%		21.0	%		35.0	%		21.0	%		21.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		1.3			3.0			2.0			4.5			4.7			3.7			2.5			3.2			2.6
Investment tax credits		(5.7	)		(1.9	)		(6.3	)		(2.9	)		(3.5	)		(0.8	)		—			—			—
Production tax credits		(1.1	)		(0.7	)		(0.7	)		(0.7	)		(0.7	)		(0.4	)		—			—			—
Valuation allowances		0.1			0.3			0.2			—			—			—			(0.2	)		—			0.3
Reversal of excess deferred income taxes		(2.0	)		(2.0	)		—			(3.1	)		(3.2	)		—			(0.8	)		(0.6	)		—
Federal legislative change		—			1.5			(27.5	)		—			1.3			(4.0	)		—			(0.5	)		(41.0	)
State legislative change		—			(0.6	)		—			—			—			—			—			(2.0	)		(0.7	)
Write-off of regulatory assets		10.9			—			—			—			—			—			—			—			—
Change in tax status		(2.8	)		—			—			—			—			—			(6.0	)		—			—
AFUDC—equity		(1.8	)		(0.8	)		(1.4	)		—			(0.5	)		(0.6	)		(0.5	)		(0.3	)		(0.9	)
Employee stock ownership plan deduction		(0.7	)		(0.4	)		(0.6	)		—			—			—			—			—			—
Other, net		1.1			(0.9	)		(1.7	)		(0.2	)		(0.1	)		0.6			(3.4	) (1)		(4.4	) (1)		(6.0	) (1)
Effective tax rate		20.3	%		18.5	%		(1.0	)%		18.6	%		19.0	%		33.5	%		12.6	%		16.4	%		(10.7	)%

(1)	Includes (3.2)%, (4.6)% and (6.7)% relating to the absence of tax on noncontrolling interest in 2019, 2018 and 2017, respectively.

For the Companies’ rate-regulated entities, deferred taxes will reverse at the weighted average rate used to originate the deferred tax liability, which in some cases will be 35%. The Companies have recorded an estimate of excess deferred income tax amortization in 2019, and changes in estimates of amounts probable of collection from or return to customers. The reversal of these excess deferred income taxes will impact the effective tax rate, and may ultimately impact rates charged to customers. See Note 13 for current year developments.

In connection with the SCANA Combination, Dominion Energy committed to forgo, or limit, the recovery of certain income

tax-related

regulatory assets associated with the NND Project. Dominion Energy’s effective tax rate reflects deferred income tax expense of $194 million in satisfaction of this commitment. Dominion Energy’s effective tax rate also reflects the changes in consolidated state income taxes resulting from the SCANA Combination.

In 2018, the Companies applied the provisions of proposed regulations addressing the availability of federal bonus depreciation for the period beginning after September 27, 2017 through December 31, 2017. The application of these changes increased Dominion Energy’s 2017 net operating loss carryforward, the benefit of which will be recognized at the 21% rate. As a result, Dominion Energy’s effective tax rate reflects a $23 million increase to deferred income tax expense associated with the remeasurement of this deferred tax asset. The application of these proposed regulations at Dominion Energy Gas had no impact on income tax expense as the changes in, and remeasurement of, deferred tax liabilities increased regulatory liabilities by $35 million, of which $23 million is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. The effects of these changes at Virginia Power were immaterial. These amounts and adjustments represent the Companies’ best estimate based on available information, and could be subject to change based on additional guidance in yet to be finalized regulations. In addition, changes in estimates of amounts probable of return to or collection from customers increased deferred income tax expense at Virginia Power by $23 million and increased regulatory liabilities by $31 million. At Dominion Energy Gas similar changes in estimates decreased income tax expense by $5 million and regulatory liabilities by $8 million. In Dominion Energy Gas’ discontinued operations, similar changes in estimates increased income tax expense by $8 million, which is reflected in income tax expense from continuing operations in the Consolidated Statements of Income, and regulatory liabilities $10 million, which are reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. These changes also impacted Dominion Energy. In addition, Dominion Energy and Dominion Energy Gas’ effective tax rates reflect the impacts of a state legislative change enacted in the second quarter of 2018 that was retroactive to January 1, 2018.

In 2017, the Companies’ effective tax rates reflect the net benefit of remeasurement of deferred taxes resulting from the lower corporate income tax rate promulgated by the 2017 Tax Reform Act, and the completion of audits by state tax authorities that resulted in the recognition of previously unrecognized tax benefits. At December 31, 2016, Virginia Power’s unrecognized tax benefits included state refund claims for open tax years through 2011. Management believed settlement of the claims, including interest thereon, within the next twelve months was remote. In June 2017, Virginia Power received and accepted a cash offer to settle the refund claims. As a result of the settlement, Virginia Power decreased its unrecognized tax benefits by $8 million, and recognized a $2 million tax benefit, which impacted its effective tax rate. Also in connection with this settlement, Virginia Power realized interest income of $11 million, which is reflected in other income in the Consolidated Statements of Income.

The Companies’ deferred income taxes consist of the following:


	Dominion Energy						Virginia Power						Dominion Energy Gas
At December 31,	2019			2018			2019			2018			2019			2018
(millions)

Deferred income taxes:
Total deferred income tax assets	$	3,736		$	2,748		$	1,207			$ 1,054			$ 206		$	296
Total deferred income tax liabilities		9,883			7,813			4,058			4,020			1,494			1,626
Total net deferred income tax liabilities	$	6,147		$	5,065		$	2,851			$2,966			$1,288		$	1,330

Total deferred income taxes:
Plant and equipment, primarily depreciation method and basis differences	$	6,616		$	4,933		$	3,359		$	3,367		$	742		$	671
Excess deferred income taxes		(1,306	)		(993	)		(672	)		(678	)		(149	)		(156	)
Unrecovered NND Project costs		553			—			—			—			—			—
DESC rate refund		(169	)		—			—			—			—			—
Toshiba Settlement		(219	)		—			—			—			—			—
Nuclear decommissioning		909			815			290			273			—			—
Deferred state income taxes		863			626			302			284			199			203
Federal benefit of deferred state income taxes		(184	)		(132	)		(63	)		(60	)		(42	)		(43	)
Deferred fuel, purchased energy and gas costs		30			60			1			59			—			(1	)
Pension benefits		174			81			(153	)		(132	)		154			134
Other postretirement benefits		(37	)		(5	)		62			55			(6	)		(3	)
Loss and credit carryforwards		(1,832	)		(1,546	)		(280	)		(183	)		(1	)		(5	)
Valuation allowances		161			158			5			5			1			6
Partnership basis differences		823			1,135			—			—			423			570
Other		(235	)		(67	)		—			(24	)		(33	)		(46	)
Total net deferred income tax liabilities	$	6,147		$	5,065		$	2,851			$2,966			$1,288		$	1,330
Deferred Investment Tax Credits – Regulated Operations		130			51			111			51			—			—
Total Deferred Taxes and Deferred Investment Tax Credits	$	6,277		$	5,116		$	2,962			$3,017			$1,288		$	1,330

The most significant impact reflected for the 2017 Tax Reform Act is the adjustment of the net accumulated deferred income tax

liability for the reduction in the corporate income tax rate to 21%. In addition to amounts recognized in deferred income tax expense, the impacts of the 2017 Tax Reform Act decreased the accumulated deferred income tax liability by $3.1 billion at Dominion Energy, $1.9 billion at Virginia Power and $0.8 billion at Dominion Energy Gas at December 31, 2017, of which $0.4 billion is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. At Dominion Energy, the December 31, 2017 balance sheet reflected the impact of the 2017 Tax Reform Act on our regulatory liabilities which increased our regulatory liabilities by $4.2 billion, and created a corresponding deferred tax asset of $1.1 billion. At Virginia Power, our regulatory liabilities increased $2.6 billion, and created a deferred tax asset of $0.7 billion. At Dominion Energy Gas, regulatory liabilities increased $1.1 billion, of which $0.5 billion is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets and created a deferred tax asset of $0.3 billion, of which $0.1 billion is reflected in noncurrent liabilities of discontinued operations on the Consolidated Balance Sheets. These adjustments had no impact on 2017 cash flows.

At December 31, 2019, Dominion Energy had the following deductible loss and credit carryforwards:


	Deductible Amount		Deferred Tax Asset		Valuation Allowance			Expiration Period
(millions)
Federal losses		$ 1,361	$	286		$ —			2037
Federal investment credits		—		922		—			2035-2039
Federal production credits		—		126		—			2035-2039
Other federal credits		—		40		—			2035-2038
State losses		3,074		173		(57	)		2020-2038
State minimum tax credits		—		165		—			No expiration
State investment and other credits		—		144		(98	)		2020-2031
Total		$4,435	$	1,856		$(155)

At December 31, 2019, Virginia Power had the following deductible loss and credit carryforwards:


	Deductible Amount		Deferred Tax Asset		Valuation Allowance			Expiration Period
(millions)
Federal investment credits		$ —		$ 213		$ —			2035-2039
Federal production and other credits		—		58		—			2035-2039
State investment credits		—		9		(5	)		2024
Total		$ —		$ 280		$ (5	)

At December 31, 2019, Dominion Energy Gas had immaterial deductible loss carryforwards and less than $1 million of credit carryforwards that expire between 2032 and 2037.

A reconciliation of changes in the Companies’ unrecognized tax benefits follows:


	Dominion Energy									Virginia Power									Dominion Energy Gas
	2019			2018			2017			2019			2018			2017			2019		2018		2017
(millions)
Balance at January 1	$	44		$	38		$	64		$	2		$	4		$	13			$2	$	2		$9
Acquired unrecognized tax benefits		129	(1)		—			—			—			—			—			—		—		—
Increases-prior period positions		—			10			1			—			—			—			—		—		—
Decreases-prior period positions		—			—			(9	)		—			—			(1	)		—		—		—
Increases-current period positions		9			10			5			—			—			—			—		—		—
Settlements with tax authorities		(7	)		(6	)		(23	)		(2	)		(1	)		(8	)		—		—		(7	)
Expiration of statutes of limitations		—			(8	)		—			—			(1	)		—			—		—		—
Balance at December 31	$	175		$	44		$	38		$	—		$	2		$	4			$2	$	2		$2

(1)	Acquired unrecognized tax benefits reflect $106 million plus increases in prior period positions of $76 million and decreases in prior period positions of $53 million that were recorded through purchase accounting.

Certain unrecognized tax benefits, or portions thereof, if recognized, would affect the effective tax rate. Changes in these unrecognized tax benefits may result from remeasurement of amounts expected to be realized, settlements with tax authorities and expiration of statutes of limitations. For Dominion Energy and its subsidiaries, these unrecognized tax benefits were $141 million, $37 million and $31 million at December 31, 2019, 2018 and 2017, respectively. For Dominion Energy, the change in these unrecognized tax benefits increased income tax expense by $3 million and $5 million in 2019 and 2018, respectively, and decreased income tax expense by $9 million in 2017. For Virginia Power, these unrecognized tax benefits were less than $1 million, $2 million, and $3 million at December 31, 2019, 2018 and 2017, respectively. For Virginia Power, the change in these unrecognized tax benefits decreased income tax expense by $2 million in 2019 and 2018, respectively, and $6 million in 2017. For Dominion Energy Gas, these unrecognized tax benefits were $2 million, at December 31, 2019, 2018 and 2017, respectively. For Dominion Energy Gas, the change in these unrecognized tax benefits decreased income tax expense by less than $1 million in 2019 and 2018, respectively, and $5 million in 2017.

Dominion Energy participates in the IRS Compliance Assurance Process which provides the opportunity to resolve complex tax matters with the IRS before filing its federal income tax returns, thus achieving certainty for such tax return filing positions agreed to by the IRS. In 2018, Dominion Energy submitted carryback claims for specified liability losses involving prior tax years. These claims are currently subject to IRS examination. With the exception of these claims, the IRS has completed its audit of tax years through 2018. The statute of limitations has not yet expired for tax year 2014 and years after 2015. Although Dominion Energy has not received a final letter indicating no changes to its taxable income for tax year 2018, no material adjustments are expected. The IRS examination of tax year 2019 is ongoing.

It is reasonably possible that settlement negotiations and expiration of statutes of limitations could result in a decrease in unrecognized tax benefits in 2020 by up to $86 million for Dominion Energy and less than $1 million for Dominion Energy Gas. If such changes were to occur, other than revisions of the accrual for interest on tax underpayments and overpayments, earnings could increase by up to $23 million for Dominion Energy and less than $1 million for Dominion Energy Gas.

Otherwise, with regard to 2019 and prior years, Dominion Energy, Virginia Power and Dominion Energy Gas cannot estimate the range of reasonably possible changes to unrecognized tax benefits that may occur in 2020.

For each of the major states in which Dominion Energy operates, the earliest tax year remaining open for examination is as follows:


State	Earliest Open Tax Year
Pennsylvania (1)		2012
Connecticut		2016
Virginia (2)		2016
West Virginia (1)		2016
New York (1)		2015
Utah		2016
South Carolina		2012

(1)	Considered a major state for Dominion Energy Gas’ operations.

(2)	Considered a major state for Virginia Power’s operations.

The Companies are also obligated to report adjustments resulting from IRS settlements to state tax authorities. In addition, if Dominion Energy utilizes operating losses or tax credits generated in years for which the statute of limitations has expired, such amounts are generally subject to examination.